<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 June 30, 1999
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 June 30, 1999: 4,591,488
Total Pages: 26
<PAGE> 2
ZARING NATIONAL CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets,
June 30, 1999, June 30, 1998 (unaudited), and
December 31, 1998 3
Consolidated Statements of Operations (unaudited),
Three Months Ended June 30, 1999 and 1998 and
Six Months Ended June 30, 1999 and 1998 5
Consolidated Statement of Shareholders' Equity,
Six Months Ended June 30, 1999 (unaudited) 6
Consolidated Statements of Cash Flows,
Six Months Ended June 30, 1999 and 1998 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Qualitative and Quantitative Disclosure About Market Risk 24
PART II OTHER INFORMATION 25
SIGNATURES 26
<PAGE> 3
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNE 30,
--------------------------- DECEMBER 31,
1999 1998 1998
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents $ 14,362 $ 4,292 $ 15,699
Receivables:
Related parties 65 1,233 82
Notes 4,559 50 325
Manufactured housing rebates and other 1,850 220 885
Inventories:
Luxury site-built homes 52,759 47,834 32,365
Entry level homes 7,527 2,340 6,405
Retail distribution manufactured homes 3,427 1,286 2,746
Model homes 22,473 18,298 21,046
Land, development costs and finished lots 65,293 43,579 50,280
Property and equipment, net 7,928 8,098 8,108
HomeMax Sales Villages, net 11,747
8,255 12,336
Investments in and advances to unconsolidated
joint ventures 201 686 201
Future tax benefit 7,454 2,601 6,053
Cash surrender value of life insurance and other assets 5,160 5,588 5,566
Goodwill, net 258 2,302 259
-------- -------- --------
$205,063 $146,662 $162,356
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
--------------------------- ------------
1999 1998 1998
-------- -------- --------
<S> <C> <C> <C>
Liabilities:
Revolving credit facility $ 60,750 $ 45,863 $ 44,500
Manufactured housing floor plan facility 8,035 4,169 7,082
Term notes payable 46,617 23,289 41,446
Accounts payable 23,374 11,964 14,766
Accrued liabilities 8,202 7,062 6,829
Customer deposits 7,881 3,639 3,296
Deferred gains 2,476 -- --
-------- -------- --------
Total liabilities 157,335 95,986 117,919
-------- -------- --------
Minority interest in consolidated entities 3,375 1,241 1,654
Subordinated debt 4,000 -- --
-------- -------- --------
Commitments and contingencies
Shareholders' equity:
Preferred shares, no par value, 2,000,000 shares
authorized, none issued or outstanding -- -- --
Common shares, no par value, 18,000,000
shares authorized, 4,591,488, 4,765,788,
4,591,488 issued and outstanding at
June 30, 1999, June 30, 1998, and
December 31, 1998, respectively 24,957 25,131 24,957
Additional paid-in capital 4,286 5,551 4,286
Retained earnings 11,110 18,753 13,540
-------- -------- --------
Total shareholders' equity 40,353 49,435 42,783
-------- -------- --------
$205,063 $146,662 $162,356
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Luxury site-built homes $ 67,359 $ 66,926 $ 106,667 $ 116,803
Entry level homes 6,210 1,462 11,125 3,667
Retail distribution manufactured homes 5,641 2,047 10,214 2,977
Financial services 353 -- 668 --
----------- ----------- ----------- -----------
Total net revenues 79,563 70,435 128,674 123,447
----------- ----------- ----------- -----------
Expenses:
Cost of sales luxury site-built 53,517 55,142 85,538 97,721
homes
Cost of sales entry level homes 6,058 1,149 10,651 2,864
Cost of sales retail distribution
manufactured homes 5,035 1,845 8,929 2,632
Interest 1,762 1,594 3,404 2,587
Selling 6,146 5,528 10,493 9,847
General and administrative 6,707 5,554 13,081 10,238
Financial services 382 -- 682 --
----------- ----------- ----------- -----------
Total expenses 79,607 70,812 132,778 125,889
----------- ----------- ----------- -----------
Operating loss (44) (377) (4,104) (2,442)
Other income (expense):
Income from unconsolidated joint ventures -- 95 -- 145
Other, net (29) 42 25 73
----------- ----------- ----------- -----------
Loss before minority interest and
provision (credit) for income taxes (73) (240) (4,079) (2,224)
Minority interest in loss of consolidated entities 609 102 769 183
----------- ----------- ----------- -----------
Income (loss) before provision (credit)
for income taxes 536 (138) (3,310) (2,041)
Provision (credit) for income taxes 635 (97) (880) (888)
----------- ----------- ----------- -----------
Net loss $ (99) $ (41) $ (2,430) $ (1,153)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.02) $ (0.01) $ (0.53) $ (0.24)
=========== =========== =========== ===========
Weighted average shares outstanding 4,591,488 4,765,788 4,591,488 4,771,092
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ADDITIONAL RETAINED
SHARES ISSUED COMMON SHARES PAID-IN CAPITAL EARNINGS TOTAL
------------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 4,591,488 $ 24,957 $ 4,286 $ 13,540 $ 42,783
Net loss -- -- -- (2,430) (2,430)
--------- --------- --------- --------- ---------
BALANCE, June 30, 1999 4,591,488 $ 24,957 $ 4,286 $ 11,110 $ 40,353
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE> 7
<TABLE>
<CAPTION>
ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (2,430) $ (1,153)
Adjustments to reconcile net loss to cash used in operating
activities--
Depreciation and amortization 2,072 1,284
Income from unconsolidated joint ventures -- (145)
Minority interest in loss of consolidated entities (769) (183)
Change in assets and liabilities--
Future tax benefit (1,401) (1,543)
Receivables (771) 336
Inventories (38,637) (4,916)
Cash surrender value of life insurance and other assets 89 (672)
Accounts payable 8,608 3,511
Accrued expenses and deferred gains 1,959 770
Customer deposits 4,585 1,461
-------- --------
Net cash used in operating activities (26,695) (1,250)
-------- --------
Cash Flows from Investing Activities:
Additions to property and equipment, net (1,026) (7,812)
Proceeds from sale of property and equipment 41 --
Distributions received from unconsolidated joint ventures, net -- 81
-------- --------
Net cash used for investing activities (985) (7,731)
-------- --------
Cash Flows from Financing Activities:
Borrowings on notes payable 54,430 73,595
Repayments of notes payable (28,056) (64,340)
Net distributions paid to majority shareholder of affiliate (31) --
Purchase of common shares -- (142)
-------- --------
Net cash provided by financing activities 26,343 9,113
-------- --------
Increase (decrease) in cash and cash equivalents (1,337) 132
Cash and cash equivalents, beginning of period 15,699 4,160
-------- --------
Cash and cash equivalents, end of period $ 14,362 $ 4,292
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Interest, net of amounts capitalized $ 3,473 $ 2,494
======== ========
Income taxes $ 521 $ 594
======== ========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During the six months ended June 30, 1999, the Company received a note
receivable in exchange for the sale of an investment in the HomeMax, Inc.
subsidiary (Note 6):
Note receivable $ 4,411
Deferred gain (1,775)
Minority interest (2,521)
Accrued expenses (115)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE> 8
ZARING NATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(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). 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 Operating Properties, L.L.C. (Note
6); HomeMax, Inc. and its subsidiaries, HomeMax North Carolina, Inc.,
HomeMax Tennessee, Inc., HomeMax South Carolina, Inc., HomeMax Ohio,
Inc., HM Properties, Inc., HomeMax Indiana, LLC and HomeMax Kentucky,
LLC; Hearthside Homes, LLC; and Zaring Financial Services, LLC.
In October 1998, the Company increased its ownership of Blue Chip
Mortgage Company, LLC (Blue Chip) from 50% to 100%. Accordingly, the
financial results of Blue Chip subsequent to September 1998 are
consolidated with the Company's activities whereas activities of Blue
Chip prior to October 1998 were reported using the equity method of
accounting. Effective April 1, 1999, Blue Chip and Legacy Mortgage
Corporation were merged and renamed Zaring Financial Services, LLC.
The principal business of the Company's subsidiary, Zaring Homes, Inc.
(Zaring Homes) is the designing, constructing, marketing and selling of
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 commenced 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 and currently operates twelve sales villages
located in North Carolina, South Carolina and Kentucky. Effective March
15, 1999, the Company sold a 25% interest in HomeMax to American Homestar
Corporation (Note 6).
Effective October 1, 1997, the Company, through its subsidiary Hearthside
Homes, LLC (Hearthside), acquired substantially all of the net operating
assets of Legacy, Inc., an Indianapolis based builder of entry level
single family homes. The Company also acquired the stock of Legacy
Mortgage Corporation, an entity which originates, processes and sells
mortgages to third-party investors.
In June 1998, the Company's principal shareholder formed First Cincinnati
Leasing LLC (Leasing LLC) and First Cincinnati Land LLC (Land LLC) to
purchase and leaseback certain model homes and purchase certain
undeveloped land, as applicable. In March 1999, the Company's principal
shareholder formed First Cincinnati Leasing 99 LLC (Leasing 99 LLC) to
purchase and leaseback certain model homes. As a result of, among others,
the principal shareholder's control of Leasing LLC, Leasing 99 LLC and
Land LLC (collectively Majority Shareholder LLCs), the results of each
of these entities have been consolidated with the Company's activities
subsequent to their formation. The LLCs' initial capitalization and
related share of income is included as a component of minority interest
in the accompanying consolidated financial statements.
All significant intercompany transactions and balances have been
eliminated in consolidation.
8
<PAGE> 9
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, 1998 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 June 30, 1999
have been included. Operating results for the six months ended June 30,
1999, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
----------------------- -----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Capitalized interest,
beginning of period $ 2,116 $ 1,965 $ 2,139 $ 1,678
Interest incurred 2,168 1,790 3,787 3,070
Interest expensed (1,762) (1,594) (3,404) (2,587)
------- ------- ------- -------
Capitalized interest,
end of period $ 2,522 $ 2,161 $ 2,522 $ 2,161
</TABLE>
(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. Fifteen million dollars of the revolving credit
facility may be used for letters of credit.
The Company's notes payable consist of the following at June 30, 1999:
Revolving Credit Facility, payable to PNC Bank, as
agent, $72.5 million maximum available borrowings,
interest rate options of (a) the greater of the Prime
Rate or the Federal Funds rate plus .50% or the (b)
Euro-rate plus 1.50% to 2.30%, depending on the
Company's leverage ratio (borrowings outstanding at
June 30, 1999 are at 7.01%), expiring in July 2001. $ 60,750
========
Manufactured Housing Floor Plan Facility, payable to
Nations Bank, $12.9 million financing facility for
inventory and display models, interest at the Prime
Rate or the Euro-rate plus 2.35% (7.29% at June 30,
1999) and subject to repayment upon the earlier of
sale or the end of, in certain circumstances, six
months if held in inventory. Borrowings for the cost
of certain models held for more than twelve months
accrue interest at 10% and are subject to repayment
no later than twenty-four months after the date of
initial borrowing. $ 8,035
========
9
<PAGE> 10
Term Loans, payable to PNC Bank, as agent, borrowings
at interest rate options of (a) the greater of the
Prime Rate or the Federal Funds rate plus .50% or the
(b) Euro-rate plus 1.50% to 2.30%, depending on the
Company's leverage ratio (borrowings outstanding at
June 30, 1999 are at 6.96%), payable in quarterly
installments of $750 through April 2001. $ 6,000
Credit Agreement, payable to The Provident Bank,
$15.0 million available for working capital needs of
HomeMax, Inc. and subsidiaries, interest at the Prime
Rate plus 1%, (8.75% at June 30, 1999), payable in
three annual installments of $1.47 million commencing
March 15, 2000, entire balance payable at the earlier
of June 15, 2002 or 90 days following the sale of the
remaining 50% of HomeMax (Note 6), secured by $8.4
million of promissory notes, contingent interest
equal to a percentage of the gain, if any, upon the
sale of additional interest in HomeMax, as defined
per the Credit Agreement, $10.0 million guaranteed by
Zaring Homes, Inc. 15,000
Notes Payable to Former Shareholders, interest at
6.00% to 8.50%, payable in equal annual installments,
due December 1999 and August 2001. 1,378
Term Notes Payable to Banks, interest at 7.95%,
payable in quarterly installments of $437 through
June 2001. 3,613
Other Term Notes, interest at 7.00%, principal
installments of $2,425 due April 2003 and $692 due
April 2005. 2,841
Obligation of Zaring Financial Services:
Revolving line of credit payable to a bank, permitted
borrowings of up to $5.0 million, interest at the
Prime Rate minus 0.25%. No borrowings outstanding as
of June 30, 1999. __
Obligations of Leasing LLC, Land LLC and Leasing 99
LLC:
Notes payable by Leasing LLC to a bank, permitted
borrowings of up to $10.0 million, interest at LIBOR
plus 1.75% (6.99% at June 30, 1999) payable monthly,
secured by model homes and a personal guarantee,
payable upon sale of the models or in annual
installments through June 2001. 7,161
Notes payable by Land LLC to a bank, permitted
borrowings of up to $10.0 million, interest at LIBOR
plus 2.25% (7.21% at June 30, 1999) payable monthly,
secured by land and a personal guarantee, payable in
July 2001. 8,805
Notes payable by Leasing 99 LLC to a bank, permitted
borrowings of up to $3.0 million prior to September
30, 1999, interest at LIBOR plus 1.75% ( 6.99% at
June 30, 1999), payable monthly, secured by model
homes, a personal guarantee and a guarantee by
Leasing LLC, payable upon sale of the models or in
annual installments through March 2002.
1,819
-------
$46,617
=======
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 ratio of
debt to equity. As of June 30, 1999, the Company did not meet the debt to
equity covenants at the Zaring National level. These covenants do not
allow the application of cash as an offset against total liabilities. If
cash was applied in determination of total liabilities, the Company would
otherwise have been in compliance. The banks have not waived these
covenant violations. Management intends to secure waivers or otherwise
amend certain of the loan provisions currently included in the credit
agreements to enable prospective compliance. The banks have not waived
their right to accelerate payments under the agreements for any period.
10
<PAGE> 11
The Company is contingently liable under letters of credit of approximately $8.6
million issued as a result of lot and land acquisition and development
activities through June 30, 1999.
11
<PAGE> 12
(4) EARNINGS (LOSS) PER COMMON SHARE-
--------------------------------
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 477,482 and 333,277 shares of common stock at an
average exercise price of $9.32 and $10.07 per share were outstanding as
of June 30, 1999 and 1998, respectively, but were not included in the
computation of earnings (loss) per share since the options' exercise
prices were greater than the average market price of the common shares.
In addition, inclusion of any options in the computation of diluted
earnings per share would be anti-dilutive due to the net loss incurred.
Since there are no dilutive securities, basic and diluted earnings (loss)
per share are identical thus a reconciliation of the numerator and
denominator is not necessary.
(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) HomeMax, Inc. Joint Venture with American Homestar Corporation-
--------------------------------------------------------------
Effective March 15, 1999, after assignment of certain obligations and
other preclosing activities, the Company sold a 25% interest in HomeMax
to American Homestar Corporation (American Homestar) for a note
receivable of approximately $4.4 million. The note receivable is to be
paid in three annual installments commencing March 15, 2000 and accrues
interest payable quarterly, at prime. The amended and restated securities
purchase agreement includes the following terms:
- American Homestar issued a $4.0 million subordinated convertible
loan to HomeMax concurrent with the sale. This subordinated loan
accrues interest at 6.0%, payable quarterly, while the principal is
payable on June 15, 2002 unless accelerated as a result of available
cash flow of HomeMax, as defined. The subordinated loan is
convertible into an additional 25% of HomeMax at the discretion of
American Homestar.
- The Company retained a $4.0 million receivable due from HomeMax
which accrues interest at 6.0% and is payable quarterly. The $4.0
million of principal is payable on June 15, 2002, unless accelerated
as a result of available cash flow of HomeMax, as defined.
- The Company agreed to pay up to $3.0 million in connection with
certain annual lease obligations.
- Subsequent to the sale, model home inventory will be replaced
with the inventory of American Homestar. Costs of replacement, if
any, will be provided by the Company and American Homestar in
amounts up to $1.0 million and $0.5 million, respectively.
- Subsequent to the sale, the Company and American Homestar each
agreed to provide up to $50,000 per quarter to support advertising
and promotional initiatives.
- American Homestar agreed to provide certain management and
consulting services for up to three years for compensation of at
least $0.5 million plus an additional fee of up to $750,000 based
upon quarterly losses during the first four quarters following
closing.
- American Homestar and the Company each agreed to provide working
capital loans of up to $0.5 million to HomeMax which will accrue
interest at prime.
12
<PAGE> 13
- The Company has the option to sell and American Homestar has the
option to buy 50% of HomeMax within three years at a defined price.
- The Company received an option, which expires on March 15, 2004, to
purchase up to 150,000 shares of common stock of American Homestar
with an exercise price of $18.00 per share.
The accompanying financial statements include the results of HomeMax for
all applicable periods. Losses for the period subsequent to the
transaction allocable to American Homestar are included as a component of
minority interest in loss of consolidated entities in the accompanying
consolidated statements of operations. Similarly, American Homestar's
investment, net of allocable losses, is included as a component of
minority interest in consolidated entities in the accompanying balance
sheets. The gain resulting from the Company's sale of a 25% interest in
HomeMax to American Homestar ($1,775) has been deferred until, among
other factors, American Homestar converts its subordinated note into an
additional 25% equity interest in HomeMax.
(7) Income Taxes
------------
Through March 15, 1998, the operating results of HomeMax were included in
the consolidated tax returns of the Company. Subsequent to March 15,
1999, HomeMax is not included in the Company's consolidated return.
Accordingly, losses of HomeMax subsequent to March 15, 1999 have not been
benefitted for financial reporting purposes after giving effect to
applicable valuation allowances.
(8) New Pronouncements-
------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). This statement established accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments imbedded in other contracts) be recorded on the balance sheet
as either an asset or liability measured at its fair value. This
statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after
June 15, 2000. Upon adoption of this statement, the Company anticipates
no impact on its reported consolidated financial position, results of
operations, cash flows or related disclosures.
(9) Reclassifications-
-----------------
Certain amounts in the consolidated interim financial statements for 1998
have been reclassified to conform to the 1999 presentation.
13
<PAGE> 14
(10) Segment Information-
--------------------
The following tables set forth, for the periods indicated, certain
segment information regarding the Company's operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(dollars in thousands)
Zaring Homes, Inc.
Luxury Site-Built Homes
<S> <C> <C> <C> <C>
Revenues $ 66,240 $ 66,926 $ 105,252 $ 116,803
Cost of sales 52,506 55,142 84,259 97,721
Interest, net 1,885 1,892 3,946 3,412
Selling, general and administrative expenses 8,650 7,082 15,430 12,942
--------- --------- --------- ---------
Operating income 3,199 2,810 1,617 2,728
Other income (expense) (74) 6 (83) 14
--------- --------- --------- ---------
Pretax Luxury Site-Built Income 3,125 2,816 1,534 2,742
Hearthside Homes, LLC
Entry Level Homes
Revenues 6,210 1,462 11,125 3,667
Cost of sales 6,058 1,149 10,651 2,864
Interest, net 240 104 459 121
Selling, general and administrative expenses 592 507 1,111 959
--------- --------- --------- ---------
Operating loss (680) (298) (1,096) (277)
Other income 3 15 6 28
Pretax Entry Level Loss (677) (283) (1,090) (249)
Financial Services
Revenues 353 -- 668 --
Expenses 382 -- 682 --
--------- --------- --------- ---------
Operating loss (29) -- (14) --
Other income 4 -- 45 --
--------- --------- --------- ---------
Pretax Financial Services Income (Loss) (25) -- 31 --
HomeMax, Inc.
Retail Distribution Manufactured Homes
Revenues 5,641 2,047 10,214 2,977
Cost of sales 5,035 1,845 8,929 2,632
Interest, net 368 597 913 799
Selling, general and administrative expenses 2,458 2,713 4,858 4,820
--------- --------- --------- ---------
Operating loss (2,220) (3,108) (4,486) (5,274)
Other income 26 16 44 17
Minority interest 542 102 599 183
--------- --------- --------- ---------
Pretax Retail Distribution Loss (1,652) (2,990) (3,843) (5,074)
Majority Shareholder LLC's
Revenues 1,119 -- 1,415 --
Cost of sales 1,012 -- 1,279 --
Interest, net 272 -- 537 --
Selling, general and administrative expenses 71 -- 95 --
--------- --------- --------- ---------
Operating loss (236) -- (496) --
Other income 169 -- 326 --
Minority interest 67 -- 170 --
--------- --------- --------- ---------
-- -- -- --
Corporate
Interest income from subsidiaries, net 1,004 999 2,452 1,745
General and administrative expenses (1,239) (680) (2,394) (1,205)
--------- --------- --------- ---------
Income (loss) before income taxes 536 (138) (3,310) (2,041)
Provision (credit) for income taxes 635 (97) (880) (888)
--------- --------- --------- ---------
Net Loss $ (99) $ (41) $ (2,430) $ (1,153)
========= ========== ========= =========
</TABLE>
14
<PAGE> 15
Other pertinent information regarding the Company's segment operations are as
follows:
<TABLE>
<CAPTION>
Zaring
Homes, Inc. Hearthside
Luxury Homes, LLC HomeMax, Inc. Majority
Site-Built Entry Level Financial Retail Distribution Shareholder
Homes Homes Services Manufactured Homes LLCs Corporate Total
--------------------------------------------------------------------------------------------------
Segment assets:
<S> <C> <C> <C> <C> <C> <C> <C>
As of June 30, 1999 $121,011 $ 13,665 $ 264 $ 24,153 $ 18,745 $ 76,199 $254,037
As of December 31, 1998 91,110 10,355 113 23,152 14,998 16,852 156,580
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF SEGMENT ASSETS TO TOTAL ASSETS:
AS OF JUNE 30, 1999 AS OF DECEMBER 31, 1998
------------------- -----------------------
<S> <C> <C>
Total segment assets $254,037 Total segment assets $156,580
Elimination of inter-entity Elimination of inter-entity
investments (63,336) investments (9,923)
Cash and cash equivalents* 14,362 Cash and cash equivalents* 15,699
-------- --------
$205,063 $162,356
======== ========
</TABLE>
* Management excludes cash and cash equivalents from assessing a segment's
operating performance.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 homes, retail
distribution manufactured homes and reflect the cyclical nature of the housing
industry.
The Company reported consolidated net revenues of $79.6 million for the quarter
ended June 30, 1999, compared to $70.4 million for the same quarter in 1998. The
net loss for the second quarter of 1999 was ($99,000) or ($0.02) per share,
compared to a net loss of ($41,000) or ($0.01) per share for the second quarter
of 1998.
For the six months ended June 30, 1999, consolidated revenues were $128.7
million compared to $123.4 million for the six months ended June 30, 1998. The
net loss for the six months ended June 30, 1999 was ($2.4 million) or ($ 0.53)
per share, compared to ($1.2 million) or ($0.24) per share for the six months
ended June 30, 1998.
The following tables set forth, for the periods indicated, certain information
regarding the Company's operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(dollars in thousands)
Zaring Homes, Inc.
Luxury Site-Built Homes
<S> <C> <C> <C> <C>
Revenues $ 66,240 $ 66,926 $ 105,252 $ 116,803
Cost of sales 52,506 55,142 84,259 97,721
Interest, net 1,885 1,892 3,946 3,412
Selling, general and administrative
expenses 8,650 7,082 15,430 12,942
--------- --------- --------- ---------
Operating income 3,199 2,810 1,617 2,728
Other income (expense) (74) 6 (83) 14
--------- --------- --------- ---------
Pretax Luxury Site-Built Income 3,125 2,816 1,534 2,742
Hearthside Homes, LLC
Entry Level Homes
Revenues 6,210 1,462 11,125 3,667
Cost of sales 6,058 1,149 10,651 2,864
Interest, net 240 104 459 121
Selling, general and administrative
expenses 592 507 1,111 959
--------- --------- --------- ---------
Operating loss (680) (298) (1,096) (277)
Other income 3 15 6 28
--------- --------- --------- ---------
Pretax Entry Level Loss (677) (283) (1,090) (249)
Financial Services
Revenues 353 - 668 -
Expenses 382 - 682 -
--------- --------- --------- ---------
Operating loss (29) - (14) -
Other income 4 - 45 -
--------- --------- --------- ---------
Pretax Financial Services Income (Loss) (25) - 31 -
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
HomeMax, Inc.
Retail Distribution Manufactured Homes
<S> <C> <C> <C> <C>
Revenues $ 5,641 $ 2,047 $ 10,214 2,977
Cost of sales 5,035 1,845 8,929 2,632
Interest, net 368 597 913 799
Selling, general and administrative
expenses 2,458 2,713 4,858 4,820
-------- -------- -------- --------
Operating loss (2,220) (3,108) (4,486) (5,274)
Other income 26 16 44 17
Minority interest 542 102 599 183
-------- -------- -------- --------
Pretax Retail Distribution Loss (1,652) (2,990) (3,843) (5,074)
Majority Shareholder LLCs
Revenues 1,119 - 1,415 -
Cost of sales 1,012 - 1,279 -
Interest, net 272 - 537 -
Selling, general and administrative
expenses 71 - 95 -
-------- -------- -------- --------
Operating loss (236) - (496) -
Other income 169 - 326 -
Minority interest 67 - 170 -
-------- -------- -------- --------
- - - -
Corporate
Interest income from subsidiaries, net 1,004 999 2,452 1,745
General and administrative expenses (1,239) (680) (2,394) (1,205)
-------- -------- -------- --------
Income (loss) before income taxes 536 (138) (3,310) (2,041)
Provision (credit) for income taxes 635 (97) (880) (888)
-------- -------- -------- --------
Net Loss $ (99) $ (41) $ (2,430) $ (1,153)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(dollars in thousands)
LUXURY SITE-BUILT HOMES
Operating data:
Units
<S> <C> <C> <C> <C>
New Orders (2) 351 191 656 527
Closings (1) 231 262 372 462
Backlog (3) 540 305 540 305
Average revenue per closing $ 284 $ 252 $ 278 $ 251
Average value of new order sales $ 277 $ 266 $ 280 $ 258
Sales value of backlog $152,105 $ 80,574 $152,105 $ 80,574
ENTRY LEVEL HOMES
Operating data:
Units
New Orders (2) 55 11 121 50
Closings (1) 50 12 89 31
Backlog (3) 84 43 84 43
Average revenue per closing $ 124 $ 130 $ 125 $ 121
Average value of new order sales $ 127 $ 124 $ 129 $ 127
Sales value of backlog $ 11,009 $ 5,654 $ 11,009 $ 5,654
RETAIL DISTRIBUTION MANUFACTURED HOMES
Operating data:
Units
New Orders (2) 64 90 188 163
Closings (1) 102 41 179 60
Backlog (3) 176 143 176 143
Average revenue per closing $ 53 $ 50 $ 56 $ 49
Average value of new order sales $ 40 $ 55 $ 59 $ 55
Sales value of backlog $ 11,931 $ 8,344 $ 11,931 $ 8,344
</TABLE>
(1) Revenue from a sale is recognized upon the closing of the sale.
(2) New orders represent total new home orders received during the period, net
of cancellations.
(3) Backlog includes new orders which have not yet closed.
17
<PAGE> 18
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998
ZARING HOMES, INC., LUXURY SITE-BUILT HOMES- Net revenues for the three months
ended June 30, 1999 decreased 1.0% from the same period 1998. Zaring Homes
delivered 231 homes in the second quarter of 1999, compared to 262 homes in
1998, an 11.8% decrease. Net revenues for the six months ended June 30, 1999
decreased 9.9% from the same period in 1998. Zaring Homes delivered 372 homes
during the six months ended June 30, 1999, compared to 462 homes in the
corresponding period in 1998, a 19.5% decrease. The overall decreases in home
closings were directly attributable to the slowing of net sales during the
fourth quarter of 1998 and the first quarter of 1999 which impacted closings
during the first and second quarters of 1999. New orders during the second
quarter of 1999 increased 83.7% to 351 units from 191 units in the second
quarter of 1998. New orders increased 24.5% in the first six months of 1999 from
527 units in the first six months of 1998 to 656 units. As a result of the
increase in new orders and the closings above, backlog at June 30, 1999 is
540 units, up 235 units or 77% from June 30, 1998.
Gross profit, excluding net interest expense increased $2.0 million or 16.6% in
the second quarter of 1999 as compared to the second quarter of 1998. Gross
profit increased $1.9 million or 10.0% for the six months ended June 30, 1999 as
compared to the corresponding period in 1998. Gross profit as a percentage of
revenues increased 3.1% to 20.7% of revenues during the second quarter of 1999.
The gross profit percentage for the six-month period ended June 30, 1999 was
20.0% as compared to 16.3% for the corresponding period in 1998. The increase in
gross profit is attributable to, among other factors, the closing of contracts
with higher margins which resulted from a change in pricing strategy late in
1998. Interest expense decreased by a nominal amount during the three months
ended June 30, 1999 as compared to the same period in 1998. Interest expense for
the six months ended June 30, 1999 increased $534,000 as compared to the
corresponding period in 1998 due to larger inventory investments in market
homes, land development costs and increases in the number of sold units in
process.
Selling expenses for the three and six month periods ended June 30, 1999
increased $375,000 and $132,000, respectively, as compared to the corresponding
periods in 1998. As a percentage of revenues, selling expenses increased to 7.4%
during the three-month period ended June 30, 1999 from 6.8% during the
three-month period ended June 30, 1998. As a percentage of revenues, selling
expenses increased to 7.8% during the six-month period ended June 30, 1999 from
6.9% for the corresponding period in 1998. These increases are due to increased
staffing levels and design center expenses coupled with lower revenues. General
and administrative expenses increased $1.2 million in the second quarter of 1999
compared to the second quarter of 1998 and $2.4 million in the six months ended
June 30, 1999, compared to the six months ended June 30, 1998. These increases
are primarily attributable to increased corporate staffing, compensation
increases and related expenses coupled with increased technology costs. As a
percentage of revenue, general and administrative expenses increased to 5.7% in
the second quarter of 1999 from 3.8% during the second quarter 1998 and to 6.9%
for the six months ended June 30, 1999 from 4.2% during the same period in 1998.
On a combined basis, selling, general and administrative expenses increased $1.6
million, or 22.1% in the second quarter 1999 compared to the second quarter of
1998 and $2.5 million, or 19.2% for the six months ended June 30, 1999, compared
to the corresponding period in 1998. As a percentage of revenues, selling,
general and administrative expenses increased to 13.1% for the three months
ended June 30, 1999 from 10.6% for the three months ended June 30, 1998 and to
14.7% for the six months ended June 30, 1999 from 11.1% for the six months ended
June 30, 1998. The increase as a percentage of revenues is due to the timing of
closings as well as the increases in personnel and other expenses as noted.
As a result of the foregoing, the Zaring Homes segment reported pretax income of
$3.1 million or 4.7% of net revenues in the second quarter of 1999, an increase
of $309,000 or 11.0% from the same period in 1998. For the six month period
ended June 30, 1999, Zaring Homes reported pretax income of $1.5 million or 1.5%
of net revenues, a decrease of $1.2 million or 44.1% from the same period in
1998.
HEARTHSIDE HOMES, LLC, ENTRY LEVEL SITE-BUILT HOMES- Net revenues for the three
and six months ended June 30, 1999 were $6.2 million and $11.1 million,
respectively, compared to $1.4 million and $3.6 million , respectively, for the
corresponding periods in 1998. Hearthside Homes delivered 50 and 89 homes,
respectively, in the three and six months ended June 30, 1999, as compared to 12
and 31 homes, respectively, for the three and six months ended
18
<PAGE> 19
June 30, 1998. The increase in homes closed is directly attributable to the
expansion into Louisville, Kentucky and Nashville, Tennessee during the fourth
quarter of 1998.
Gross profit, excluding net interest expense was $152,000, or 2.5% and $474,000,
or 4.3% for the three and six months ended June 30, 1999, respectively as
compared to $313,000, or 21.4% and $803,000, or 21.9% for the corresponding
periods in 1998. The overall gross profit decrease for the three and six month
periods ended June 30, 1999 is a result of converting operations in all markets
to produce site-built homes rather than precision built homes, which were
determined to have a higher cost per unit to produce and reducing sales prices
on existing precision built homes to expedite the conversion. Selling, general
and administrative expenses were $592,000, or 9.5% of revenues and $1.1 million,
or 10.0% of revenues for the three and six months ended June 30, 1999,
respectively, versus 34.6% and 26.2% of revenues for the three months and six
months ended June 30, 1998. The decrease as a percentage of revenues is a result
of the increase in closing revenues which cover such expenses, offset by the
cost of the expansion into Nashville and Louisville. Interest expense was
$240,000 and $459,000 for the three and six months ended June 30, 1999,
respectively, representing significant increases from the corresponding periods
in 1998 due mainly to increased investments in model and market homes as well as
the number of sold units in process.
As a result of the foregoing, the Hearthside segment reported pretax losses of
$677,000 and $1.1 million for the three and six months ended June 30, 1999,
respectively, as compared to pre-tax losses of $283,000 and $249,000 for the
three and six months ended June 30, 1998, respectively.
HOMEMAX, INC., RETAIL DISTRIBUTION MANUFACTURED HOMES- Net revenues for the
three months ended June 30, 1999 increased $3.6 million from $2.0 million in the
second quarter of 1998 to $5.6 million in the second quarter of 1999. Net
revenues for the six months ended June 30, 1999 increased $7.2 million from $3.0
million for the six months ended June 30, 1998 to $10.2 million for the six
months ended June 30, 1999. HomeMax closed 102 units in the second quarter of
1999, an increase of 149% from the 41 units closed in the same period of 1998.
HomeMax closed 179 units in the six-month period ended June 30, 1999, an
increase of 198% from the 60 units closed in the same period of 1998. The
overall increase for the three and six month periods is due mainly to the fact
that 12 sales villages were open during the six month period ended June 30, 1999
compared to less than 7 sales villages being open during the period ending June
30, 1998.
Gross profit, excluding net interest expense was $606,000 or 10.7% for the three
months ended June 30, 1999 compared to $202,000 or 9.9% for the same period in
1998. Gross profit was $1.3 million or 12.6% for the six months ended June 30,
1999 compared to $345,000 or 11.6% for the same period in 1998. This increase in
gross profit is primarily due to a change in pricing strategy in the fourth
quarter of 1998. Interest expense decreased $229,000 from 29.2% of revenues in
the second quarter of 1998 to 6.5% of revenues in 1999. The decrease is a result
of the sale of 25% of HomeMax to American Homestar which took place March 15,
1999. In conjunction with the sale, certain intercompany debt was converted to
equity with the remaining debt and the subordinated note payable to American
Homestar carrying interest at lower rates. Interest expense increased $114,000
in the six months ended June 30, 1999 compared to the same period in 1998. As a
percentage of revenues, interest expense decreased to 8.9% for the six months
ended June 30, 1999 from 26.8% in 1998. The decrease as a percentage of revenues
is due to the transaction discussed above coupled with higher revenues.
Selling, general and administrative expenses for HomeMax totaled $2.5 million
and $4.9 million for the three and six months ended June 30, 1999, respectively,
compared to $2.7 million and $4.8 million for the same periods in 1998. Selling
expenses were $810,000 or 14.4% of revenues in the second quarter of 1999
compared to $709,000, or 34.6% of revenues for the same period in 1998. Selling
expenses were $1.6 million or 15.7% of revenues for the six-month period ended
June 30, 1999 compared to $1.5 million or 50% of revenues for the same period in
1998. This decrease as a percentage of revenues is primarily due to the increase
in closing revenues and the maturity of the sales center operations. General and
administrative expenses were $1.6 million or 28.4% of revenues in the second
quarter of 1999 versus $2.0 million or 97.7% of revenues for the same period in
1998. General and administrative expenses were $3.3 million or 32.3% of revenues
for the six-month period ended June 30, 1999 versus 110% of revenues for the
same period in 1998. The decrease as a percentage of
19
<PAGE> 20
revenues is due to specific cost containment efforts in the fourth quarter of
1998 and the first quarter of 1999 coupled with the increase in closing
revenues.
As a result of the foregoing, HomeMax reported a pretax loss of $1.7 million in
the second quarter of 1999 compared to $3.0 million in the second quarter of
1998 and a pretax loss of $3.8 million for the six months ended June 30, 1999
compared to $5.0 million for the corresponding period in 1998.
FINANCIAL SERVICES - The financial services segment reported revenues of
$353,000 and $668,000 for the three and six months ended June 30, 1999. After
deducting $382,000 and $682,000 in expenses associated with the mortgage company
operations for the three and six months ended June 30, 1999, respectively,
offset by miscellaneous other income, the financial services segment reported a
pretax loss of $25,000 for the three months ended June 30, 1999 and pretax
income of $31,000 for the six months ended June 30, 1999.
MAJORITY SHAREHOLDER LLCS - First Cincinnati Leasing LLC (Leasing LLC), First
Cincinnati Leasing 99 LLC and First Cincinnati Land LLC are reported as
"Majority Shareholder LLCs". Leasing LLC closed four and five homes during the
three and six months ended June 30, 1999, respectively, for total revenues of
$1.1 million and $1.4 million, respectively. Interest expense of $272,000 and
$537,000 during the three and six months ended June 30, 1999, respectively,
represents interest incurred related to model home and undeveloped land
holdings. Other income of $169,000 and $326,000 represents model home rental
income for the three and six months ended June 30, 1999.
OTHER OPERATING RESULTS - Interest income from subsidiaries represents the
allocation of interest cost to the subsidiaries. Corporate general and
administrative expenses were $1.2 million and $2.4 million for the three and
six-month periods ended June 30, 1999, respectively, as compared to $680,000 and
$1.2 million for the three and six-month periods ended June 30, 1998. The
overall increase represents additional corporate staff, personnel costs as well
as technology and administrative expenses necessary to support the
organization's various initiatives.
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 Year 2000 compliance. 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, Hearthside, HomeMax and all other Company
subsidiary organizations.
20
<PAGE> 21
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.
Step one of the processes involves an inventory of all hardware, software and
suppliers that could entail risk to the Company because of date sensitivity. The
result of this process 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 Step two of the process, risk assessment.
Step 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 Step
three of the project.
Step 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 continues to review these action plans and each plan will
have its own timeline and program for completion.
The final step of this process (Step four) involves testing of all relevant
systems to verify that any remediation efforts were successful in making the
systems compliant with the Year 2000 issue.
TIME TO COMPLETE THE YEAR 2000 COMPLIANCE PROGRAM--As of June 30, 1999, the
Company has entered into Step three of the Compliance Program, with the
exception of the implementation of the core management information system, which
is complete. In addition, several initiatives in regards to Step four have
commenced. The timeline for completion of all four phases of the program, in all
operations of the Company, is September 30, 1999. This was revised from an
estimated completion date of July 31, 1999 to permit the Company the appropriate
time to finalize testing procedures. The Company believes 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 was complete as of March 31, 1999. Year 2000
compliant core accounting, purchasing, payables and management information
system was installed in all of the Company's relevant operations, and the
non-compliant system was decommissioned. This project met all major milestones
to date and is within the budgeted amount of $3.0 million. As of June 30, 1999,
a total of $2.4 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 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 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. Compliance Program review costs
are
21
<PAGE> 22
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.
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 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 September 30, 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
September 1999 in finalizing its 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 September 30, 1999.
CAPITAL RESOURCES AND LIQUIDITY
Net cash used in operating activities increased from a $1.3 million use of cash
during the six months ended June 30, 1998 to a $26.7 million use of cash during
the six months ended June 30, 1999. This overall increase in the use of cash is
due mainly to additional investments in luxury site-built homes as well as
investments in land developments and developed lots which aggregate $38.6
million, tempered by financing provided through trade payables, accruals and
customer deposits of $15.2 million. The increase in inventories is primarily
attributable to response to market demands for the Company's housing products
and efforts to maintain appropriate levels of land and finished lots.
Net cash used for investing activities decreased $6.7 million from $7.7 million
during the six months ended June 30, 1998 to $985,000 during the six months
ended June 30, 1999. This decrease is directly related to the fact that HomeMax
sales villages which were in the development phase in 1998 were substantially
complete and operating commencing in 1998.
Net cash provided by financing activities for the six months ended June 30, 1999
was $26.3 million, an increase of $17.2 million from the same period in 1998.
This increase is due to net borrowings which were primarily used to finance
additional investments in inventories and support working capital needs.
The Company's financing is comprised of:
- A $72.5 million bank revolving credit facility of which $60.8 million was
outstanding and $7.6 million was available (as per the agreement) as of
June 30, 1999
- $17.8 million of term facilities provided to the Land and Leasing LLC's
controlled by the Company's chairman
- $9.6 million of bank term loans
- A $5.0 million bank revolving credit arrangement of which $5.0 million was
available as of June 30, 1999
22
<PAGE> 23
- - Other term loans of $4.2 million
- - Financing for HomeMax provided through:
- - A bank floor plan credit facility of which $8.0 million was
outstanding as of June 30, 1999
- - A $15.0 million bank term facility
- - A $4.0 million subordinated convertible note payable to American
Homestar
- - Financing commitments by the Company and American Homestar of
approximately $4.6 million and $1.1 million, respectively
As of June 30, 1999, the Company did not meet the debt to equity covenants at
the Zaring National level. These covenants do not allow the application of cash
as an offset against total liabilities. If cash was applied in the determination
of total liabilities, the Company would otherwise have been in compliance. The
banks have not waived these violations as of June 30, 1999. Management intends
to secure waivers or otherwise amend certain of the loan provisions currently
included in the credit agreements to enable continued compliance. However, in
the event such waivers or amendments are required and not received, the bank may
have the opportunity to accelerate the scheduled payments stipulated per the
agreements. In the event such payments were accelerated, the Company may be
unable to secure financing on comparable terms and conditions.
Through June 30, 1999, the Company had not expanded its preexisting bank credit
facilities given its efforts to finance its growth through profitable
operations, asset management initiatives, financing provided to the Land and
Leasing LLC's controlled by the Company's chairman, as well as other financing
sources available to the Company. However, the Company intends to closely
monitor current and prospective capital requirements and secure additional bank
credit facilities or expansions to existing bank credit facilities.
LOT COMMITMENTS- In the aggregate, as of June 30, 1999, Zaring Homes owned, had
the ability to develop or purchase, or had under contract 4,896 lots. Of this
amount, Zaring Homes owned approximately 793 lots and undeveloped land,
including land owned by Land LLC, which will be developed into approximately 905
lots. Zaring also had under contract, subject to the satisfaction of Zaring's
purchase contingencies and exercising of option agreements, 1,186 lots and
undeveloped land which, if purchased, would be developed into approximately
2,102 lots. Of the 1,186 lots under contract, Zaring Homes is committed to 391
lots.
As of June 30, 1999, Hearthside Homes owned, had the ability to purchase, or had
under contract 1,048 lots. Of this amount, Hearthside owned approximately 167
lots and had under contract, subject to the satisfaction of Hearthside's
purchase contingencies and exercising of option agreements, 881 lots, of which
Hearthside is committed to 96 lots.
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 - Certain statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" are "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements involve known and unknown risks, uncertainties and
other factors that may cause results to differ materially. Such risks,
uncertainties and other factors include, but are not limited to, changes in
general real estate, general economic and other conditions, fluctuations in
interest rates, increases in raw materials and labor costs, levels of
23
<PAGE> 24
competition and other factors described in Zaring National Corporation's Form
10-Q for the quarter ended September 30, 1998.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
There were no material changes in the qualitative and quantitative disclosures
about market risk as of June 30, 1999 from that presented in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1998.
24
<PAGE> 25
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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 29, 1999, the Company held the Annual Meeting of Shareholders
at which the shareholders voted upon the election of six directors for
one-year terms expiring 2000. The results of the voting on these
matters were as follows:
Nominee Votes For Votes Against Withheld
------- -------- ------------- --------
Allen G. Zaring III 4,439,867 12,504 --
John R. Brooks 4,439,955 12,416 --
Murat H. Davidson 4,439,955 12,416 --
Daniel W. Geeding 4,440,055 12,316 --
Robert N. Sibcy 4,440,055 12,316 --
John H. Wyant 4,439,955 12,416 --
At the meeting, the shareholders confirmed the appointment of
Arthur Andersen, LLP as independent auditors of the Company
for fiscal 1999. There were 4,437,514 votes cast in favor,
12,731 votes cast in opposition and 2,126 abstentions.
ITEM 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
10.11 Second Amended and Restated Credit Agreement by and among
Zaring Homes, Inc. and Zaring holdings, Inc. and Hearthside Homes,
LLC as borrowers and guarantors and Zaring National Corporation and
Zaring Homes of Indiana, L.L.C. and Zaring Homes Kentucky, LLC, as
guarantors and the banks party hereto and PNC Bank, National
Association, as agent and Bank of America NT&SA and Bank One,
Michigan, as co-agents dated as of June 28, 1999.
10.20 Loan and Security Agreement between The Provident Bank and
Zaring National Corporation, dated as of March 31, 1999.
10.21 Term Promissory Note between The Provident Bank and Zaring
National Corporation.
10.22 Loan and Security Agreement between First Cincinnati Leasing
99 LLC and The Huntington National Bank.
10.23 Promissory Note between First Cincinnati Leasing 99 LLC and
The Huntington National Bank.
27 Financial Data Schedule
(b) During the second quarter ended June 30, 1999, the Company filed a
Form 8-K/A reporting information under Item 2 regarding the
completion of an agreement whereby American Homestar Corporation
acquired 25% of the outstanding common stock of HomeMax, Inc.
25
<PAGE> 26
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: August 16, 1999 By: /s/Allen G. Zaring III
----------------------
Allen G. Zaring III
Chairman of the Board, Chief Executive Officer
Date: August 16, 1999 By: /s/Ronald G. Gratz
------------------
Ronald G. Gratz
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and Accounting Officer)
26
<PAGE> 1
Exhibit 10.11
$72,500,000 REVOLVING CREDIT
$15,000,000 TERM LOAN
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
by and among
ZARING HOMES, INC.
and
ZARING HOLDINGS, INC.
and
HEARTHSIDE HOMES, LLC, as Borrowers and Guarantors
and
ZARING NATIONAL CORPORATION
and
ZARING HOMES OF INDIANA, L.L.C.
and
ZARING HOMES KENTUCKY, LLC, as Guarantors
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, as Agent
and
<PAGE> 2
BANK OF AMERICA NT&SA
and
BANK ONE, MICHIGAN, as Co-Agents
Dated as of June 28, 1999
- 2 -
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C> <C>
1. CERTAIN DEFINITIONS......................................................................................2
1.1. Certain Definitions.............................................................................2
1.2. Construction...................................................................................20
1.3. Accounting Principles..........................................................................21
2. REVOLVING CREDIT AND SWING LOAN FACILITIES..............................................................21
2.1. The Commitments................................................................................21
(a) Revolving Credit Commitments..........................................................21
(b) Swing Loan Commitment.................................................................21
2.2. Nature of the Banks' and the Borrowers' Obligations............................................22
2.3. Certain Fees...................................................................................22
(a) Facility Fees; Extension Fee..........................................................22
(b) Commitment Fee........................................................................22
2.4. Permanent Reductions of Commitments............................................................23
(a) Voluntary Reductions..................................................................23
(b) Effect of Reductions..................................................................23
2.5. Loan Requests..................................................................................23
(a) Revolving Credit Loan Requests........................................................23
(b) Swing Loan Requests...................................................................24
2.6. Making Loans...................................................................................24
(a) Revolving Credit Loans................................................................24
(b) Swing Loans...........................................................................25
2.7. Borrowings to Repay Swing Loans................................................................25
2.8. Notes..........................................................................................26
(a) Revolving Credit Notes................................................................26
(b) Swing Note............................................................................26
2.9. Letter of Credit Subfacility...................................................................26
(a) Issuance of Letters of Credit.........................................................26
(b) Participations........................................................................27
(c) Letter of Credit Fees.................................................................27
(d) Disbursements, Reimbursement..........................................................27
(e) Documentation.........................................................................28
(f) Determinations to Honor Drawing Requests..............................................28
(g) Nature of Participation and Reimbursement Obligations.................................28
(h) Indemnity.............................................................................29
(i) Liability for Acts and Omissions......................................................30
2.10. Extension by Banks of the Revolving Credit Expiration Date.....................................30
2.11. Use of Proceeds................................................................................31
3. TERM LOANS..............................................................................................31
3.1. Term Loan Commitments..........................................................................31
3.2. Nature of Banks' Obligations With Respect to Term Loans........................................31
3.3. Term Loan Facility Fee.........................................................................31
3.4. Term Loan Notes................................................................................31
3.5. Use of Proceeds................................................................................31
4. INTEREST RATES..........................................................................................32
</TABLE>
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<PAGE> 4
<TABLE>
<C> <S> <C> <C>
4.1. Interest Rate Options..........................................................................32
(a) Revolving Credit Interest Rate Options................................................32
(b) Term Loan Interest Rate Options.......................................................33
(c) Interest Rate Margins.................................................................33
(d) Rate Quotations.......................................................................34
4.2. Euro-Rate Interest Periods.....................................................................34
4.3. Interest After Default.........................................................................35
4.4. Euro-Rate Unascertainable......................................................................36
4.5. Selection of Interest Rate Options.............................................................37
5. PAYMENTS................................................................................................37
5.1. Payments.......................................................................................37
5.2. Pro Rata Treatment of the Banks................................................................38
5.3. Interest Payment Dates.........................................................................38
5.4. Prepayments....................................................................................38
5.5. Additional Compensation in Certain Circumstances...............................................40
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital Adequacy
Requirements, Expenses, Etc...........................................................40
(b) Indemnity.............................................................................41
5.6. Settlement Date Procedures.....................................................................42
6. REPRESENTATIONS AND WARRANTIES..........................................................................42
6.1. Representations and Warranties.................................................................42
(a) Organization and Qualification........................................................42
(b) Capitalization and Ownership..........................................................42
(c) Subsidiaries..........................................................................43
(d) Power and Authority...................................................................43
(e) Validity and Binding Effect...........................................................43
(f) No Conflict...........................................................................44
(g) Litigation............................................................................44
(h) Title to Properties...................................................................44
(i) Financial Statements..................................................................44
(j) Margin Stock..........................................................................45
(k) Full Disclosure.......................................................................45
(l) Taxes.................................................................................45
(m) Consents and Approvals................................................................46
(n) No Event of Default; Compliance With Instruments......................................46
(o) Patents, Trademarks, Copyrights, Licenses, Etc........................................46
(p) Insurance.............................................................................46
(q) Compliance With Laws..................................................................46
(r) Material Contracts....................................................................47
(s) Investment Companies..................................................................47
(t) Plans and Benefit Arrangements........................................................47
(u) Employment Matters....................................................................48
(v) Environmental Matters.................................................................48
(w) Senior Debt Status....................................................................50
(x) Restricted Transactions...............................................................50
6.2. Updates to Schedules...........................................................................50
7. CONDITIONS OF LENDING...................................................................................50
</TABLE>
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<PAGE> 5
<TABLE>
<C> <S> <C> <C>
7.1. Loans After the Closing Date...................................................................50
7.2. Each Additional Loan...........................................................................53
8. COVENANTS...............................................................................................53
8.1. Affirmative Covenants..........................................................................53
(a) Preservation of Existence, Etc........................................................53
(b) Payment of Liabilities, Including Taxes, Etc..........................................53
(c) Maintenance of Insurance..............................................................54
(d) Maintenance of Properties and Leases..................................................55
(e) Maintenance of Patents, Trademarks, Etc...............................................55
(f) Visitation Rights.....................................................................55
(g) Keeping of Records and Books of Account...............................................55
(h) Plans and Benefit Arrangements........................................................56
(i) Compliance With Laws..................................................................56
(j) Use of Proceeds.......................................................................56
(k) Subordination of Intercompany Loans, Other Loans and Advances to the Borrowers........56
8.2. Negative Covenants.............................................................................56
(a) Indebtedness..........................................................................56
(b) Liens.................................................................................57
(c) Guaranties............................................................................57
(d) Loans and Investments; Certain Dividends and Distributions............................57
(e) Changes in the Senior Notes...........................................................58
(f) Liquidations, Mergers, Consolidations, Acquisitions...................................58
(g) Dispositions of Assets or Subsidiaries................................................59
(h) Affiliate Transactions................................................................59
(i) Subsidiary, Partnerships and Joint Ventures...........................................59
(j) Continuation of or Change in Business; Geographic Expansion...........................59
(k) Plans and Benefit Arrangements........................................................60
(l) Fiscal Year...........................................................................61
(m) Changes in Organizational Documents...................................................61
(n) Minimum Fixed Charge Coverage Ratio...................................................61
(o) Minimum Tangible Net Worth............................................................61
(p) Maximum Leverage Ratio................................................................61
(q) Speculative Units.....................................................................62
(r) Model Units...........................................................................62
(s) Land Ownership or Acquisition.........................................................62
(t) Zaring National Leverage Ratio........................................................62
(u) Zaring National Fixed Charge Coverage Ratio...........................................62
(v) Off Balance Sheet Financing...........................................................63
(w) Limitation on Interest Rate...........................................................63
8.3. Reporting Requirements.........................................................................63
(a) Monthly Financial Statements and Reports..............................................63
(b) Quarterly Financial Statements........................................................64
(c) Annual Financial Statements...........................................................64
(d) Quarterly Compliance Certificate of the Loan Parties; Updates to Schedules............64
(e) Borrowing Base Certificate............................................................65
(f) Notice of Default.....................................................................65
(g) Notice of Litigation..................................................................65
(h) Budgets, Forecasts, Deliveries Under the Senior Notes, Other Reports and Information..65
</TABLE>
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<PAGE> 6
<TABLE>
<C> <S> <C> <C>
(i) Notices Regarding Plans and Benefit Arrangements......................................66
9. DEFAULT.................................................................................................67
9.1. Events of Default..............................................................................67
9.2. Consequences of Event of Default...............................................................70
10. THE AGENT...............................................................................................72
10.1. Appointment....................................................................................72
10.2. Delegation of Duties...........................................................................72
10.3. Nature of Duties; Independent Credit Investigation.............................................72
10.4. Actions in Discretion of Agent; Instructions From the Banks....................................73
10.5. Reimbursement and Indemnification of Agent by the Borrowers....................................73
10.6. Exculpatory Provisions.........................................................................74
10.7. Reimbursement and Indemnification of Agent by Banks............................................74
10.8. Reliance by Agent..............................................................................74
10.9. Notice of Default..............................................................................75
10.10. Notices........................................................................................75
10.11. Banks in Their Individual Capacities...........................................................75
10.12. Holders of Notes...............................................................................75
10.13. Equalization of Banks..........................................................................75
10.14. Successor Agent................................................................................76
10.15. Agent's Fee....................................................................................76
10.16. Availability of Funds..........................................................................76
10.17. Calculations...................................................................................77
10.18. Beneficiaries..................................................................................77
11. MISCELLANEOUS...........................................................................................77
11.1. Modifications, Amendments or Waivers...........................................................77
11.2. No Implied Waivers; Cumulative Remedies; Writing Required......................................78
11.3. Reimbursement and Indemnification of Banks by the Borrowers; Taxes.............................78
11.4. Holidays.......................................................................................79
11.5. Funding by Branch, Subsidiary or Affiliate.....................................................79
(a) Notional Funding......................................................................79
(b) Actual Funding........................................................................79
11.6. Notices........................................................................................80
11.7. Severability...................................................................................80
11.8. Governing Law..................................................................................80
11.9. Prior Understanding............................................................................81
11.10. Duration; Survival.............................................................................81
11.11. Successors and Assigns.........................................................................81
11.12. Confidentiality................................................................................82
11.13. Counterparts...................................................................................82
11.14. Agent's or Bank's Consent......................................................................82
11.15. Exceptions.....................................................................................83
11.16. Consent to Forum; Waiver of Jury Trial.........................................................83
11.17. Tax Withholding Clause.........................................................................83
11.18. Joinder of Guarantors..........................................................................84
11.19. Limitation of Liability........................................................................84
11.20. Co-Agents......................................................................................84
</TABLE>
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<PAGE> 7
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1(B) - COMMITMENT OF BANKS
SCHEDULE 2.9(a) - ROLLOVER LCS
SCHEDULE 6.1(a) - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 6.1(b) - CAPITALIZATION AND OWNERSHIP
SCHEDULE 6.1(c) - SUBSIDIARIES
SCHEDULE 6.1(m) - CONSENTS AND APPROVALS
SCHEDULE 6.1(o) - PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES, ETC.
SCHEDULE 6.1(p) - INSURANCE POLICIES
SCHEDULE 6.1(v) - ENVIRONMENTAL DISCLOSURES
SCHEDULE 6.1(x) - RESTRICTED TRANSACTIONS
EXHIBITS
EXHIBIT 1.1(A) - FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G)(1) - FORM OF GUARANTOR JOINDER
EXHIBIT 1.1(G)(2) - FORM OF GUARANTY AGREEMENT
EXHIBIT 1.1(I)(1) - FORM OF INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(I)(2) - FORM OF INTERCOMPANY SUBORDINATION JOINDER
EXHIBIT 1.1(R) - FORM OF REVOLVING CREDIT NOTE
EXHIBIT 1.1(S) - FORM OF SWING NOTE
EXHIBIT 1.1(T) - FORM OF TERM NOTE
EXHIBIT 2.5(a) - FORM OF REVOLVING CREDIT OR TERM LOAN REQUEST
EXHIBIT 2.5(b) - FORM OF SWING LOAN REQUEST
EXHIBIT 7.1(d) - REQUIREMENTS OF OPINION OF COUNSEL
EXHIBIT 8.3(d) - FORM OF QUARTERLY COMPLIANCE CERTIFICATE
EXHIBIT 8.3(e) - FORM OF BORROWING BASE CERTIFICATE
- 7 -
<PAGE> 8
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is dated as
of June 28, 1999, and is made by and among ZARING HOMES, INC., an Ohio
corporation ("Zaring Homes"), ZARING HOLDINGS, INC., an Ohio corporation
("Zaring Holdings"), HEARTHSIDE HOMES, LLC, an Indiana limited liability company
("Hearthside," and together with Zaring Homes and Zaring Holdings, collectively,
the "Borrowers"), ZARING NATIONAL CORPORATION, an Ohio corporation ("Zaring
National"), ZARING HOMES OF INDIANA, L.L.C., an Indiana limited liability
company ("Zaring Indiana"), ZARING HOMES KENTUCKY, LLC, a Kentucky limited
liability company ("Zaring Homes Kentucky"), the BANKS (as hereinafter defined),
PNC BANK, NATIONAL ASSOCIATION, successor by merger to PNC Bank, Ohio, National
Association, in its capacity as agent for the Banks under this Agreement
(hereinafter referred to in such capacity as the "Agent"), and BANK OF AMERICA
NT&SA (formerly NationsBank, N.A.) and BANK ONE, MICHIGAN (formerly The First
National Bank of Chicago), as co-agents (hereinafter referred to in such
capacity, collectively, as the "Co-Agents").
WITNESSETH:
WHEREAS, Zaring Homes, as borrower, Zaring Holdings, Zaring
Indiana and Zaring Homes Kentucky, as guarantors, the Banks, the Agent and the
Co-Agents are parties to that Credit Agreement (the "Original Credit Agreement")
dated as of May 13, 1996 pursuant to which the Banks provided to Zaring Homes a
revolving credit facility in an aggregate principal amount not to exceed
$72,500,000 and a term loan facility in an aggregate principal amount not to
exceed $15,000,000, with outstanding indebtedness under the term facility as of
the date hereof in an aggregate amount of $6,000,000; and
WHEREAS, the Original Credit Agreement was amended and
restated pursuant to that certain Amended and Restated Credit Agreement dated as
of February 23, 1998 (the "Amended and Restated Credit Agreement") by and among
Zaring Homes, Zaring Holdings and Hearthside, as Borrowers and Guarantors,
Zaring National, Zaring Indiana and Zaring Homes Kentucky, as Guarantors, PNC,
as Agent, and the Co-Agents and the Banks set forth therein;
WHEREAS, the revolving credit facility shall be used for
general corporate purposes and the term loan facility was used to refinance
existing indebtedness; and
WHEREAS, the parties hereto wish to amend and restate the
Amended and Restated Credit Agreement upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree to amend and restate the Amended and
Restated Credit Agreement as follows:
- 8 -
<PAGE> 9
1. CERTAIN DEFINITIONS
1.1. Certain Definitions.
In addition to words and terms defined elsewhere in
this Agreement, the following words and terms shall have the following
meanings, respectively, unless the context hereof clearly requires
otherwise:
Accounts Payable shall mean, as of any date of
determination, the accounts payable of the Loan Parties determined and
consolidated in accordance with GAAP.
Active Community shall mean, as of any date of
determination, any community of geographically contiguous residential
housing units which any Loan Party is developing for sale or has sold
to buyers; provided that (A) such Loan Party has acquired or has an
option to acquire in fee simple the lots comprising such community (or
the lots comprising the applicable phase of the Loan Party's planned
development of such community if such Loan Party is developing such
lots in separate phases), and either (i) the site improvements have
been completed on all such lots, or (ii) such Loan Party has, (a) to
the extent required, posted bonds and provided any other security
required in connection with the completion of such site improvements
and (b) received Regulatory Approval for the construction of at least
one residential unit within such Active Community (such Regulatory
Approval may be subject in some instances to completion of certain
improvements which are a condition to the issuance of a building permit
with respect to such unit) on such date; and (B) such Loan Party is
then actively soliciting for sale (or has sold all of) such lots or the
residential units on such lots with delivery to the buyer or buyers of
such units or lots contemplated within nine (9) months of the contract
date.
Active Unit shall mean any residential building owned
in fee simple by a Loan Party which is under development or completed
by a Loan Party in an Active Community with respect to which (i)
construction has progressed beyond completion of the foundation and
(ii) only one residential unit is or shall be contained therein after
completion of such building.
Affiliate, as to any person, shall mean any other
person (i) which directly or indirectly controls, is controlled by or
is under common control with any Loan Party, (ii) which beneficially
owns or holds 10% or more of any class of the voting stock of any Loan
Party, or (iii) 10% or more of the voting stock (or in the case of a
person which is not a corporation, 10% or more of the equity interest)
of which is beneficially owned or held, directly or indirectly, by any
Loan Party. "Control," as used herein, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction
of the management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise, including the
power to elect a majority of the directors or trustees of a corporation
or trust, as the case may be.
Agent shall mean PNC Bank, National Association and
its successors.
Agent's Fee shall have the meaning assigned to that
term in Section 10.15 hereof.
- 9 -
<PAGE> 10
Agreement shall mean this Credit Agreement, as the
same may be supplemented, amended, restated or modified from time to
time, including all schedules and exhibits hereto.
Agreement of Sale shall mean a written agreement with
a person, which is not an Affiliate or Subsidiary of any Co-Borrower,
for the sale of a residential housing unit to such person, fully
executed by all parties to such agreement, which shall be in form and
substance satisfactory to the Agent, which shall be accompanied by a
cash deposit equal to the lesser of (x) the customary percentage in any
geographic area (but in no event less than two percent (2%)) of the
purchase price of the unit sold or (y) the difference between the
purchase price set forth in such agreement and the amount of the
mortgage contingency set forth in such agreement, and which shall
provide that (i) the purchase price shall be paid in cash or by title
company check, certified or bank check or attorney trust account check
at or before the closing of the sale, the date of which shall be set
forth in the agreement, and (ii) the deposit may not be refunded except
upon a breach by the seller. The Co-Borrowers shall deliver to the
Agent the form of Agreement of Sale which they propose to use for
Agent's review prior to the Closing Date and from time to time
thereafter upon Agent's request. The Co-Borrowers shall not modify such
form in any material and adverse respect without the Agent's prior
approval. The Agent may at any time request to review executed
Agreements of Sale. The Co-Borrowers shall promptly deliver to the
Agent copies of such Agreements of Sale or make such Agreements of Sale
available to the Banks for their review, as the Agent may elect.
Approved Developed Lots Inventory shall mean, on any
date of determination, the aggregate book value, determined in
accordance with GAAP, of the acquisition and development costs of
parcels of land which are owned in fee simple by the Loan Parties
(excluding the acquisition and development costs of lots under Active
Units), provided that with respect to each such parcel the applicable
Loan Party has received Regulatory Approval, has completed construction
relating to any sewers, streets, water and other utilities, and each
such parcel satisfies the requirements for the issuance of a building
permit, but no home construction has been commenced. Any asset which is
either Sold Inventory, Model Inventory, Approved Land Under Development
Inventory or Approved Land Inventory is excluded from Approved
Developed Lots Inventory.
Approved Land Inventory shall mean, on any date of
determination, the aggregate book value, determined in accordance with
GAAP, of the acquisition and development costs of parcels of land which
are owned in fee simple by the Loan Parties (excluding the acquisition
and development costs of lots under Active Units), provided that with
respect to each such parcel, the applicable Loan Party has received
Regulatory Approval, provided further, parcels of land not owned in fee
simple but for which purchase price deposits in amounts not exceeding
$1,500,000 in the aggregate have been made ("Permitted Land Deposits")
but which otherwise fit within this definition may also be included as
Approved Land Inventory and provided further, parcels of land, which
have not received Regulatory Approval but which otherwise fit within
this definition which together with Permitted Land Deposits, do not
exceed $2,000,000 in the aggregate at any time, may also be included as
Approved Land Inventory. Any asset which is either Sold Inventory,
Model Inventory, Unsold Building Inventory, Approved
- 10 -
<PAGE> 11
Land Under Development Inventory or Approved Developed Lots Inventory
is excluded from Approved Land Inventory.
Approved Land Under Development Inventory shall mean,
on any date of determination, the aggregate book value determined in
accordance with GAAP, of the acquisition and development costs of
parcels of land which are owned in fee simple by the Loan Parties
(excluding the acquisition and development costs of lots under Active
Units), provided that with respect to each such parcel, the applicable
Loan Party has received Regulatory Approval and has entered into a
contract for the construction of sewers, streets, water or utilities.
Any asset which is either Sold Inventory, Model Inventory, Unsold
Building Inventory, Approved Developed Lots Inventory or Approved Land
Inventory is excluded from Approved Land Under Development Inventory.
Assignment and Assumption Agreement shall mean an
Assignment and Assumption Agreement by and among a Purchasing Bank, the
Transferor Bank and the Agent, as Agent and on behalf of the remaining
Banks, substantially in the form of Exhibit 1.1(A).
Authorized Officer shall mean those persons,
designated by written notice to the Agent from the Borrowers,
authorized on behalf of the Borrowers to execute notices, reports and
other documents required hereunder. The Borrowers may amend such list
of persons from time to time, provided that the Borrowers give written
notice of such amendment to the Agent.
Banks shall mean the financial institutions named on
Schedule 1.1(B) and their respective successors and assigns as
permitted hereunder, each of which is referred to herein as a Bank.
Base Net Worth shall mean the sum of (i) $40,000,000
plus (ii) 75% of net income of the Borrowers and their Subsidiaries
determined and consolidated in accordance with GAAP for each fiscal
quarter in which net income is earned (as opposed to a net loss) after
December 31, 1995 through (and including) the date of determination
plus (iii) 75% of the net cash proceeds received from the sale of
shares of capital stock of any Borrower or any of its Subsidiaries
during the period from December 31, 1995 through (and including) the
date of determination minus (iv) goodwill resulting from any
acquisition or acquisitions permitted pursuant to Section 8.2(f)(ii),
not to exceed $5,000,000 in the aggregate, minus (v) 100% of any
dividends paid with respect to any Borrower's preferred stock to the
extent such dividends are actually paid in cash, provided in no event
shall Base Net Worth in any fiscal quarter for which net income is
earned (as opposed to a net loss) be increased by less than 60% of such
net income as a result of any deduction under this clause (v).
Base Rate shall mean the greater of (i) the interest
rate per annum announced from time to time by the Agent at its
Principal Office as its then prime rate, which rate may not be the
lowest rate then being charged commercial borrowers by the Agent, or
(ii) the Federal Funds Effective Rate plus one-half of one percent
(1/2%) per annum.
Base Rate Option shall mean the Revolving Credit Base
Rate Option or
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<PAGE> 12
the Term Loan Base Rate Option.
Benefit Arrangement shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA,
which is neither a Plan nor a Multiemployer Plan and which is
maintained, sponsored or otherwise contributed to by any member of the
ERISA Group.
Borrowers shall mean the Co-Borrowers, with respect
to the Revolving Credit Loans, and Zaring Homes, with respect to the
Term Loans.
Borrowing Base shall be determined based on the most
recent Borrowing Base Certificate delivered pursuant to Section 8.3(e)
and shall mean the sum of clauses (A) through (F) minus the sum of
clauses (G) through (H), as follows:
(A) 100% of Sold Inventory; plus
(B) 80% of Model Inventory; plus
(C) 70% of Unsold Building Inventory; plus
(D) 55% of Approved Developed Lots Inventory;
plus
(E) 55% of Approved Land Under Development
Inventory; plus
(F) 50% of the Approved Land Inventory; minus
(G) the principal amount outstanding of the Term
Loans; minus
(H) the principal amount outstanding of the
Senior Notes;
provided, in no event shall the sum of clauses (D) - (F) exceed 45% of
the sum of clauses (A)-(F); and provided, further, that no property
subject to a Nonrecourse Purchase Money Security Interest shall be
included in clauses (A)- (F) above; and provided, further, any "reserve
to complete" is expressly excluded as an asset in calculating the
Borrowing Base. Notwithstanding any other provision to the contrary,
the parties expressly acknowledge that, for purposes of calculating the
Borrowing Base, clauses (A)- (F) include only such inventory owned by
the Loan Parties expressly excluding Zaring National from the
definition of Loan Parties.
Borrowing Base Certificate shall have the meaning
given to such term in Section 8.3(e).
Borrowing Date shall mean, with respect to any Loan,
the date for the making thereof or the renewal or conversion thereof to
the same or a different Interest Rate Option, which shall be a Business
Day.
Borrowing Tranche shall mean specified portions of
Loans outstanding as follows: (i) with respect to outstanding Loans to
which the Euro-Rate Option applies, each
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<PAGE> 13
portion of such Loans which becomes subject to such option under the
same election by any Borrower and which has the same Euro-Rate Interest
Period shall constitute one Borrowing Tranche, and (ii) all Loans to
which the Base Rate Option applies shall constitute one Borrowing
Tranche.
Business Day shall mean, (i) with respect to matters
relating to the Euro-Rate Option, a day on which banks in the London
interbank market are dealing in U.S. Dollar deposits and on which
commercial banks are open for domestic and international business in
Cincinnati, Ohio and, (ii) with respect to any other matter, a day on
which commercial banks are open for business in Cincinnati, Ohio.
Change of Control shall mean any transaction or group
of transactions after which (i) Allen G. Zaring, III and Anne M. Zaring
(together with their respective executors, administrators or heirs in
the event of the death of either of them) shall directly or indirectly
own less than twenty-five percent (25%) of Zaring National's issued and
outstanding common stock, (ii) another partnership, limited
partnership, syndicate or other group which is deemed a "person" within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
owns more of Zaring National's issued and outstanding common stock than
is owned directly or indirectly in the aggregate by Allen G. Zaring,
III and Anne M. Zaring (together with their executors, administrators
or heirs in the event of the death of either of them), or (iii) Zaring
National, by itself or together with one or more of the Co-Borrowers,
ceases to own all of the issued and outstanding capital stock and have
full voting control of Zaring Homes, Zaring Holdings and Hearthside.
Closing Date shall mean June 30, 1999.
Co-Agents shall mean Bank of America NT&SA and Bank
One, Michigan and their respective successors.
Co-Borrowers shall mean Zaring Homes, Zaring Holdings
and Hearthside, which are jointly and severally liable with respect to
the Revolving Credit Loans.
Commitment Fee shall have the meaning assigned to
that term in Section 2.3(b).
Commitments shall mean collectively the Revolving
Credit Commitments, the Swing Loan Commitment and the Term Loan
Commitments.
Consolidated Cash Flow From Operations shall mean,
for any period of determination, the following with respect to the
Borrowers and their Subsidiaries for each item for such period
determined and consolidated in accordance with GAAP: (i) the sum of net
income, depreciation, amortization, other noncash charges to net
income, interest expense and income tax expense minus (ii) noncash
credits to net income.
Consolidated Fixed Charges shall mean, for any period
of determination, the sum of interest incurred (capitalized and
expensed) plus scheduled principal installments of
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<PAGE> 14
Indebtedness plus dividends (to the extend paid in cash), in each case
of the Borrowers and their Subsidiaries for such period determined and
consolidated in accordance with GAAP.
Consolidated Tangible Net Worth shall mean, as of any
date of determination, total stockholders' equity minus intangible
assets, in each case of the Borrowers and their Subsidiaries as of such
date determined and consolidated in accordance with GAAP.
Consolidated Total Liabilities shall mean, for any
fiscal quarter for the fiscal quarter then ended, the sum of (i) all
Indebtedness and, without duplication, all other liabilities of the
Borrowers and their Subsidiaries, determined and consolidated in
accordance with GAAP, excluding Indebtedness secured by Nonrecourse
Purchase Money Security Interests not to exceed, in the aggregate at
any time, 15% of Consolidated Tangible Net Worth minus (ii) Eligible
Development Costs.
Dollar, Dollars, U.S. Dollars and the symbol $ shall
mean lawful money of the United States of America.
Eligible Development Costs shall mean expenses, to
the extent paid in cash for site development costs which are included
in Approved Land Inventory, Approved Developed Lots Inventory or
Approved Land Under Development Inventory, in connection with sites for
which undrawn Letters of Credit are outstanding to support such site
development costs.
Environmental Complaint shall mean any written
complaint setting forth a cause of action for personal or property
damage or natural resource damage or equitable relief, order, notice of
violation, citation, request for information issued pursuant to any
Environmental Laws by an Official Body, subpoena or other written
notice of any type relating to, arising out of or issued pursuant to
any Environmental Laws or any Environmental Conditions, as the case may
be.
Environmental Conditions shall mean any conditions of
the environment, including, without limitation, the workplace, the
ocean, natural resources (including flora or fauna), soil, surface
water, groundwater, any actual drinking water supply sources or water
sources which could reasonably be expected to be used to supply
drinking water, substrata or the ambient air, relating to, or arising
out of or caused by the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping,
emptying, discharging, injecting, escaping, leaching, disposal,
dumping, threatened release or other management or mismanagement of
Regulated Substances resulting from the use of, or operations on, the
Property.
Environmental Laws shall mean all federal, state,
local and foreign Laws and regulations, including, without limitation,
permits, licenses, authorizations, bonds, orders, judgments and consent
decrees issued or entered into pursuant thereto, relating to pollution
or protection of human health or the environment or employee safety in
the workplace or the operation of the activities of the Borrowers and
their Subsidiaries.
ERISA shall mean the Employee Retirement Income
Security Act of 1974,
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<PAGE> 15
as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
ERISA Group shall mean, at any time, the Borrowers
and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control and all
other entities which, together with the Borrower, are treated as a
single employer under Section 414 of the Internal Revenue Code.
Euro-Rate shall mean, with respect to the Loans
comprising any Borrowing Tranche to which the Euro-Rate Option applies
for any Euro-Rate Interest Period, the interest rate per annum
determined by the Agent by dividing (the resulting quotient rounded
upward to the nearest 1/16 of 1% per annum) (i) the rate of interest
determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the
average of the rates of interest per annum for deposits in U.S. Dollars
offered by banks in the London interbank market to major money center
banks at approximately 11:00 a.m., London time, two (2) Business Days
prior to the first day of such Euro-Rate Interest Period for delivery
on the first day of such Euro-Rate Interest Period in amounts
comparable to such Borrowing Tranche and having maturities comparable
to such Euro-Rate Interest Period by (ii) a number equal to 1.00 minus
the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed
by the following formula:
average of rates offered to major money
Euro-Rate = center banks in the London interbank market
as determined by Agent
-------------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option
outstanding on the effective date of any change in the Euro-Rate
Reserve Percentage as of such effective date. The Agent shall give
prompt notice to the Borrowers of the Euro-Rate as determined or
adjusted in accordance herewith, which determination shall be
conclusive absent manifest error.
Euro-Rate Interest Periods shall have the meaning
assigned to that term in Section 4.2.
Euro-Rate Option shall mean the Revolving Credit
Euro-Rate Option or the Term Loan Euro-Rate Option.
Euro-Rate Portion shall mean, collectively, the
Revolving Credit Euro-Rate Portion and the Term Loan Euro-Rate Portion.
Euro-Rate Reserve Percentage shall mean the maximum
percentage (expressed as a decimal rounded upward to the nearest 1/16
of 1%) as determined by the Agent (which determination shall be
conclusive absent manifest error) which is in effect during any
relevant period, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding
(currently
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<PAGE> 16
referred to as "Eurocurrency Liabilities") of a member bank in such
System.
Event of Default shall mean any of the Events of
Default described in Section 9.1.
Facility Fees shall mean the fees referred to in
Sections 2.3(a) and 3.3.
Federal Funds Effective Rate for any day shall mean
the rate per annum (based on a year of 360 days and actual days elapsed
and rounded upward to the nearest 1/100 of 1%) announced by the Federal
Reserve Bank of New York (or any successor) on such day as being the
weighted average of the rates on overnight federal funds transactions
arranged by federal funds brokers on the previous trading day, as
computed and announced by such Federal Reserve Bank (or any successor)
in substantially the same manner as such Federal Reserve Bank computes
and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such
Federal Reserve Bank (or its successor) does not announce such rate on
any day, the "Federal Funds Effective Rate" for such day shall be the
Federal Funds Effective Rate for the last day for which such rate was
announced.
GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the
provisions of Section 1.3 hereof, and applied on a consistent basis
(except for changes in application in which the Borrowers' independent
certified public accountants concur) both as to classification of items
and amounts.
Governmental Acts shall have the meaning given to
such term in Section 2.9(h).
Guarantor shall mean each of the parties to this
Agreement which is designated as a "Guarantor" on the signature page
hereof and each other Person which joins this Agreement as a Guarantor
after the date hereof pursuant to Section 11.18.
Guarantor Joinder shall mean a joinder by a person as
a Guarantor under this Agreement, the Guaranty Agreement and the other
Loan Documents in the form of Exhibit 1.1(G)(1).
Guaranty of any person shall mean any obligation of
such person guaranteeing or in effect guaranteeing any liability or
obligation of any other person in any manner, whether directly or
indirectly, 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
or other instruments for deposit or collection in the ordinary course
of business.
Guaranty Agreement shall mean the Guaranty and
Suretyship Agreement in substantially the form attached hereto as
Exhibit 1.1(G)(2) executed and delivered by the Guarantors to the Agent
for the benefit of the Banks.
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<PAGE> 17
Hearthside shall mean, Hearthside Homes, LLC, a
limited liability company organized and existing under the laws of the
State of Indiana.
Indebtedness shall mean, as to any person at any
time, any and all indebtedness, obligations or liabilities (whether
matured or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, or joint or several) of such person for or in
respect of: (i) borrowed money, (ii) amounts raised under or
liabilities in respect of any note purchase or acceptance credit
facility, (iii) reimbursement obligations under any letter of credit,
currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (iv) any other
transaction (including without limitation forward sale or purchase
agreements, capitalized leases, conditional sales agreements and
undrawn and outstanding letters of credit) having the commercial effect
of a borrowing of money entered into by such person to finance its
operations or capital requirements (but not including trade payables
and accrued expenses incurred in the ordinary course of business which
are not represented by a promissory note or other evidence of
indebtedness and which are not more than thirty (30) days past due), or
(v) any Guaranty of any of the foregoing.
Intercompany Subordination Agreement shall mean an
Intercompany Subordination Agreement among the Loan Parties in the form
attached hereto as Exhibit 1.1(I)(1).
Intercompany Subordination Joinder shall mean a
joinder to the Intercompany Subordination Agreement by each Person who
becomes a Guarantor under this Agreement after the date hereof, such
joinder to be substantially in the form of Exhibit 1.1(I)(2).
Interest Payment Date shall mean each date specified
for the payment of interest in Section 5.3.
Interest Rate Option shall mean a Euro-Rate Option or
a Base Rate Option.
Internal Revenue Code shall mean the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.
Issuing Letter of Credit Bank shall mean, with
respect to a Letter of Credit, the Bank which issued that Letter of
Credit pursuant to Section 2.9.
Labor Contracts shall have the meaning assigned to
that term in Section 6.1(r).
Law or law shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, opinion,
release, ruling, order, injunction, writ, decree or award of any
Official Body.
Letter of Credit shall have the meaning assigned to
that term in
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<PAGE> 18
Section 2.9(a).
Letter of Credit Fee shall have the meaning assigned
to that term in Section 2.9(c).
Letter of Credit Outstandings shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Letters
of Credit and (ii) the aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
Leverage Ratio shall mean the ratio of Consolidated
Total Liabilities to Consolidated Tangible Net Worth.
Lien shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security
arrangement of any nature whatsoever, whether voluntarily or
involuntarily given, including but not limited to any conditional sale
or title retention arrangement, and any assignment, deposit arrangement
or lease intended as, or having the effect of, security and any filed
financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the
filing).
Loan Documents shall mean this Agreement, the Notes,
the Guaranty Agreement, the Intercompany Subordination Agreement 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 supplemented,
amended or restated from time to time in accordance herewith or
therewith, and Loan Document shall mean any of the Loan Documents.
Loan Parties shall mean the Borrowers and the
Guarantors; provided, however, with respect to Section 8.2 and as used
in the definition of Restricted Transactions and in calculating the
Borrowing Base, Zaring National Corporation is expressly excluded from
the definition of "Loan Parties."
Loan Request shall mean a request for a Revolving
Credit Loan, Swing Loan or Term Loan made in accordance with Section
2.5(a) or 2.5(b) or, with respect to a Revolving Credit Loan or Term
Loan, a request to select, convert to or renew a Euro-Rate Option in
accordance with Section 4.2.
Loans shall mean collectively, and Loan shall mean
separately, all Revolving Credit Loans, Swing Loans and Term Loans or
any Revolving Credit Loan, Swing Loan or Term Loan.
Material Adverse Change shall mean any set of
circumstances or events which (a) has or could reasonably be expected
to have any material adverse effect whatsoever upon the validity or
enforceability of this Agreement or any other Loan Document, (b) is or
could reasonably be expected to be material and adverse to the
business, properties, assets, financial condition, results of
operations or prospects of the Borrowers and their Subsidiaries taken
as a whole, (c) impairs materially or could reasonably be expected to
impair materially the
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<PAGE> 19
ability of the Borrowers and their Subsidiaries taken as a whole to
duly and punctually pay or perform their Indebtedness, or (d) impairs
materially or could reasonably be expected to impair materially the
ability of the Agent or any of the Banks, to the extent permitted, to
enforce their legal remedies against the Loan Parties pursuant to this
Agreement or any other Loan Document.
Model Inventory shall mean, on any date of
determination, the aggregate book value, determined in accordance with
GAAP (excluding capitalized interest), of Model Units. Any asset which
is Sold Inventory, Unsold Building Inventory, Approved Developed Lots
Inventory, Approved Land Under Development or Approved Land Inventory
is excluded from Model Inventory.
Model Unit shall mean an Active Unit on which
construction has been completed which is not subject to an Agreement of
Sale and which a Loan Party has designated and is using or plans to use
as a model for exhibition.
Money Management Arrangements shall mean the various
deposit accounts, sweep accounts and other accounts and arrangements
between any of the Loan Parties, their Subsidiaries and the Agent
relating to the management and investment of any of the Loan Parties'
and their Subsidiaries' cash assets.
Multiemployer Plan shall mean any employee benefit
plan which is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA and to which the Borrowers or any member of the
ERISA Group is then making or accruing an obligation to make
contributions or, within the preceding five plan years, has made or had
an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has
two or more contributing sponsors (including the Borrowers or any
member of the ERISA Group), at least two of whom are not under common
control, as such a Plan is described in Sections 4063 and 4064 of
ERISA.
Nonrecourse Purchase Money Security Interest shall
mean Liens upon property securing loans to a Loan Party or deferred
payments by a Loan Party for the purchase of such property, provided
that the recourse of the creditor for repayment is limited to such
property and does not extend to any Loan Party.
Notes shall mean collectively, and Note shall mean
separately, the Revolving Credit Notes, the Swing Note and the Term
Notes or any Revolving Credit Note, Swing Note or Term Note.
Official Body shall mean any national, federal,
state, local or other government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.
Original Closing Date shall mean the Business Day on
which the first
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<PAGE> 20
Loan was made, which was May 17, 1996.
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA or
any successor.
Partnership Interests shall have the meaning given to
such term in Section 6.1(c).
Permitted Investments shall mean:
(i) direct obligations of the United States
of America or any agency or instrumentality thereof or obligations
backed by the full faith and credit of the United States of America
maturing in twelve months or less from the date of acquisition;
(ii) commercial paper maturing in 180 days
or less rated not lower than A-1 by Standard & Poor's Corporation or
P-1 by Moody's Investors Service on the date of acquisition;
(iii) demand deposits, time deposits or
certificates of deposit maturing within one year in commercial banks
whose obligations are rated A-1, A or the equivalent or better by
Standard & Poor's Corporation or Moody's Investors Service on the date
of acquisition; and
(iv) capital stock of publicly traded
companies not to exceed $100,000 in the aggregate on a cost basis.
Permitted Liens shall mean:
(i) Liens for taxes, assessments or similar
charges incurred in the ordinary course of business and which are not
yet due and payable;
(ii) Pledges or deposits made in the
ordinary course of business to secure payment of workmen's
compensation, or to participate in any fund in connection with
workmen's compensation, unemployment insurance, old-age pensions or
other social security programs;
(iii) Liens of mechanics, materialmen,
warehousemen or carriers, or other like Liens, securing obligations
incurred in the ordinary course of business that are not yet due and
payable and Liens of landlords securing obligations to pay lease
payments that are not yet due and payable or in default;
(iv) Good-faith pledges or deposits made in
the ordinary course of business to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases,
not in excess of the aggregate amount due thereunder, or to secure
statutory obligations or surety, appeal, indemnity, performance or
other similar bonds required in the ordinary course of business;
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<PAGE> 21
(v) Encumbrances consisting of zoning
restrictions, easements or other restrictions on the use of real
property, none of which materially impairs the use of such property for
the purpose contemplated by the Loan Party or the value thereof, and
none of which is violated in any material respect by existing
structures or land use;
(vi) Liens in favor of lessors or sellers on
personal property being leased or sold under leases or agreements of
sale as and to the extent permitted in Section 8.2(a)(iii);
(vii) Nonrecourse Purchase Money Security
Interests, provided that the aggregate amount of loans and deferred
payments secured by such Nonrecourse Purchase Money Security Interests
shall not exceed 15% of Consolidated Tangible Net Worth; and
(viii) The following, if the validity or
amount thereof is being contested in good faith by appropriate and
lawful proceedings diligently conducted so long as either no action to
levy or execute thereon has been commenced or, if such action has
commenced, it has been stayed and shall continue to be stayed:
(1) Claims or Liens for taxes, assessments or charges
due and payable and subject to interest or penalty, provided
that the applicable Loan Party maintains such reserves or
other appropriate provisions as shall be required by GAAP and
pays all such taxes, assessments or charges forthwith upon the
commencement of proceedings to foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects
of title to, real or personal property, including any
attachment of personal or real property or other legal process
prior to adjudication of a dispute on the merits; or
(3) Claims or Liens of mechanics, materialmen,
warehousemen or carriers, or other statutory nonconsensual
Liens.
Person or person shall mean any individual,
corporation, partnership, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political
subdivision or agency thereof, or any other entity.
Plan shall mean at any time an employee pension
benefit plan (including a Multiple Employer Plan but not a
Multiemployer Plan) which is covered by Title IV of ERISA or is subject
to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained by any member of the ERISA
Group for employees of any member of the ERISA Group or (ii) has at any
time within the preceding five years been maintained by any entity
which was at such time a member of the ERISA Group for employees of any
entity which was at such time a member of the ERISA Group.
PNC shall mean PNC Bank, National Association, its
successors and assigns.
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<PAGE> 22
Potential Default shall mean any event or condition
which with notice, passage of time or a determination by the Agent or
the Required Banks, or any combination of the foregoing, would
constitute an Event of Default.
Principal Office shall mean the main banking office
of the Agent in Cincinnati, Ohio.
Prohibited Transaction shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code or
Section 406 of ERISA for which neither an individual nor a class
exemption has been issued by the United States Department of Labor.
Property shall mean all real property, both owned and
leased, of the Loan Parties.
Provident Guaranty shall mean that certain
Unconditional Guaranty dated March 31, 1999 by Zaring Homes in favor of
The Provident Bank issued in connection with Provident Loan Agreement.
Provident Loan Agreement shall mean that certain Loan
and Security Agreement dated as of March 31, 1999 between The Provident
Bank and Zaring National.
Purchasing Bank shall mean a Bank which becomes a
party to this Agreement by executing an Assignment and Assumption
Agreement.
Quarterly Compliance Certificate shall have the
meaning given to such term in Section 8.3(d).
Ratable Share shall mean the proportion that a Bank's
Commitment bears to the Commitments of all of the Banks.
Regulated Substances shall mean any substance,
including without limitation any solid, liquid, semisolid, gaseous,
thermal, thoriated or radioactive material, refuse, garbage, wastes,
chemicals, petroleum products, byproducts, coproducts, impurities,
dust, scrap, heavy metals, any substance defined as a "hazardous
substance," "pollutant," "pollution," "contaminant," "hazardous or
toxic substance," "extremely hazardous substance," "toxic chemical,"
"toxic waste," "hazardous waste," "industrial waste," "residual waste,"
"solid waste," "municipal waste," "mixed waste," "infectious waste,"
"chemotherapeutic waste," "medical waste," "regulated substance" or any
related materials, substances or wastes as now or hereafter defined
pursuant to any Environmental Laws, ordinances, rules, regulations or
other directives of any Official Body, the generation, manufacture,
extraction, processing, distribution, treatment, storage, disposal,
transport, recycling, reclamation, use, reuse, spilling, leaking,
dumping, injection, pumping, leaching, emptying, discharge, escape,
release or other management or mismanagement of which is regulated by
the Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as
promulgated by the Board of Governors of the Federal Reserve System, as
amended from time to time.
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<PAGE> 23
Regulatory Approval shall mean with respect to any
land held by a Loan Party that all preliminary approvals, permits,
licenses or other authorizations under applicable Laws, including those
which relate to zoning, developmental restrictions and Environmental
Laws, from required state and local governmental authorities and
agencies or otherwise under Law with respect to the Loan Party's
development plan have been obtained such that there is vested in such
Loan Party the right to develop such real estate for primarily
residential purposes in accordance with the intentions of such Loan
Party, subject only to nonsubstantive conditions which may remain for
final approval of such development.
Reimbursement Obligations shall have the meaning
assigned to such term in Section 2.9(d).
Reportable Event means a reportable event described
in Section 4043 of ERISA and regulations thereunder with respect to a
Plan or Multiemployer Plan.
Required Banks shall mean (i) if there are no Loans
outstanding, Banks whose Commitments aggregate at least 66-2/3% of the
Commitments of all of the Banks; or (ii) if there are Loans
outstanding, Banks whose Loans outstanding aggregate at least 66-2/3%
of the total principal amount of the Loans outstanding hereunder.
Restricted Transactions shall mean all of the
following with respect to the Loan Parties in an aggregate amount not
to exceed, at any time during which the Provident Guaranty is in
existence, five percent (5%) of Consolidated Tangible Net Worth and, at
any time after the Provident Guaranty has been terminated and released,
twenty percent (20%) of Consolidated Tangible Net Worth: (i) loans by
any of the Loan Parties directly or indirectly to any other person
(excluding any other Loan Party); (ii) guaranties by any of the Loan
Parties directly or indirectly of the obligations of any other person
(including any other Loan Party); (iii) investments, contributions,
dividends or other distributions by any of the Loan Parties directly or
indirectly in or to the capital of, or other payments directly or
indirectly to or for the benefit of, any other person (excluding any
other Loan Party), provided, acquisitions permitted pursuant to Section
8.2(f)(ii) shall not constitute Restricted Transactions; or (iv) other
obligations, contingent or otherwise, of any of the Loan Parties to or
for the benefit of any other person (including any other Loan Party).
The definition of Loan Party and Loan Parties, as used in this
definition of Restricted Transactions, expressly does not include
Zaring National and it is expressly acknowledged that the Zaring Homes
Receivable is not a Restricted Transaction.
Revolving Credit Base Rate Margin shall have the
meaning assigned to that term in Section 4.1(c).
Revolving Credit Base Rate Option shall mean the
option of the Co-Borrowers to have Revolving Credit Loans bear interest
at the rate and under the terms and conditions set forth in Section
4.1(a)(i).
Revolving Credit Base Rate Portion shall mean the
portion of the Revolving Credit Loans bearing interest at any time
under the Revolving Credit Base Rate Option.
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<PAGE> 24
Revolving Credit Commitment shall mean, as to any
Bank at any time, the amount initially set forth opposite its name on
Schedule 1.1(B) in the column labeled "Amount of Commitment for
Revolving Credit Loans," and thereafter on Schedule I to the most
recent Assignment and Assumption Agreement, and Revolving Credit
Commitments shall mean the aggregate Revolving Credit Commitments of
all of the Banks.
Revolving Credit Euro-Rate Margin shall have the
meaning specified in Section 4.1(c).
Revolving Credit Euro-Rate Option shall mean the
option of the Co-Borrowers to have Revolving Credit Loans bear interest
at the rate and under the terms and conditions set forth in Section
4.1(a)(ii).
Revolving Credit Euro-Rate Portion shall mean the
portion of the Revolving Credit Loans bearing interest at any time
under the Revolving Credit Euro-Rate Option.
Revolving Credit Expiration Date shall mean, with
respect to the Revolving Credit Commitments, July 1, 2001.
Revolving Credit Loans shall mean collectively, and
Revolving Credit Loan shall mean separately, all Revolving Credit Loans
or any Revolving Credit Loan made by the Banks or one of the Banks to
the Co-Borrowers pursuant to Section 2.1(a) and Section 2.6(a).
Revolving Credit Notes shall mean collectively, and
Revolving Credit Note shall mean separately, all the Revolving Credit
Notes of the Co-Borrowers in the form of Exhibit 1.1(R) evidencing the
Revolving Credit Loans, together with all amendments, extensions,
renewals, replacements, refinancings or refundings thereof in whole or
in part.
Revolving Facility Usage shall mean at any time the
sum of the Revolving Credit Loans and Swing Loans outstanding and the
Letter of Credit Outstandings.
Rollover LCs shall mean those letters of credit
identified on Schedule 2.9(a) which were issued by an Issuing Letter of
Credit Bank prior to the date of the Original Credit Agreement upon the
application of Zaring Homes.
Senior Notes shall mean those three (3) term notes,
each bearing interest at the rate of 7.95% per annum and each dated May
18, 1994, issued by Zaring Homes in favor of PNC, The Fifth Third Bank
and The Provident Bank, respectively, in the respective principal
amounts of $2,097,956, $1,400,386 and $1,746,548.
Settlement Date shall mean the Thursday of each week
(if such day is a Business Day, and if not, the next succeeding
Business Day) and any other Business Day on which the Agent elects to
effect settlement pursuant to Section 5.6.
Side Letters shall mean that certain letter dated
February 6, 1996 between
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<PAGE> 25
PNC Securities Corp. and Zaring Homes, that certain letter dated
February 4, 1998 between PNC and Zaring Homes and that certain letter
between PNC and Zaring Homes dated June 11, 1999.
Sold Inventory shall mean, on any date of
determination, the aggregate book value, determined in accordance with
GAAP (excluding capitalized interest), of all Active Units which are
subject to an Agreement of Sale and the lots (and related site
improvements and development costs) under such Active Units to be sold
therewith, provided that with respect to each such Active Unit and
related parcel of land, if any, the applicable Loan Party has received
Regulatory Approval. Any asset which is Model Inventory, Unsold
Building Inventory, Approved Developed Lots Inventory, Approved Land
Under Development Inventory or Approved Land Inventory is excluded from
Sold Inventory.
Speculative Unit shall mean any Active Unit which is
(i) not subject to an Agreement of Sale and (ii) not a Model Unit.
Subsidiary of any person at any time shall mean (i)
any corporation or trust of which more than 50% (by number of shares or
number of votes) of the outstanding capital stock or shares of
beneficial interest normally entitled to vote for the election of one
or more directors or trustees (regardless of any contingency which does
or may suspend or dilute the voting rights) is at such time owned
directly or indirectly by such person or one or more of such person's
Subsidiaries, or any partnership of which such person is a general
partner, or of which more than 50% of the partnership interests are at
the time directly or indirectly owned by such person or one or more of
such person's Subsidiaries, and (ii) any corporation, trust,
partnership or other entity which is controlled or capable of being
controlled by such person or one or more of such person's Subsidiaries.
Subsidiary Shares shall have the meaning assigned to
such term in Section 6.1(c).
Swing Loan Commitment shall mean PNC's commitment to
make Swing Loans to the Co-Borrowers pursuant to Section 2.1(b) in an
aggregate principal amount up to $5,000,000.
Swing Loan Request shall mean a request for Swing
Loans made in accordance with Section 2.5(b).
Swing Loans shall mean collectively, and Swing Loan
shall mean separately, all swing loans or any swing loan made by PNC to
the Co-Borrowers pursuant to Sections 2.1(b) and 2.6(b).
Swing Note shall mean the Swing Note of the
Co-Borrowers in the form of Exhibit 1.1(S) evidencing the Swing Loans,
together with all amendments, extensions, renewals, restatements,
refinancings or refundings thereof in whole or in part.
Term Loan Base Rate Margin shall have the meaning
specified in Section 4.1(c).
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<PAGE> 26
Term Loan Base Rate Option shall mean the option of
Zaring Homes to have Term Loans bear interest at the rate and under the
terms and conditions set forth in Section 4.1(b)(i).
Term Loan Base Rate Portion shall mean the portion of
the Term Loans bearing interest at any time under the Term Loan Base
Rate Option.
Term Loan Commitment shall mean, as to any Bank at
any time, the amount initially set forth opposite its name on Schedule
1.1(B) in the column labeled "Amount of Commitment for Term Loans," and
thereafter on Schedule I to the most recent Assignment and Assumption
Agreement, and Term Loan Commitments shall mean the aggregate Term Loan
Commitments of all of the Banks.
Term Loan Euro-Rate Option shall mean the option of
Zaring Homes to have Term Loans bear interest at the rate and under the
terms and conditions set forth in Section 4.1(b)(ii).
Term Loan Euro-Rate Portion shall mean the portion of
the Term Loans bearing interest at any time under the Term Loan
Euro-Rate Option.
Term Loan Maturity Date shall mean April 1, 2001.
Term Loans shall mean collectively, and Term Loan
shall mean separately, all term loans or any term loan made by the
Banks or one of the Banks to Zaring Homes pursuant to Section 3.1.
Term Notes shall mean collectively, and Term Note
shall mean separately, all of the Term Notes of Zaring Homes in the
form of Exhibit 1.1(T) evidencing the Term Loans, together with all
amendments, extensions, renewals, restatements, replacements,
refinancings or refunds thereof in whole or in part.
Transferor Bank shall mean the selling Bank pursuant
to an Assignment and Assumption Agreement.
Unsold Building Inventory shall mean, on any date of
determination, the aggregate book value, determined in accordance with
GAAP (excluding capitalized interest) of all Active Units which are not
subject to an Agreement of Sale and the lots (and related site
improvements and development costs) under such Active Units to be sold
therewith, provided that with respect to each such Active Unit, the
applicable Loan Party has received Regulatory Approval. Any asset which
is Sold Inventory, Model Inventory, Approved Developed Lots Inventory,
Approved Land Under Development Inventory or Approved Land Inventory is
excluded from Unsold Building Inventory.
Zaring Holdings shall mean Zaring Holdings, Inc., a
corporation organized and existing under the laws of the State of Ohio.
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<PAGE> 27
Zaring Homes shall mean Zaring Homes, Inc., a
corporation organized and existing under the laws of the State of Ohio.
Zaring Homes Receivable shall have the meaning set
forth in Section 8.2(d)(vi).
Zaring Indiana shall mean Zaring Homes of Indiana,
L.L.C., a limited liability company organized and existing under the
laws of the State of Indiana.
Zaring Kentucky shall mean Zaring Homes Kentucky,
LLC, a limited liability company organized and existing under the laws
of the Commonwealth of Kentucky.
Zaring National shall mean Zaring National
Corporation, a corporation organized and existing under the laws of the
State of Ohio.
Zaring National Cash Flow From Operations shall mean,
for any period of determination, the following with respect to Zaring
National and its Subsidiaries for each item for such period determined
and consolidated in accordance with GAAP: (i) the sum of net income,
depreciation, amortization, other noncash charges to net income,
interest expense and income tax expense minus (ii) noncash credits to
net income.
Zaring National Fixed Charges shall mean, for any
period of determination, the sum of interest incurred (capitalized and
expensed) plus scheduled principal installments of Indebtedness plus
dividends (to the extent paid in cash), in each case of Zaring National
and its Subsidiaries and First Cincinnati Land LLC and First Cincinnati
Leasing LLC, for such period determined and consolidated in accordance
with GAAP.
Zaring National Tangible Net Worth shall mean, as of
any date of determination, total stockholders' equity minus intangible
assets, in each case of Zaring National and its Subsidiaries as of such
date determined and consolidated in accordance with GAAP (excluding
First Cincinnati Land LLC and First Cincinnati Leasing LLC).
Zaring National Total Liabilities shall mean, for the
fiscal quarter then ended, all Indebtedness and, without duplication,
all other liabilities including minority interests of Zaring National
and its Subsidiaries, determined and consolidated in accordance with
GAAP (excluding First Cincinnati Land LLC and First Cincinnati Leasing
LLC).
1.2. Construction.
Unless the context of this Agreement otherwise clearly
requires, references to the plural include the singular, the singular
the plural, and the part the whole, "or" has the inclusive meaning
represented by the phrase "and/or," and "including" has the meaning
represented by the phrase "including without limitation." References in
this Agreement to "determination" of or by the Agent or the Banks shall
be deemed to include good-faith estimates by the Agent or the Banks (in
the case of quantitative determinations) and good-faith beliefs by the
Agent or the Banks (in the case of qualitative determinations).
Whenever the Agent or the Banks are granted
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<PAGE> 28
the right herein to act in its or their sole discretion, or to grant or
withhold consent, such right shall be exercised in good faith. The
words "hereof," "herein," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. The section and other headings contained
in this Agreement and the Table of Contents preceding this Agreement
are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in any
respect. Section, subsection, schedule and exhibit references are to
this Agreement unless otherwise specified.
1.3. Accounting Principles.
Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters
and all financial statements to be delivered pursuant to this Agreement
shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), and all accounting or
financial terms shall have the meanings ascribed to such terms by GAAP.
2. REVOLVING CREDIT AND SWING LOAN FACILITIES
2.1. The Commitments.
(a) Revolving Credit Commitments.
Subject to the terms and conditions hereof and
relying upon the representations and warranties herein set forth, each
Bank severally agrees to make Revolving Credit Loans to the
Co-Borrowers at any time or from time to time on or after the date
hereof to, but not including, the Revolving Credit Expiration Date;
provided that, after giving effect to such Revolving Credit Loans, (i)
the aggregate principal amount of each Bank's Revolving Credit Loans
outstanding hereunder shall not exceed, at any one time, such Bank's
Revolving Credit Commitment minus such Bank's Ratable Share of the
Letter of Credit Outstandings, and (ii) the aggregate of the Revolving
Facility Usage minus Eligible Development Costs shall not exceed the
Borrowing Base. Within such limits of time and amount and subject to
the other provisions of this Agreement, the Co-Borrowers may borrow,
repay and reborrow pursuant to this Section 2.1(a).
(b) Swing Loan Commitment.
Subject to the terms and conditions hereof and
relying upon the representations and warranties herein set forth, and
in order to facilitate loans and repayments between Settlement Dates,
PNC may make, at its option, cancelable at any time for any reason
whatsoever, swing loans (the "Swing Loans") to the Co-Borrowers at any
time or from time to time after the date hereof to, but not including,
the Revolving Credit Expiration Date in an aggregate principal amount
up to $5,000,000 (the "Swing Loan Commitment"), provided that the
aggregate principal amount of PNC's Swing Loans and the Revolving
Credit Loans of all the Banks at any one time outstanding shall not
exceed the Revolving Credit Commitments of all the Banks. Within such
limits of time and amount and subject to the other provisions of this
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<PAGE> 29
Agreement, the Co-Borrowers may borrow, repay and reborrow pursuant to
this Section 2.1(b).
2.2. Nature of the Banks' and the Borrowers' Obligations.
Each Bank shall be obligated to participate in each request
for Revolving Credit Loans pursuant to Section 2.6 in accordance with
its Ratable Share. The aggregate of each Bank's Revolving Credit Loans
outstanding hereunder to the Co-Borrowers at any time shall never
exceed its Revolving Credit Commitment minus its Ratable Share of the
Letter of Credit Outstandings at such time. The obligations of each
Bank hereunder are several. The failure of any Bank to perform its
obligations hereunder shall not affect the obligations of the
Co-Borrowers to any other party, nor shall any other party be liable
for the failure of such Bank to perform its obligations hereunder. The
Banks shall have no obligation to make Revolving Credit Loans hereunder
on or after the Revolving Credit Expiration Date.
2.3. Certain Fees.
(a) Facility Fees; Extension Fee.
As consideration for each Bank's Revolving Credit
Commitment, a nonrefundable facility fee equal to 0.125% of such Bank's
Revolving Credit Commitment was paid to the Agent for the account of
each Bank on the Original Closing Date. The Co-Borrowers paid to the
Agent for the account of each Bank, as consideration for the extension
of the Revolving Credit Expiration Date pursuant to the Amended and
Restated Credit Agreement, a nonrefundable facility fee equal to 0.03%
of each Bank's Revolving Credit Commitment on the closing date for the
Amended and Restated Credit Agreement. The Co-Borrowers hereby agree to
pay to the Agent for the account of each Bank, as consideration for the
extension of the Revolving Credit Expiration Date pursuant to this
Agreement, a nonrefundable facility fee equal to 0.25% of each Bank's
Revolving Credit Commitment on the Closing Date.
(b) Commitment Fee.
Accruing from the Original Closing Date until the
Revolving Credit Expiration Date, the Co-Borrowers agree to pay to the
Agent for the account of each Bank, as consideration for such Bank's
Revolving Credit Commitment hereunder, a commitment fee (the
"Commitment Fee") equal to a percentage per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) which shall be based upon the Leverage Ratio for the
immediately preceding fiscal quarter, as shown on the Co-Borrowers'
most recently delivered financial statements pursuant to Section 8.3(0)
or 8.3(c), as follows, and subject to adjustment as set forth in
Section 4.1(c)(ii), on the average daily unborrowed amount of such
Bank's Revolving Credit Commitment as the same may be constituted from
time to time (for purposes of this computation, PNC's Swing Loans shall
be deemed to be borrowed amounts under its Revolving Credit Commitment,
Letter of Credit Outstandings shall be deemed to be borrowed amounts
under each Bank's Revolving Credit Commitments in accordance with its
Ratable Share, and the amount of any Revolving Credit Loans that any
Bank wrongfully fails to fund shall not be deemed to be an unborrowed
amount under such Bank's Revolving Credit Commitment):
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<PAGE> 30
<TABLE>
<CAPTION>
Leverage Ratio Commitment Fee
-------------- --------------
<S> <C>
Equal to or greater than 2.00 to 1.00 .40%
Less than 1.99 to 1.00 but greater than or equal to 1.75 to 1.00 .35%
Less than 1.74 to 1.00 but greater than 1.50 to 1.00 .30%
Less than 1.49 to 1.00 but greater than 1.25 .25%
Equal to or less than 1.24 to 1.00 .20%
</TABLE>
All Commitment Fees shall be payable in arrears on the first Business
Day of each July, October, January and April after the date hereof, on
the Revolving Credit Expiration Date and upon any acceleration of the
Notes.
2.4. Permanent Reductions of Commitments.
(a) Voluntary Reductions.
The Co-Borrowers shall be permitted, without premium
or penalty, at any time upon five (5) Business Days' notice to the
Agent, to reduce permanently the Revolving Credit Commitments in an
aggregate amount of not less than $1,000,000 and in integral multiples
thereof for amounts in excess of $1,000,000, and each Bank's Revolving
Credit Commitments shall be reduced in accordance with its Ratable
Share; provided, however, the principal amount of all Revolving Credit
Loans outstanding at any time shall not be permitted to exceed the
Revolving Credit Commitments of all the Banks at such time.
(b) Effect of Reductions.
After each such reduction, the Commitment Fee shall
be calculated upon the Revolving Credit Commitments of the Banks as so
reduced, and the amount of the reduction of the Revolving Credit
Commitments may not be reinstated.
2.5. Loan Requests.
(a) Revolving Credit Loan Requests.
Except as otherwise provided herein, the Co-Borrowers
may from time to time prior to the Revolving Credit Expiration Date
request the Banks to make Revolving Credit Loans, or renew or convert
the Interest Rate Option applicable to existing Revolving Credit Loans,
by the delivery to the Agent, not later than 2:00 p.m., Cincinnati
time, (i) three (3) Business Days prior to the proposed Borrowing Date
with respect to the making of Revolving Credit Loans to which the
Euro-Rate Option applies or the conversion to or the renewal of the
Euro-Rate Option for any Revolving Credit Loans, and (ii) not later
than 11:00 a.m., Cincinnati time, on the proposed Borrowing Date with
respect to the making of a Revolving Credit Loan to which the Base Rate
Option applies or the last day of the preceding Euro-Rate Interest
Period
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<PAGE> 31
with respect to the conversion to the Base Rate Option for any
Revolving Credit Loan, of a duly completed request therefor
substantially in the form of Exhibit 2.5(a) or a request by telephone
immediately confirmed in writing by letter, facsimile or telex (each, a
"Revolving Credit Loan Request" or "Loan Request"), it being understood
that the Agent may rely on the authority of any person making such a
telephonic request without the necessity of receipt of such written
confirmation. Each Revolving Credit Loan Request shall be irrevocable
and shall specify (i) the proposed Borrowing Date; (ii) the aggregate
principal amount of the proposed Revolving Credit Loans comprising the
Borrowing Tranche, which shall be in integral multiples of $250,000 and
not less than $750,000 for Revolving Credit Loans to which the
Euro-Rate Option applies and not less than the lesser of $500,000 or
the maximum amount available under the Revolving Credit Commitments for
Revolving Credit Loans to which the Base Rate Option applies; (iii)
whether the Euro-Rate Option or the Base Rate Option shall apply to the
proposed Revolving Credit Loans comprising the Borrowing Tranche; and
(iv) in the case of Revolving Credit Loans to which the Euro-Rate
Option applies, an appropriate Euro-Rate Interest Period for the
proposed Revolving Credit Loans comprising the Borrowing Tranche. If no
such notice is given at least three (3) Business Days prior to the
expiration of any Euro-Rate Interest Period for any Revolving Credit
Loan or portion thereof, the Co-Borrowers shall be deemed to have
converted such Revolving Credit Loan or portion thereof to the Base
Rate Option commencing upon the last day of that Euro-Rate Interest
Period.
(b) Swing Loan Requests.
Except as otherwise provided herein, the Co-Borrowers
may from time to time prior to the Revolving Credit Expiration Date
request PNC to make Swing Loans by delivery to PNC, not later than
11:00 a.m., Cincinnati time, on the proposed Borrowing Date, of a duly
completed request therefor substantially in the form of Exhibit 2.5(b)
or a request by telephone immediately confirmed in writing by letter,
facsimile or telex (each, a "Swing Loan Request" or "Loan Request"), it
being understood that the Agent may rely on the authority of any person
making such a telephonic request without the necessity of receipt of
such written confirmation. Each Swing Loan Request shall be irrevocable
and shall specify the proposed Borrowing Date and the principal amount
of such Swing Loan, which shall not be less than $100,000.
2.6. Making Loans.
(a) Revolving Credit Loans.
The Agent shall, promptly after receipt by it of a
Revolving Credit Loan Request pursuant to Section 2.5(a), notify the
Banks of its receipt of such Revolving Credit Loan Request, specifying:
(i) the proposed Borrowing Date and the time and method of disbursement
of such Revolving Credit Loan; (ii) the amount and type of such
Revolving Credit Loan and the applicable Euro-Rate Interest Period (if
any); and (iii) the apportionment among the Banks of the Revolving
Credit Loans as determined by the Agent in accordance with Section 2.2.
Each Bank shall remit the principal amount of each Revolving Credit
Loan to the Agent such that the Agent is able to, and the Agent shall,
to the extent the Banks have made funds available to it for such
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<PAGE> 32
purpose, fund such Revolving Credit Loan to the Co-Borrowers in U.S.
Dollars and immediately available funds at the Principal Office prior
to 3:00 p.m., Cincinnati time, on the Borrowing Date; provided that if
any Bank fails to remit such funds to the Agent in a timely manner, the
Agent may elect in its sole discretion to fund with its own funds the
Revolving Credit Loan of such Bank on the Borrowing Date; and provided,
further, that such funding by the Agent shall not be deemed to increase
the Revolving Credit Commitment of the Agent or to reduce the Revolving
Credit Commitment of such Bank.
(b) Swing Loans.
(i) Swing Loans Pursuant to Swing Loan Requests. So
long as PNC elects to make Swing Loans, PNC shall, after receipt by it
of a Swing Loan Request pursuant to Section 2.5(b), fund such Swing
Loan to the Co-Borrowers in U.S. Dollars and immediately available
funds at the Principal Office prior to 5:00 p.m., Cincinnati time, on
the Borrowing Date; provided that after PNC receives notice of default
as set forth in Section 10.9, PNC shall not make any Swing Loans under
Section 2.6(b)(i) or (ii).
(ii) Swing Loans Pursuant to Money Management
Arrangements. So long as PNC elects to make Swing Loans, on any
Business Day in which there is an aggregate negative balance in respect
of the accounts relating to the Money Management Arrangements, PNC
shall, on behalf of the Co-Borrowers and without the requirement that
the Co-Borrowers deliver a Swing Loan Request pursuant to Section
2.5(b), make a Swing Loan to the Co-Borrowers in an amount equal to the
lesser of (a) the amount of the negative balance or (b) $2,500,000, but
in no event more than the amount, if any, available under the Swing
Loan Commitment, which amount shall be deposited in an account related
to the Money Management Arrangements.
2.7. Borrowings to Repay Swing Loans.
Any aggregate positive balance in the accounts related to the
Money Management Arrangements shall, to the extent available at the end
of a Business Day, be automatically applied to the repayment of the
outstanding balance of the Swing Loans. In addition, PNC may, at its
option, exercisable at any time for any reason whatsoever, demand
repayment of the Swing Loans, and each Bank shall make a Revolving
Credit Loan in an amount equal to such Bank's Ratable Share of the
aggregate principal amount of the outstanding Swing Loans, plus, if PNC
so requests, accrued interest thereon, provided that no Bank shall be
obligated in any event to make Revolving Credit Loans in excess of its
Revolving Credit Commitment. Revolving Credit Loans made pursuant to
the preceding sentence shall bear interest at the Base Rate Option and
shall be deemed to have been properly requested in accordance with
Section 2.5(a) without regard to any of the requirements of that
provision. PNC shall provide notice to the Banks (which may be
telephonic or written notice by letter, facsimile or telex) that such
Revolving Credit Loans are to be made under this Section 2.7 and of the
apportionment among the Banks, and the Banks shall be unconditionally
obligated to fund such Revolving Credit Loans (whether or not the
conditions specified in Section 7.2 are then satisfied) by the time PNC
so requests, which shall not be earlier than 3:00 p.m., Cincinnati
time, on the Business Day next succeeding the date the Banks receive
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<PAGE> 33
such notice from PNC.
2.8. Notes.
(a) Revolving Credit Notes.
The obligation of the Co-Borrowers to repay the
aggregate unpaid principal amount of the Revolving Credit Loans made to
it by each Bank, together with interest thereon, shall be evidenced by
a promissory note of the Co-Borrowers dated the date hereof in the form
of Exhibit 1.1(R) payable to the order of each Bank in a face amount
equal to the Revolving Credit Commitment of such Bank. The Revolving
Credit Notes shall be payable in full on the Revolving Credit
Expiration Date or earlier acceleration of the Notes.
(b) Swing Note.
The obligation of the Co-Borrowers to repay the
unpaid principal amount of the Swing Loans made to it by PNC, together
with interest thereon, shall be evidenced by a demand promissory note
of the Co-Borrowers dated the date hereof in the form of Exhibit 1.1(S)
payable to the order of PNC in a face amount equal to the Swing Loan
Commitment.
2.9. Letter of Credit Subfacility.
(a) Issuance of Letters of Credit.
The Co-Borrowers may request the issuance of a letter
of credit (each a "Letter of Credit") on behalf of any Co-Borrower or a
Guarantor by delivering to the applicable Issuing Letter of Credit Bank
with a copy to the Agent a completed application and agreement for
letters of credit in such form as the applicable Issuing Letter of
Credit Bank may specify from time to time by no later than 11:00 a.m.,
Cincinnati time, at least three (3) Business Days, or such shorter
period as may be agreed to by the applicable Issuing Letter of Credit
Bank, in advance of the proposed date of issuance. Subject to the terms
and conditions hereof and in reliance on the agreements of the other
Banks set forth in this Section 2.9, such Issuing Letter of Credit Bank
will issue a Letter of Credit; provided that each Letter of Credit
shall (A) have a maximum maturity of twenty-four (24) months from the
date of issuance and (B) in no event expire later than five (5)
Business Days prior to the Revolving Credit Expiration Date; and
provided, further, that in no event shall (i) the Letter of Credit
Outstandings exceed, at any one time, $15,000,000, (ii) the Revolving
Facility Usage exceed, at any one time, the Revolving Credit
Commitments, or (iii) the Revolving Facility Usage exceed the Borrowing
Base. Each of the Rollover LCs listed on Schedule 2.9(a) has been
deemed to have been issued hereunder on the Original Closing Date by
the applicable Issuing Letter of Credit Bank and shall be deemed to be
a Letter of Credit for all purposes of this Agreement.
(b) Participations.
Immediately upon issuance of each Letter of Credit,
and without further action, each Bank shall be deemed to, and hereby
agrees that it shall, have irrevocably purchased
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<PAGE> 34
for such Bank's own account and risk from the applicable Issuing Letter
of Credit Bank an individual participation interest in such Letter of
Credit and drawings thereunder in an amount equal to such Bank's
Ratable Share of the maximum amount which is or at any time may become
available to be drawn thereunder, and each such Bank shall be
responsible to reimburse such Issuing Letter of Credit Bank immediately
for its Ratable Share of any disbursement under any Letter of Credit
which has not been reimbursed by the Co-Borrowers in accordance with
Section 2.9(d).
(c) Letter of Credit Fees.
The Co-Borrowers shall pay to the Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") equal
to one and one-eighth percent (1-1/8%) per annum (computed on the basis
of a year of 360 days and actual days elapsed), which fee shall be
computed on the daily average Letter of Credit Outstandings. The Letter
of Credit Fee shall be payable quarterly in arrears commencing with the
first Business Day of each July, October, January and April following
issuance of each Letter of Credit and on the Revolving Credit
Expiration Date and any earlier acceleration of the Notes. The
Co-Borrowers shall pay to the applicable Issuing Letter of Credit Bank
for its own account a fronting fee as determined by such Issuing Letter
of Credit Bank and the Co-Borrowers. The Co-Borrowers shall also pay to
the applicable Issuing Letter of Credit Bank for its sole account the
Issuing Letter of Credit Bank's then-in-effect customary fees and
administrative expenses payable with respect to the Letters of Credit
as such Issuing Letter of Credit Bank may generally charge or incur
from time to time in connection with the issuance, maintenance,
modification (if any), assignment or transfer (if any), negotiation and
administration of Letters of Credit.
(d) Disbursements, Reimbursement.
The Co-Borrowers shall be obligated immediately to
reimburse the applicable Issuing Letter of Credit Bank for all amounts
which such Issuing Letter of Credit Bank is required to advance
pursuant to the Letters of Credit (collectively, the "Reimbursement
Obligations"). The applicable Issuing Letter of Credit Bank will
promptly notify (A) the Co-Borrowers of each demand or presentment for
payment or other drawing under each Letter of Credit issued by such
Issuing Letter of Credit Bank, and (B) the Agent of the amount required
to be paid by such Issuing Letter of Credit Bank pursuant to each such
Letter of Credit. The Agent shall promptly notify each Bank of the
amount required to be paid by such Bank as a result of a drawing upon
such Letter of Credit if the applicable Issuing Letter of Credit Bank
shall have notified the Agent that the Co-Borrowers have not timely
reimbursed such Issuing Letter of Credit Bank for such draw. If such
notice is received by a Bank before 10:00 a.m., Cincinnati time, such
Bank shall deliver such Bank's Ratable Share of such payment in
immediately available funds to the Agent on that Business Day. If such
notice is received by a Bank after 10:00 a.m., Cincinnati time, such
Bank shall, before 10:00 a.m., Cincinnati time, on the next succeeding
Business Day, deliver to the Agent such Bank's Ratable Share of such
payment as a Revolving Credit Loan from such Bank in immediately
available funds. Upon receipt of each Bank's Ratable Share of such
payment, the Agent shall immediately deliver such Bank's Ratable Share
of such payment to the applicable Issuing Letter of Credit Bank. Such
amounts advanced
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<PAGE> 35
shall become, at the time the amounts are advanced, Revolving Credit
Loans from the Banks. Such Revolving Credit Loans shall bear interest
at the rate applicable under the Base Rate Option unless the
Co-Borrowers elect to have a different Interest Rate Option apply to
such Revolving Credit Loans pursuant to and in accordance with the
provisions contained in Section 4.1.
(e) Documentation.
The Co-Borrowers agree to be bound by the terms of
each Issuing Letter of Credit Bank's application and agreement for
Letters of Credit and each Issuing Letter of Credit Bank's written
regulations and customary practices relating to Letters of Credit,
though such interpretation may be different from the Co-Borrowers' own.
In the event of a conflict between such application or agreement and
this Agreement, this Agreement shall govern. It is understood and
agreed that, except in the case of gross negligence or willful
misconduct, the Issuing Letter of Credit Bank shall not be liable for
any error, negligence and/or mistakes, whether of omission or
commission, in following the Co-Borrowers' instructions or those
contained in the Letters of Credit or any modifications, amendments or
supplements thereto.
(f) Determinations to Honor Drawing Requests.
In determining whether to honor any request for
drawing under any Letter of Credit by the beneficiary thereof, the
applicable Issuing Letter of Credit Bank shall be responsible only to
determine that the documents and certificates required to be delivered
under such Letter of Credit have been delivered and that they comply on
their face with the requirements of such Letter of Credit.
(g) Nature of Participation and Reimbursement Obligations.
The obligation of the Banks to participate in Letters
of Credit pursuant to Section 2.9(b), the obligation of the Banks
pursuant to Section 2.9(d) to fund Revolving Credit Loans upon a draw
under a Letter of Credit and the obligation of the Co-Borrowers to
reimburse the applicable Issuing Letter of Credit Bank upon a draw
under a Letter of Credit pursuant to Section 2.9(d) shall be absolute,
unconditional and irrevocable and shall be performed strictly in
accordance with the terms of such Sections under all circumstances,
including the following circumstances:
(i) the failure of the Co-Borrowers or any
other Person to comply with the conditions set forth in Section 2.1,
2.5, 2.6 or 7.2 or as otherwise set forth in this Agreement for the
making of a Revolving Credit Loan, it being acknowledged that such
conditions are not required for the making of a Revolving Credit Loan
under Section 2.9(d);
(ii) any lack of validity or enforceability
of any Letter of Credit;
(iii) the existence of any claim, set-off,
defense or other right which the Co-Borrowers, any other Loan Party or
any Bank may have at any time against a beneficiary or any transferee
of any Letter of Credit (or any Person for whom any such transferee may
be acting), the Agent or other Bank or any other Person or, whether in
connection with this
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<PAGE> 36
Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between the
Co-Borrowers or Subsidiaries of the Co-Borrowers and the beneficiary
for which any Letter of Credit was procured);
(iv) any draft, demand, certificate or other
document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(v) payment by the applicable Issuing Letter
of Credit Bank under any Letter of Credit against presentation of a
demand, draft or certificate or other document which does not comply
with the terms of such Letter of Credit;
(vi) any adverse change in the business,
operations, properties, assets, condition (financial or otherwise) or
prospects of the Co-Borrowers or Subsidiaries of the Co-Borrowers;
(vii) any breach of this Agreement or any
other Loan Document by any party thereto;
(viii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing;
(ix) the fact that an Event of Default or a
Potential Default shall have occurred and be continuing; or
(x) the Revolving Credit Expiration Date
shall have passed or this Agreement or the Revolving Credit Commitments
hereunder shall have been terminated.
(h) Indemnity.
In addition to amounts payable as provided in Section
10.5, the Co-Borrowers hereby agree to protect, indemnify, pay and save
harmless each Issuing Letter of Credit Bank from and against any and
all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable fees, expenses and disbursements of
counsel and allocated costs of internal counsel) which such Issuing
Letter of Credit Bank may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit, other
than as a result of (A) the gross negligence or willful misconduct of
such Issuing Letter of Credit Bank as determined by a final judgment of
a court of competent jurisdiction, or (B) subject to the following
clause (ii), the wrongful dishonor by such Issuing Letter of Credit
Bank of a proper demand for payment made under any Letter of Credit; or
(ii) the failure of such Issuing Letter of Credit Bank to honor a
drawing under any such Letter of Credit as a result of any act or
omission, whether rightful or wrongful, of any present or future de
jure or de facto government or governmental authority (all such acts or
omissions herein called "Governmental Acts").
(i) Liability for Acts and Omissions.
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<PAGE> 37
As between any Loan Party and each Issuing Letter of
Credit Bank, the Co-Borrowers assume all risks of the acts and
omissions of, or misuse of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, the applicable Issuing Letter of Credit
Bank shall not be responsible for: (i) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any
party in connection with the application for an issuance of any such
Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any such Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason; (iii)
failure of the beneficiary of any such Letter of Credit to comply fully
with any conditions required in order to draw upon such Letter of
Credit; (iv) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any such Letter of Credit or of the proceeds thereof;
(vii) the misapplication by the beneficiary of any such Letter of
Credit; or (viii) any consequences arising from causes beyond the
control of such Issuing Letter of Credit Bank, including any
Governmental Acts, and none of the above shall affect or impair, or
prevent the vesting of, any of such Issuing Letter of Credit Bank's
rights or powers hereunder.
In furtherance and extension, and not in limitation,
of the specific provisions set forth above, any action taken or omitted
by the applicable Issuing Letter of Credit Bank under or in connection
with the Letters of Credit issued by it or any documents and
certificates delivered thereunder, if taken or omitted in good faith,
shall not put such Issuing Letter of Credit Bank under any resulting
liability to the Co-Borrowers.
The Banks and any Loan Party may not commence a
proceeding against any Issuing Letter of Credit Bank for wrongful
disbursement under a Letter of Credit as a result of acts or omissions
constituting gross negligence or willful misconduct of such Issuing
Letter of Credit Bank until the Banks have made and the Co-Borrowers
have repaid the Revolving Credit Loans described in Section 2.9(d).
2.10. Extension by Banks of the Revolving Credit Expiration Date.
Upon or promptly after delivery by the Co-Borrowers of the
annual financial statements to be provided under Section 8.3(c) for the
fiscal year ending December 31, 1997 or any subsequent fiscal year, the
Co-Borrowers may request a one-year extension of the Revolving Credit
Expiration Date by written notice to the Banks, and the Banks agree to
respond to the Co-Borrowers' request for an extension within sixty (60)
days following receipt of the request; provided, however, that all the
Banks must consent to any extension of the Revolving Credit Expiration
Date, and the failure of the Banks to respond within such time period
shall not in any manner constitute an extension of the Revolving Credit
Expiration Date.
2.11. Use of Proceeds.
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<PAGE> 38
The proceeds of the Revolving Credit Loans shall be used for
lawful purposes in accordance with the second recital clause above.
3. TERM LOANS
3.1. Term Loan Commitments.
Subject to the terms and conditions hereof and relying upon
the representations and warranties herein set forth, each Bank made a
term loan (the "Term Loan") to Zaring Homes on the Original Closing
Date in the principal amount of such Bank's Term Loan Commitment.
3.2. Nature of Banks' Obligations With Respect to Term Loans.
The Banks shall have no obligation to make Term Loans
hereunder after the Original Closing Date. The Term Loan Commitments
are not revolving credit commitments, and Zaring Homes shall not have
the right to borrow, repay or reborrow under Section 3.1.
3.3. Term Loan Facility Fee.
As consideration for such Bank's Term Loan Commitment, a
nonrefundable facility fee equal to 0.125% of such Bank's Term Loan
Commitment was paid to the Agent for the account of each Bank by Zaring
Homes on the Original Closing Date.
3.4. Term Loan Notes.
The obligation of Zaring Homes to repay the unpaid principal
amount of the Term Loans made to it by each Bank, together with
interest thereon, shall be evidenced by a Term Note dated the Original
Closing Date in the form of Exhibit 1.1(T) payable to the order of each
Bank in a face amount equal to the Term Loan Commitment of such Bank.
The principal amount as provided therein of the Term Notes shall be
payable quarterly in arrears on the first Business Day of each July,
October, January and April after the date hereof in twenty (20) equal
quarterly installments of $750,000, beginning on July 1, 1996, with a
final installment on the Term Loan Maturity Date, or in full upon the
earlier acceleration of the Notes.
3.5. Use of Proceeds.
The proceeds of the Term Loans shall be used for lawful
purposes in accordance with the second recital clause above.
4. INTEREST RATES
4.1. Interest Rate Options.
The Borrowers shall pay interest in respect of the outstanding
unpaid principal amount of the Loans as selected by them from the Base
Rate Option or Euro-Rate Option set
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<PAGE> 39
forth below applicable to the Loans, it being understood that, subject
to the provisions of this Agreement, the Borrowers may select different
Interest Rate Options and different Euro-Rate Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and
may convert to or renew one or more Interest Rate Options with respect
to all or any portion of the Loans comprising any Borrowing Tranche;
provided that there shall not be at any one time outstanding more than
six (6) Borrowing Tranches in the aggregate among all the Loans
accruing interest at the Euro-Rate Option, and provided, further, that
only the Revolving Credit Base Rate Option shall be applicable with
respect to the Swing Loans. The Agent's determination of a rate of
interest and any change therein shall, in the absence of manifest
error, be conclusive and binding upon all parties hereto. If at any
time the designated rate applicable to any Loan made by the Bank
exceeds such Bank's highest lawful rate, the rate of interest on such
Bank's Loan shall be limited to such Bank's highest lawful rate;
provided, that the portion of interest which exceeds the amount such
Bank can lawfully receive and, thus, is not paid to such Bank shall be
due and payable upon the following Interest Payment Date(s) to the
extent lawfully permissible.
(a) Revolving Credit Interest Rate Options.
The Co-Borrowers shall have the right to select from
the following Interest Rate Options applicable to the Revolving Credit
Loans:
(i) Revolving Credit Base Rate Option: A
fluctuating rate per annum (computed on the basis of a year of (i) 365
or 366 days, as the case may be, and actual days elapsed for Revolving
Credit Loans based on the Agent's prime rate or (ii) 360 days and
actual days elapsed for Revolving Credit Loans based on the Federal
Funds Effective Rate) equal to the Base Rate plus the Revolving Credit
Base Rate Margin (as set forth in Section 4.1(c)), such interest rate
to change automatically from time to time effective as of the effective
date of each change in the Base Rate or the Revolving Credit Base Rate
Margin.
(ii) Revolving Credit Euro-Rate Option: A
rate per annum (computed on a basis of a year of 360 days and actual
days elapsed) equal to the Euro-Rate plus the Revolving Credit
Euro-Rate Margin (as set forth in Section 4.1(c)). The Euro-Rate shall
be adjusted automatically with respect to any Euro-Rate Portion
outstanding on the effective date of any change in the Euro-Rate
Reserve Percentage notwithstanding that such effective date occurs
during a Euro-Rate Interest Period. The Agent shall give prompt notice
to the Co-Borrowers of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive.
(b) Term Loan Interest Rate Options.
Zaring Homes shall have the right to select from the
following Interest Rate Options applicable to the Term Loans:
(i) Term Loan Base Rate Option: A
fluctuating rate per annum (computed on the basis of a year of (i) 365
or 366 days, as the case may be, and actual days elapsed for Term Loans
based on the Agent's prime rate or (ii) 360 days and actual days
elapsed for Term Loans based on the Federal Funds Effective Rate) equal
to the Base Rate plus the Term
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<PAGE> 40
Loan Base Rate Margin (as set forth in Section 4.1(c)), such interest
rate to change automatically from time to time effective as of the
effective date of each change in the Base Rate or the Term Loan Base
Rate Margin.
(ii) Term Loan Euro-Rate Option: A rate per
annum (computed on a basis of a year of 360 days and actual days
elapsed) equal to the Euro-Rate plus the Term Loan Euro-Rate Margin (as
set forth in Section 4.1(c)). The Euro-Rate shall be adjusted
automatically with respect to any Euro-Rate Portion outstanding on the
effective date of any change in the Euro-Rate Reserve Percentage
notwithstanding that such effective date occurs during a Euro-Rate
Interest Period. The Agent shall give prompt notice to Zaring Homes of
the Euro-Rate as determined or adjusted in accordance herewith, which
determination shall be conclusive.
(c) Interest Rate Margins.
(i) The base rate margin applicable to
Revolving Credit Loans (the "Revolving Credit Base Rate Margin") on the
Closing Date shall equal one hundred twenty-five thousandths percent
(0.125%). The base rate margin applicable to Term Loans (the "Term Loan
Base Rate Margin") on the Closing Date shall equal one hundred
twenty-five thousandths percent (0.125%). The Euro-Rate margin
applicable to Revolving Credit Loans (the "Revolving Credit Euro-Rate
Margin") on the Closing Date shall equal two and thirty hundredths
percent (2.30%). The Euro-Rate margin applicable to Term Loans (the
"Term Loan Euro-Rate Margin") on the Closing Date shall equal two and
thirty hundredths percent (2.30%). After the Closing Date, the
Revolving Credit and Term Loan Base Rate Margins and the Revolving
Credit and Term Loan Euro-Rate Margins shall be based upon the Leverage
Ratio for the Borrower's immediately preceding fiscal quarter, as shown
on the Borrowers' most recently delivered financial statements pursuant
to Section 8.3(b) or 8.3(c), as follows:
<TABLE>
<CAPTION>
Revolving Term Loan Revolving Term Loan
Credit Euro-Rate Credit Base Base Rate
Leverage Ratio Euro-Rate Margin Margin Rate Margin Margin
-------------- ---------------- ------ ----------- ------
<S> <C> <C> <C> <C>
Equal to or greater than 2.00 to 1.00 2.30% 2.30% 0.125% 0.125%
Less than 1.99 to 1.00 but greater than
or equal to 1.75 to 1.00 2.10% 2.10% 0% 0%
Less than 1.74 to 1.00 but greater than 1.90% 1.90% 0% 0%
1.50 to 1.00
Less than 1.49 to 1.00 but greater than 1.25 1.70% 1.70% 0% 0%
Equal to or less than 1.24 to 1.00 1.50% 1.50% 0% 0%
</TABLE>
(ii) Except as noted above, in the event the
Leverage Ratio has changed such that a different rate is applicable,
the rate shall be effective as of the first
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<PAGE> 41
Settlement Date following receipt by the Agent of the financial
statements, notwithstanding that such effective date occurs during a
Euro-Rate Interest Period. In the event the financial statements of the
Borrowers with respect to any fiscal quarter or fiscal year are not
delivered as required under Sections 8.3(b) and 8.3(c), any rate
reduction then in effect shall continue until the first Settlement Date
following receipt by the Agent of financial statements reflecting that
a different Base Rate Margin, Euro-Rate Margin or Commitment Fee is
applicable as a result of a change in the Leverage Ratio; provided,
that if such financial statements indicate that the Euro-Rate Margin,
Base Rate Margin or Commitment Fee should have been higher than the
margins or fee which was in effect, as a result of the Borrowers'
failure to deliver such financial statements in a timely manner, the
Euro-Rate Margin, the Base Rate Margin and Commitment Fee shall be
retroactively adjusted, and the Borrowers shall immediately, upon
written notice from the Agent, pay to the Agent, for the ratable
benefit of the Banks, the additional interest to which the Banks are
entitled.
(d) Rate Quotations.
The Borrowers may call the Agent on or before the
date on which a Loan Request is to be delivered to receive an
indication of the rates then in effect, but it is acknowledged that
such indication shall not be binding on the Agent or the Banks or
affect the rate of interest which thereafter is actually in effect when
the election is made.
4.2. Euro-Rate Interest Periods.
At any time when the Borrowers shall select, convert to or
renew the Euro-Rate Option to apply to any Revolving Credit Loan or
Term Loan, the Borrowers shall notify the Agent thereof at least three
(3) Business Days prior to the effective date of such Euro-Rate Option
by delivering a Loan Request. The notice shall select a Euro-Rate
interest period during which such Interest Rate Option shall apply,
such periods to be one (1), two (2), three (3) or six (6) months (the
"Euro-Rate Interest Periods"); provided that:
(a) any Euro-Rate Interest Period which would otherwise end on a date which
is not a Business Day shall be extended to the next succeeding Business
Day, unless such Business Day falls in the next calendar month, in
which case such Euro-Rate Interest Period shall end on the next
preceding Business Day;
(b) any Euro-Rate Interest Period which begins on the last Business Day of
a calendar month for which there is no numerically corresponding
Business Day in the subsequent calendar month during which such
Interest Period is to end shall end on the last Business Day of such
subsequent month;
(c) the Euro-Rate Portion for each Euro-Rate Interest Period shall be in
integral multiples of $250,000 and not less than $750,000;
(d) the Borrowers shall not select, convert to or renew a Euro-Rate
Interest Period for any portion of the Revolving Credit Loans that
would end after the Revolving Credit Expiration Date or any portion of
the Term Loans that would end after the Term Loan Maturity Date; and
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<PAGE> 42
(e) in the case of the renewal of the Euro-Rate Option at the end of a
Euro-Rate Interest Period, the first day of the new Euro-Rate Interest
Period shall be the last day of the preceding Euro-Rate Interest
Period, without duplication in payment of interest for such day.
4.3. Interest After Default.
To the extent permitted by Law, upon the occurrence and during
the continuance of an Event of Default, and after expiration of any
applicable grace period, (a) the Letter of Credit Fee applicable
pursuant to Section 2.9(c) shall be increased by 2% per annum until
paid in full (before and after judgment), (b) each Loan shall
thereafter bear interest at a rate per annum equal to 2% above the
applicable Base Rate Option until paid in full (before and after
judgment), and (c) each other obligation hereunder, if not paid when
due, shall bear interest at a rate per annum equal to the sum of the
rate of interest applicable under the Revolving Credit Base Rate Option
plus an additional 2% per annum from the time such obligation becomes
due and payable until paid in full (before and after judgment), payable
on demand. The Borrowers acknowledge that such increased interest rate
reflects, among other things, the fact that such Loans or other amounts
have become a substantially greater risk given their default status and
that the Banks are entitled to additional compensation for such risk.
4.4. Euro-Rate Unascertainable.
If:
(a) on any date on which a Euro-Rate would otherwise be determined, the
Agent shall have determined (which determination shall be conclusive
absent manifest error) that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
(ii) a contingency has occurred which materially and
adversely affects the London interbank market; or
(b) at any time any Bank shall have determined (which determination shall
be conclusive absent manifest error) that:
(i) the making, maintenance or funding of any Loan to
which the Euro-Rate Option applies has been made impracticable or
unlawful by compliance by such Bank in good faith with any Law or any
interpretation or application thereof by any Official Body or with any
request or directive of any such Official Body (whether or not having
the force of Law), or
(ii) the Euro-Rate Option will not adequately and
fairly reflect the cost to such Bank of the establishment or
maintenance of any Loan, or if any Bank determines after making all
reasonable efforts that deposits of the relevant amount in Dollars for
the relevant Euro-Rate Interest Period for a Loan to which the
Euro-Rate Option applies are not available to such Bank in the London
interbank market,
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<PAGE> 43
then, in the case of any event specified in subsection (a) above, the
Agent shall promptly so notify the Banks and the Borrowers thereof; and
in the case of an event specified in subsection (b) above, such Bank
shall promptly so notify the Agent and attach a certificate to such
notice as to the specific circumstances of such notice, and the Agent
shall promptly send copies of such notice and certificate to the other
Banks and the Borrowers. Upon such date as shall be specified in such
notice (which shall not be earlier than the date such notice is given),
the obligation of (A) the Banks, in the case of such notice given by
the Agent, or (B) such Bank, in the case of such notice given by such
Bank, to allow the Borrowers to select, convert to or renew the
Euro-Rate Option shall be suspended until the Agent shall have later
notified the Borrowers, or such Bank shall have later notified the
Agent, of the Agent's or such Bank's, as the case may be, determination
(which determination shall be conclusive absent manifest error) that
the circumstances giving rise to such previous determination no longer
exist. If at any time the Agent makes a determination under subsection
(a) of this Section 4.4 or any Bank notifies the Agent of a
determination under subsection (b) of this Section 4.4 and, in either
case, the Borrowers have previously notified the Agent of their
selection of, conversion to or renewal of the Euro-Rate Option and such
Euro-Rate Option has not yet gone into effect, such notification shall
be deemed to provide for selection of, conversion to or renewal of the
Base Rate Option otherwise available with respect to such Loans. If any
Bank notifies the Agent of a determination under subsection (b) of this
Section 4.4, the Borrowers shall, subject to the Borrowers'
indemnification obligations under Section 5.5(b), as to any Loan of the
Bank to which the Euro-Rate Option applies, on the date specified in
such notice either convert such Loan to the Base Rate Option otherwise
available with respect to such Loan or prepay such Loan in accordance
with Section 5.4. Absent due notice from the Borrowers of conversion or
prepayment, such Loan shall automatically be converted to the Base Rate
Option otherwise available with respect to such Loan upon such
specified date.
4.5. Selection of Interest Rate Options
If the Borrowers fail to select a Euro-Rate Interest Period in
accordance with the provisions of Section 4.2 in the case of renewal of
the Euro-Rate Portion, the Borrowers shall be deemed to have converted
such Loan or option thereof to the Base Rate Option otherwise available
with respect to such Loans, commencing upon the last day of that
Euro-Rate Interest Period. If an Event of Default shall occur and be
continuing, the Agent shall limit the Borrowers to the Base Rate Option
hereunder; provided, however, that, unless the Loans have been
accelerated hereunder, such limitation with respect to the Euro-Rate
Portion shall not be effective until the expiration of any applicable
Euro-Rate Interest Period.
5. PAYMENTS
5.1. Payments.
All payments and prepayments to be made in respect of
principal, interest, Commitment Fees, Letter of Credit Fees, Agent's
Fees or other amounts due from the Borrowers hereunder (other than the
fees and expenses referenced in Section 2.9(c) which are to be paid to
the Issuing Letter of Credit Bank as provided in such Section) shall be
payable prior to
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<PAGE> 44
11:00 a.m., Cincinnati time (or 3:00 p.m., Cincinnati time, in the
event payments are to be made using the proceeds of Loans to be made on
such date), on the date when due without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived by the
Borrowers, and without set-off, counterclaim or other deduction of any
nature, and an action therefor shall immediately accrue. Such payments
shall be made to the Agent at the Principal Office for the account of
PNC with respect to the Swing Loans and the ratable accounts of the
Banks with respect to the Revolving Credit Loans and Term Loans in U.S.
Dollars and in immediately available funds, and the Agent shall
promptly distribute such amounts to the Banks in immediately available
funds, subject to the provisions of Section 5.6; provided that in the
event payments are received by 11:00 a.m., Cincinnati time, by the
Agent with respect to the Revolving Credit Loans on the Settlement Date
and such payments are not distributed to the Banks on the same day
received by the Agent, the Agent shall pay the Banks the Federal Funds
Effective Rate with respect to the amount of such payments for each day
held by the Agent and not distributed to the Banks. The Agent's and
each Bank's statement of account, ledger or other relevant record
shall, in the absence of manifest error, be conclusive as the statement
of the amount of principal of and interest on the Loans and other
amounts owing under this Agreement and shall be deemed an "account
stated."
The Loan Parties hereby authorize the Agent to charge any
account designated by the Loan Parties related to the Money Management
Arrangements or any deposit account maintained by the Loan Parties,
individually or jointly with others, with PNC for any payment when due
under this Agreement or the other Loan Documents. Payments received
will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in such order as the Agent may
elect in its sole discretion. In the event there are insufficient
balances in the designated accounts related to the Money Management
Arrangements to pay any charges, fees and expenses (including
attorneys' fees), accrued interest and principal, as any of the same
shall become due, PNC may advance funds as provided in Section
2.6(b)(ii) to the extent there is availability under the Swing Loan
Commitment. Otherwise, any such amounts shall be immediately due and
payable by the Borrowers.
5.2. Pro Rata Treatment of the Banks.
Each borrowing, and each selection of, conversion to or
renewal of any Interest Rate Option and each payment or prepayment by
the Borrowers with respect to principal, interest, Commitment Fees,
Letter of Credit Fees or other fees (except for the Agent's Fees or any
Issuing Letter of Credit Bank's fees) or amounts due from the Borrowers
hereunder to the Banks with respect to the Revolving Credit Loans and
Term Loans, shall (except as provided in Section 4.4(b), 5.4 or 5.5) be
made in proportion to the Revolving Credit Loans and Term Loans
outstanding from each Bank and, if no Revolving Credit Loans or Term
Loans are then outstanding, in proportion to the Ratable Share of each
Bank.
5.3. Interest Payment Dates.
Interest on Loans to which the Base Rate Option applies shall
be due and payable in arrears on the first Business Day of each July,
October, January and April after the date hereof,
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on the Revolving Credit Expiration Date (with respect to Revolving
Credit Loans and Swing Loans), on the Term Loan Maturity Date (with
respect to Term Loans) and upon any earlier acceleration of the Notes.
Interest on the Euro-Rate Portion shall be due and payable on the last
day of each Euro-Rate Interest Period and, if any such Euro-Rate
Interest Period is longer than three (3) months, also on the ninetieth
(90th) day of such Euro-Rate Interest Period, on the Revolving Credit
Expiration Date (with respect to Revolving Credit Loans), on the Term
Loan Maturity Date (with respect to Term Loans) and upon any earlier
acceleration of the Notes.
5.4. Prepayments.
(a) The Borrowers shall have the right at their option from time to time to
prepay the Loans in whole or part without premium or penalty (except as
provided in subsection (b) below or in Section 5.5):
(i) at any time with respect to any Swing Loan or any
other Loan to which the Base Rate Option applies;
(ii) on the last day of the applicable Euro-Rate
Interest Period with respect to Revolving Credit Loans or Term Loans to
which the Euro-Rate Option applies; and
(iii) on the date specified in a notice by any Bank
pursuant to Section 4.4(b) with respect to any Revolving Credit Loan or
Term Loan to which the Euro-Rate Option applies.
Whenever the Borrowers desire to prepay any part of the Loans,
they shall provide a prepayment notice to the Agent, at least one (1)
Business Day prior to the date of prepayment of Revolving Credit Loans
or Term Loans or no later than 3:00 p.m., Cincinnati time, on the date
of prepayment of Swing Loans, setting forth the following information:
(x) the date, which shall be a Business
Day, on which the proposed
prepayment is to be made; and
(y) the total principal amount of such
prepayment, which shall not be less
than $100,000 for any Swing Loan or
$1,000,000 for any Revolving Credit
Loan or Term Loan.
All prepayment notices shall be irrevocable. The principal
amount of the Loans to which the Euro-Rate Option applies for which a
prepayment notice is given, together with interest on such principal
amount and any related fees, shall be due and payable on the date
specified in such prepayment notice as the date on which the proposed
prepayment is to be made. The principal amount of the Loans to which
the Base Rate Option applies for which a prepayment notice is given
shall be due and payable on the date specified in such prepayment
notice as the date on which the proposed prepayment is made; but
interest on such principal amount and any related fees shall be due and
payable on the next scheduled Interest Payment Date. All prepayments
permitted pursuant to this Section 5.4(a) shall be applied to the
unpaid installments of principal of the Loans in the inverse order of
scheduled maturities. Unless
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<PAGE> 46
otherwise specified by the Borrowers with respect to prepayments of the
Euro-Rate Portion permitted under this Section 5.4(a)(ii) or (iii)
above, all prepayments shall be applied first to the Base Rate Portion
and then to the Euro-Rate Portion, subject to Section 5.5(b).
(b) In the event any Bank (i) gives notice under Section 4.4(b) or Section
5.5(a), (ii) does not fund Loans because the making of such Loans would
contravene any Law applicable to such Bank pursuant to Section 7.2, or
(iii) becomes subject to the control of an Official Body (other than
normal and customary supervision), then the Borrowers shall have the
right at their option, with the consent of the Agent, which shall not
be unreasonably withheld, to prepay the Loans of such Bank in whole,
together with all interest accrued thereon, within ninety (90) days
after (w) receipt of such Bank's notice under Section 4.4(b) or 5.5(a),
(x) the date such Bank has failed to fund Loans pursuant to Section 7.2
because the making of such Loans would contravene Law applicable to
such Bank, (y) the date of obtaining the consent which such Bank has
not approved, or (z) the date such Bank became subject to the control
of an Official Body, as applicable; provided that the Borrowers shall
also pay to such Bank at the time of such prepayment any amounts
required under Section 5.4(a) and Section 5.5 and any accrued interest
due on such amount and any related fees; provided, however, that the
Revolving Credit Commitment of such Bank shall be provided by one or
more of the remaining Banks or a replacement bank acceptable to the
Agent and the Borrowers in the exercise of their reasonable discretion;
and provided, further, the remaining Banks shall have no obligation
hereunder to increase their Revolving Credit Commitments.
Notwithstanding the foregoing, the Agent may be replaced only in
accordance with Section 10.14, and the Agent must at all times be a
Bank hereunder.
(c) Whenever the Revolving Facility Usage minus the Eligible Development
Costs exceeds the Borrowing Base, the Co-Borrowers shall make, within
three (3) Business Days after the Co-Borrowers learn of such excess and
whether or not the Agent has given notice to such effect, a mandatory
prepayment of principal equal to the excess of the Revolving Facility
Usage minus the Eligible Development Costs over the Borrowing Base,
together with accrued interest on such principal amount at the default
rate set forth in Section 4.3.
5.5. Additional Compensation in Certain Circumstances.
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
Capital Adequacy Requirements, Expenses, Etc.
If any Law, guideline or interpretation, or any
change in any Law, guideline or interpretation or the application
thereof by any Official Body charged with the interpretation or
administration thereof, or compliance with any request or directive
(whether or not having the force of Law) of any central bank or other
Official Body:
(i) subjects any Bank to any tax or changes
the basis of taxation with respect to this Agreement, the Notes, the
Loans or payments by the Borrowers of principal, interest, Commitment
Fees, Letter of Credit Fees, Agent's Fees or other amounts due from the
Borrowers hereunder or under the Notes (except for taxes on the overall
net income of such Bank),
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<PAGE> 47
(ii) imposes, modifies or deems applicable
any reserve, special deposit or similar requirement against credits or
commitments to extend credit extended by, or assets (funded or
contingent) of, deposits with or for the account of, or other
acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable
any capital adequacy or similar requirement (A) against assets (funded
or contingent) of, or credits or commitments to extend credit extended
by, any Bank, or (B) otherwise applicable to the obligations of any
Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to,
reduce the income receivable by or impose any expense (including loss
of margin) upon any Bank with respect to this Agreement, the Notes or
the making, maintenance or funding of any part of the Loans (or, in the
case of any capital adequacy or similar requirement, to have the effect
of reducing the rate of return on the capital of such Bank or such
Bank's parent, taking into consideration the customary policies of such
Bank or such Bank's parent with respect to capital adequacy) by an
amount which such Bank in its sole discretion deems to be material,
such Bank shall from time to time notify in writing the Borrowers and
the Agent of the amount determined in good faith (using any averaging
and attribution methods employed in good faith) by such Bank (which
determination shall be conclusive absent manifest error) to be
necessary to compensate such Bank for such increase in cost, reduction
of income or additional expense, provided that a Bank shall not give
the Borrowers notice hereunder unless the Bank is generally imposing
such increased costs on its similarly situated customers. Such notice
shall set forth in reasonable detail the basis for such determination.
Such amount shall be due and payable by the Borrowers to such Bank
within thirty (30) calendar days after such notice is given.
(b) Indemnity.
In addition to the compensation required by
subsection (a) of this Section 5.5, the Borrowers shall indemnify each
Bank against all liabilities, losses or expenses (including loss of
margin and any loss or expense incurred in liquidating or employing
deposits from third parties, including any loss or expense incurred in
connection with funds acquired by a Bank to fund or maintain Loans
subject to the Euro-Rate Option) which such Bank sustains or incurs
hereunder as a result of any:
(i) payment, prepayment, conversion or
renewal of any Loan to which the Euro-Rate Option applies on a day
other than the last day of the corresponding Euro-Rate Interest Period
(whether or not such payment, prepayment, conversion or renewal is
mandatory, voluntary or automatic and whether or not such payment or
prepayment is then due);
(ii) attempt by the Borrowers to revoke
(expressly, by later inconsistent notices or otherwise) in whole or
part any notice relating to Loan Requests under Section 2.5 or
voluntary prepayments under Section 5.4; or
(iii) default by the Borrowers in the
performance or observance of any covenant or condition contained in
this Agreement or any other Loan Document, including any
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<PAGE> 48
failure of the Borrowers to pay when due (by acceleration or otherwise)
any principal, interest, Commitment Fees, Letter of Credit Fees,
Agent's Fees or any other amount due hereunder.
Notwithstanding the foregoing, nothing in the foregoing
Section 5.5(b)(i), (ii) or (iii) shall be construed to permit the
Borrowers to engage in any action otherwise prohibited hereunder. If
any Bank sustains or incurs any such loss or expense, it shall from
time to time notify the Borrowers of the amount determined in good
faith by such Bank (which determination shall be conclusive absent
manifest error and may include such assumptions, allocations of costs
and expenses and averaging or attribution methods as such Bank shall
deem reasonable) to be necessary to indemnify such Bank for such loss
or expense. Such notice shall set forth in writing in reasonable detail
the basis for such determination. Such amount shall be due and payable
by the Borrowers to such Bank ten (10) Business Days after such notice
is given.
5.6. Settlement Date Procedures.
In order to minimize the transfer of funds between the Banks
and the Agent, the Co-Borrowers may borrow, repay and reborrow Swing
Loans, and PNC may make Swing Loans, as provided in Section 2.1(b)
during the period between Settlement Dates. Not later than noon,
Cincinnati time, on each Settlement Date, the Agent shall notify each
Bank of its Ratable Share of the Loans (including both the Swing Loans
made by the Agent and the Revolving Credit Loans made by the Banks).
Prior to 3:00 p.m., Cincinnati time, on such Settlement Date, each Bank
shall pay to the Agent the amount equal to the positive difference, if
any, between its Ratable Share of the Revolving Credit Loans and Swing
Loans and its Revolving Credit Loans, and the Agent shall pay to each
Bank its Ratable Share of all payments made by the Co-Borrowers to the
Agent with respect to the Revolving Credit Loans. The Agent shall also
effect settlement in accordance with the foregoing sentence on the
proposed Borrowing Dates for Revolving Credit Loans and may at its
option effect settlement on any other Business Day. These settlement
procedures are established solely as a matter of administrative
convenience, and nothing contained in this Section 5.6 shall relieve
the Banks of their obligation to fund Revolving Credit Loans on dates
other than a Settlement Date pursuant to Section 2.7. The Agent may at
any time at its option, for any reason whatsoever, require each Bank to
pay immediately to the Agent such Bank's Ratable Share of the
outstanding Revolving Credit Loans and Swing Loans (provided the
principal amount of such Bank's Revolving Credit Loans shall not exceed
its Revolving Credit Commitment), and each Bank may at any time require
the Agent to pay immediately to such Bank its Ratable Share of all
payments made by the Co-Borrowers to the Agent with respect to the
Revolving Credit Loans.
6. REPRESENTATIONS AND WARRANTIES
6.1. Representations and Warranties.
The Loan Parties jointly and severally represent and warrant
to the Agent and each of the Banks as follows:
(a) Organization and Qualification.
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<PAGE> 49
Each of the Loan Parties is a corporation or
partnership duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each Loan Party has the
lawful power to own or lease its properties and to engage in the
business it presently conducts or proposes to conduct. Each Loan Party
is duly licensed or qualified and in good standing in each jurisdiction
listed on Schedule 6.1(a) hereto. Schedule 6.1(a) lists all of the
jurisdictions where the property owned or leased by it or the nature of
the business transacted by it or both make such licensing or
qualification necessary.
(b) Capitalization and Ownership.
The authorized capital stock of Zaring Homes consists
of 18,000,000 shares of common stock, 1,000,000 shares of voting
preferred stock and 1,000,000 shares of nonvoting preferred stock. As
of the date hereof, the number of issued and outstanding shares of
preferred stock is set forth on Schedule 6.1(b). The authorized capital
stock of Zaring Holdings consists of 850 shares of common stock. As of
the date hereof, the number of issued and outstanding shares of common
and preferred stock is set forth on Schedule 6.1(b). As of the date
hereof, Hearthside has 100 units outstanding; 99 units are owned by
Zaring National and 1 unit is owned by Zaring Holding. All of the
issued and outstanding capital stock of Zaring Homes and Zaring
Holdings is owned by Zaring National. Allen G. Zaring, III and Anne M.
Zaring, directly or indirectly, own the issued and outstanding shares
of common stock of Zaring National set forth on Schedule 6.1(b). There
are no options, warrants or other rights outstanding to purchase any
such shares except as indicated on Schedule 6.1(b).
(c) Subsidiaries.
Schedule 6.1(c) states the name of each of the
Borrowers' Subsidiaries, its jurisdiction of incorporation, its
authorized capital stock, the issued and outstanding shares (referred
to herein as the "Subsidiary Shares") and the owners thereof if it is a
corporation and its outstanding partnership interests (the "Partnership
Interests") if it is a partnership. Each Borrower and each Subsidiary
of each Borrower has good and marketable title to all of the Subsidiary
Shares and Partnership Interests it purports to own, free and clear in
each case of any Lien. All Subsidiary Shares and Partnership Interests
have been validly issued, and all Subsidiary Shares are fully paid and
nonassessable. All capital contributions in connection with the
issuance of the Partnership Interests have been made or paid, as the
case may be. There are no options, warrants or other rights outstanding
to purchase any such Subsidiary Shares or Partnership Interests except
as indicated on Schedule 6.1(c).
(d) Power and Authority.
Each Loan Party has full corporate or partnership or
other power to enter into, execute, deliver and carry out this
Agreement and the other Loan Documents to which it is a party, to incur
the Indebtedness contemplated by the Loan Documents and to perform its
obligations under the Loan Documents to which it is a party, and all
such actions have been duly authorized by all necessary proceedings on
its part.
(e) Validity and Binding Effect.
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<PAGE> 50
This Agreement on the date hereof has been, and each
other Loan Document to which it is a party on the date on which it is
required to be executed and delivered pursuant hereto shall have been,
duly and validly executed and delivered by each of the Loan Parties.
This Agreement and each of the other Loan Documents delivered by the
Loan Parties pursuant to the provisions hereof will constitute legal,
valid and binding obligations of each of the Loan Parties, enforceable
against each of the Loan Parties in accordance with their respective
terms, except to the extent that enforceability of any of the foregoing
Loan Documents may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of
specific performance.
(f) No Conflict.
Neither the execution and delivery of this Agreement
or the other Loan Documents by the Loan Parties nor the consummation of
the transactions herein or therein contemplated or compliance with the
terms and provisions hereof or thereof by them will conflict with,
constitute a default under or result in any breach of (i) the terms and
conditions of the certificate of incorporation, bylaws or other
organizational documents of any of the Loan Parties or (ii) any Law or
any material agreement or instrument or order, writ, judgment,
injunction or decree to which any of the Loan Parties is a party or by
which it is bound or to which it is subject, or result in the creation
or enforcement of any Lien, charge or encumbrance whatsoever upon any
property (now or hereafter acquired) of any of the Loan Parties.
(g) Litigation.
There are no actions, suits, proceedings or
investigations pending or, to the knowledge of any of the Loan Parties,
threatened against any of the Loan Parties at law or equity before any
Official Body which individually or in the aggregate could reasonably
be expected to result in any Material Adverse Change. None of the Loan
Parties is in violation of any order, writ, injunction or decree of any
Official Body which may result in any Material Adverse Change.
(h) Title to Properties.
Each of the Loan Parties has good and marketable
title to or valid leasehold interest in all properties, assets and
other rights which it purports to own or lease or which are reflected
as owned or leased on its books and records, free and clear of all
Liens and encumbrances except Permitted Liens, and subject to the terms
and conditions of the applicable leases. All leases of property are in
full force and effect. Promptly upon request by the Agent, the
Borrowers will provide to the Agent and the Banks a list of all real
property owned or leased by each of the Loan Parties.
(i) Financial Statements.
(A) Historical Statements. Zaring Homes has
delivered to the Agent copies of its audited year-end financial
statements for and as of the end of the three (3) fiscal years ended
December 31, 1994 - 1996 and Zaring National has delivered to the Agent
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<PAGE> 51
copies of its audited year-end financial statements for and as of the
end of the two (2) fiscal years ended December 31, 1997 - 1998
(collectively, the "Historical Statements"). The Historical Statements
were compiled from the books and records maintained by Zaring Homes' or
Zaring National's, as applicable, management, are correct and complete
in all material respects and fairly represent the consolidated
financial condition of Zaring Homes or Zaring National, as applicable,
as of their dates and the results of operations for the fiscal periods
then ended, and have been prepared in accordance with GAAP consistently
applied.
(B) Financial Projections. The Co-Borrowers
(with respect to the Co-Borrowers and their Subsidiaries) have
delivered to the Agent financial projections for the fiscal year ending
December 31, 1999 derived from assumptions of the Co-Borrowers'
management (collectively, the "Financial Projections"). The Financial
Projections represent a reasonable range of possible results (predicted
to be within such range and not at an exact numerical level) in light
of the history of the business, present and foreseeable conditions and
the intentions of the Co-Borrowers' management. The Financial
Projections with respect to the Co-Borrowers accurately reflect the
liabilities of the Co-Borrowers upon the consummation of the
transactions contemplated hereby as of the Closing Date.
(C) Accuracy of Financial Statements.
Neither Zaring Homes nor Zaring National has any material liabilities,
contingent or otherwise, or forward or long-term material commitments
that are not disclosed in the Historical Statements or in the notes
thereto, and except as disclosed therein, there are no unrealized or
anticipated losses from any commitments of Zaring Homes or Zaring
National which may cause a Material Adverse Change. Since December 31,
1998, no Material Adverse Change has occurred.
(j) Margin Stock.
None of the Loan Parties engages or intends to engage
principally, or as one of its important activities, in the business of
extending credit for the purpose, immediately, incidentally or
ultimately, of purchasing or carrying margin stock (within the meaning
of Regulation U). No part of the proceeds of any Loan has been or will
be used, immediately, incidentally or ultimately, to purchase or carry
any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock or to refund Indebtedness
originally incurred for such purpose, or for any purpose which entails
a violation of or which is inconsistent with the provisions of the
regulations of the Board of Governors of the Federal Reserve System.
None of the Loan Parties holds or intends to hold margin stock in such
amounts that more than 25% of the reasonable value of the assets of
such Loan Party are or will be represented by margin stock.
(k) Full Disclosure.
Neither this Agreement nor any other Loan Document,
nor any certificate, statement, agreement or other document furnished
to the Agent or any Bank by the Loan Parties in connection herewith or
therewith, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements of the
Loan Parties contained herein and therein, in light of the
circumstances under which they were made, not misleading.
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<PAGE> 52
(l) Taxes.
All federal, state, local and other tax returns
required to have been filed with respect to each Loan Party have been
filed, and payment or adequate provision for the payment of all taxes,
fees, assessments and other governmental charges which have or may
become due pursuant to said returns or to assessments received has been
made, except to the extent that such taxes, fees, assessments and other
charges are being contested in good faith by appropriate proceedings
diligently conducted and for which such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made.
There are no agreements or waivers extending the statutory period of
limitations applicable to any federal income tax return of any Loan
Party for any period.
(m) Consents and Approvals.
No consent, approval, exemption, order or
authorization of, or a registration or filing with, any Official Body
or any other person is required by any Law or any agreement in
connection with, the execution, delivery and carrying out of this
Agreement and the other Loan Documents by the Loan Parties, except as
listed on Schedule 6.1(m) attached hereto, all of which shall have been
obtained or made on or prior to the Closing Date.
(n) No Event of Default; Compliance With Instruments.
No event has occurred and is continuing and no
condition exists or will exist after giving effect to the borrowings to
be made on the Closing Date under the Loan Documents which constitutes
an Event of Default or Potential Default. None of the Loan Parties is
in violation of (i) any term of its certificate of incorporation,
bylaws or other organizational documents or (ii) any material agreement
or instrument to which it is a party or by which it or any of its
properties may be subject or bound where such violation would
constitute a Material Adverse Change.
(o) Patents, Trademarks, Copyrights, Licenses, Etc.
Each Loan Party owns or possesses all the material
patents, trademarks, service marks, trade names, copyrights, licenses,
registrations, franchises, permits and rights necessary to own and
operate its properties and to carry on its business as presently
conducted and planned to be conducted by such Loan Party, without known
conflict with the rights of others. All material patents, trademarks,
service marks, trade names, copyrights, licenses, registrations,
franchises and permits of each Loan Party are listed and described on
Schedule 6.1(o) hereto.
(p) Insurance.
Schedule 6.1(p) hereto lists all insurance policies
and other bonds to which any of the Loan Parties is a party, all of
which are valid and in full force and effect. No notice has been given
or claim made and no grounds exist to cancel or avoid any of such
policies or bonds or to reduce the coverage provided thereby. Such
policies and bonds provide coverage in
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<PAGE> 53
amounts sufficient to insure the assets and risks of each of the Loan
Parties in accordance with prudent business practice in the industry of
such Loan Parties.
(q) Compliance With Laws.
Each of the Loan Parties is in compliance in all
material respects with all applicable Laws (other than Environmental
Laws, which are specifically addressed in subsection (v)) in all
jurisdictions in which such Loan Party is presently or will be doing
business, except where the failure to do so would not constitute a
Material Adverse Change.
(r) Material Contracts.
Promptly upon request by the Agent, the Borrowers
will provide to the Agent and the Banks a list of all material
contracts relating to the business operations of the Loan Parties,
including, without limitation, all employee benefit plans, employment
agreements, collective bargaining agreements and labor contracts (the
"Labor Contracts"). Each material contract to which a Loan Party is a
party is valid, binding and enforceable upon each of the Loan Parties
and other persons which is a party thereto in accordance with its
respective terms, and there is no default thereunder, to any of the
Loan Parties' knowledge, with respect to parties other than the Loan
Parties, except to the extent that any such default does not impair the
practical realization by the Loan Parties of the benefits from such
contract.
(s) Investment Companies.
None of the Loan Parties is an "investment company"
registered or required to be registered under the Investment Company
Act of 1940, as such term is defined in the Investment Company Act of
1940, and shall not become such an "investment company."
(t) Plans and Benefit Arrangements.
(i) The Borrowers and each member of the
ERISA Group are in compliance in all material respects with any
applicable provisions of ERISA with respect to all Benefit
Arrangements, Plans and Multiemployer Plans. There has been no
Prohibited Transaction with respect to any Benefit Arrangement or any
Plan or, to the best knowledge of the Borrowers, with respect to any
Multiemployer Plan or Multiple Employer Plan which could result in any
material liability of the Borrowers or any other member of the ERISA
Group. The Borrowers and all members of the ERISA Group have made when
due any and all payments required to be made under any agreement
relating to a Multiemployer Plan or a Multiple Employer Plan or any Law
pertaining thereto. With respect to each Plan and Multiemployer Plan,
the Borrowers and each member of the ERISA Group (i) have fulfilled in
all material respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any liability to the PBGC,
and (iii) have not had asserted against them any penalty for failure to
fulfill the minimum funding requirements of ERISA.
(ii) To the best of each Borrower's
knowledge, each Multiemployer Plan and Multiple Employer Plan is able
to pay benefits thereunder when due.
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<PAGE> 54
(iii) No Borrower or any other member of the
ERISA Group has instituted or intends to institute proceedings to
terminate any Plan.
(iv) No event requiring notice to the PBGC
under Section 302(f)(4)(A) of ERISA has occurred or is reasonably
expected to occur with respect to any Plan, and no amendment with
respect to which security is required under Section 307 of ERISA has
been made or is reasonably expected to be made to any Plan.
(v) The aggregate actuarial present value of
all benefit liabilities (whether or not vested) under each Plan,
determined on a plan termination basis, as disclosed in, and as of the
date of, the most recent actuarial report for such Plan, does not
exceed the aggregate fair market value of the assets of such Plan.
(vi) No Borrower or any other member of the
ERISA Group has incurred or reasonably expects to incur any material
withdrawal liability under ERISA with respect to any Multiemployer Plan
or Multiple Employer Plan. No Borrower or any other member of the ERISA
Group has been notified by any Multiemployer Plan or Multiple Employer
Plan that such Multiemployer Plan or Multiple Employer Plan has been
terminated, within the meaning of Title IV of ERISA, and to the best
knowledge of each Borrower, no Multiemployer Plan or Multiple Employer
Plan is reasonably expected to be reorganized or terminated, within the
meaning of Title IV of ERISA.
(vii) To the extent that any Benefit
Arrangement is insured, the Borrowers and all members of the ERISA
Group have paid when due all premiums required to be paid for all
periods through and including the Closing Date. To the extent that any
Benefit Arrangement is funded other than with insurance, the Borrowers
and all members of the ERISA Group have made when due all contributions
required to be paid for all periods through and including the Closing
Date.
(viii) All Plans, Benefit Arrangements and
Multiemployer Plans have been administered in accordance with their
terms and applicable Law in all material respects.
(u) Employment Matters.
Each of the Loan Parties is in compliance with the
Labor Contracts and all applicable federal, state and local labor and
employment Laws, including, but not limited to, those related to equal
employment opportunity and affirmative action, labor relations, minimum
wage, overtime, child labor, medical insurance continuation, worker
adjustment and relocation notices, immigration controls and worker and
unemployment compensation, where the failure to comply would constitute
a Material Adverse Change. There are no outstanding grievances,
arbitration awards or appeals therefrom arising out of the Labor
Contracts or current or threatened strikes, picketing, handbilling or
other work stoppages or slowdowns at facilities of any Loan Party which
in any case would constitute a Material Adverse Change. The Borrowers
have delivered to the Agent true and correct copies of each of the
Labor Contracts.
(v) Environmental Matters.
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<PAGE> 55
Except as disclosed on Schedule 6.1(v) hereto:
(i) None of the Loan Parties has received
any Environmental Complaint from any Official Body or private person
alleging that any Loan Party or any prior or subsequent owner of the
Property is a potentially responsible party under the Comprehensive
Environmental Response, Cleanup, and Liability Act, 42 U.S.C. Section
9601 et seq., and each Loan Party has no reason to believe that such an
Environmental Complaint might be received. There are no pending or, to
any Loan Party's knowledge, threatened Environmental Complaints
relating to any Loan Party or, to any Loan Party's knowledge, any prior
or subsequent owner of the Property pertaining to, or arising out of,
any Environmental Conditions, except for Environmental Complaints which
are not reasonably likely to result in a Material Adverse Change.
(ii) Except for conditions, violations or
failures which individually or in the aggregate are not reasonably
likely to result in a Material Adverse Change, to the knowledge of the
Loan Parties, there are no circumstances at, on or under the Property
that constitute a breach of or noncompliance with any of the
Environmental Laws, and there are no past or present Environmental
Conditions at, on or under the Property or, to any Loan Party's
knowledge, at, on or under adjacent property that prevent compliance
with the Environmental Laws at the Property.
(iii) Neither the Property nor any
structures, improvements, equipment, fixtures, activities or facilities
thereon or thereunder contain or use Regulated Substances except in
compliance with Environmental Laws. There are no processes, facilities,
operations, equipment or any other activities at, on or under the
Property or, to any Loan Party's knowledge, at, on or under adjacent
property that currently result in the release or threatened release of
Regulated Substances onto the Property, except to the extent that such
releases or threatened releases are not a breach of or otherwise not a
violation of the Environmental Laws or are not likely to result in a
Material Adverse Change.
(iv) There are no aboveground storage tanks,
underground storage tanks or underground piping associated with such
tanks used for the management of Regulated Substances at, on or under
the Property that (a) do not have, to the extent required by
Environmental Laws, a full operational secondary containment system in
place and (b) are not otherwise in compliance with all Environmental
Laws. There are no abandoned underground storage tanks or underground
piping associated with such tanks previously used for the management of
Regulated Substances at, on or under the Property that have not either
been closed in place in accordance with Environmental Laws or removed
in compliance with all applicable Environmental Laws, and no
contamination associated with the use of such tanks exists on the
Property that is not in compliance with Environmental Laws.
(v) Each Loan Party has all material
permits, licenses, authorizations, plans and approvals necessary under
the Environmental Laws for the conduct of the business of such Loan
Party as presently conducted. Each Loan Party has submitted all
material notices, reports and other filings required by the
Environmental Laws to be submitted to an Official Body
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which pertain to past and current operations on the Property.
(vi) Except for violations which
individually or in the aggregate are not likely to result in a Material
Adverse Change, all present and, to the knowledge of the Loan Parties,
past on-site generation, storage, processing, treatment, recycling,
reclamation, disposal or other use or management of Regulated
Substances at, on or, to the knowledge of the Loan Parties, under the
Property and all off-site transportation, storage, processing,
treatment, recycling, reclamation, disposal or other use or management
of Regulated Substances has been done in accordance with the
Environmental Laws.
(w) Senior Debt Status.
The obligations of each Loan Party under this
Agreement, the Notes and the Guaranty Agreement, as applicable, to the
Banks or Agent do rank and will rank at least pari passu in priority of
payment and all other rights to all other Indebtedness of such Loan
Party, except Indebtedness of any Loan Party secured by Permitted
Liens. There is no lien upon or with respect to any of the properties
or income of any Loan Party which secures Indebtedness or other
obligations of any Person except for Permitted Liens.
(x) Restricted Transactions.
Schedule 6.1(x) sets forth, as of the Closing Date,
all Restricted Transactions, including a brief description and the
amount of each Restricted Transaction.
6.2. Updates to Schedules.
Should any of the information or disclosures provided on any
of the Schedules attached hereto become outdated or incorrect in any
material respect, the Borrowers shall promptly provide the Agent in
writing with such revisions or updates to such Schedule as may be
necessary or appropriate to update or correct the same; provided,
unless any such Schedules have become outdated or incorrect in any
material and adverse respect, the Borrowers may provide such revisions
or updates on a quarterly basis at the same time as the Borrowers
deliver their quarterly compliance certificate in accordance with
Section 8.3(d); and provided, further, that no Schedule that has become
outdated or incorrect in any material and adverse respect shall be
deemed to have been amended, modified or superseded by any such
correction or update, nor shall any breach of warranty or
representation resulting from the inaccuracy or incompleteness of any
such Schedule be deemed to have been cured thereby.
7. CONDITIONS OF LENDING
The obligation of the Agent and each Bank to make Loans or
issue Letters of Credit hereunder on and after the Closing Date is
subject to the performance by each of the Loan Parties of its
obligations to be performed hereunder at or prior to the making of any
such Loans and to the satisfaction of the following further conditions:
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7.1. Loans After the Closing Date.
On the Closing Date:
(a) The representations and warranties of each of the Loan Parties
contained in Article 6 hereof shall be true and accurate on and as of
the Closing Date with the same effect as though such representations
and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date
or time, which representations and warranties shall be true and correct
on and as of the specific dates or times referred to therein), and each
of the Loan Parties shall have performed and complied with all
covenants and conditions hereof; no Event of Default or Potential
Default under this Agreement shall have occurred and be continuing or
shall exist; and there shall be delivered to the Agent for the benefit
of each Bank a certificate of the Loan Parties, dated the Closing Date
and signed by the Chief Executive Officer, President or Chief Financial
Officer of each of the Loan Parties, to each such effect.
(b) There shall be delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Secretary or an
Assistant Secretary of each of the Loan Parties, certifying as
appropriate as to:
(i) all corporate or partnership action taken by such
Loan Party in connection with this Agreement and the other Loan
Documents;
(ii) the names of the officer or officers authorized
to sign this Agreement and the other Loan Documents and the true
signatures of such officer or officers, and specifying the Authorized
Officers permitted to act on behalf of each Loan Party for purposes of
this Agreement and the true signatures of such officers, on which the
Agent and each Bank may conclusively rely; and
(iii) copies of its organizational documents,
including its certificate of incorporation, bylaws or certificate of
partnership or partnership agreement, as applicable, as in effect on
the Closing Date certified by the appropriate state official where such
documents are filed in a state office, together with certificates from
the appropriate state officials as to the continued existence and good
standing of each Loan Party in each state where organized or qualified
to do business.
(c) The Notes, the Guaranty Agreement and the Intercompany Subordination
Agreement shall have been duly executed and delivered to the Agent for
the benefit of the Banks. The parties expressly acknowledge that the
Term Notes, the Revolving Credit Notes, the Guaranty Agreement and the
Intercompany Subordination Agreement were executed and delivered in
connection with the Original Credit Agreement (in the case of the Term
Notes) or the Amended and Restated Credit Agreement (in the case of the
Revolving Credit Notes, the Guaranty Agreement and the Intercompany
Subordination Agreement) and that all such agreements remain in full
force and effect without modification. On and after the Closing Date,
without the need for any further actions or amendments, all references
in the Term Notes, the Revolving Credit Notes, the Guaranty Agreement
and the Intercompany Subordination Agreement to the Credit Agreement
shall be deemed to refer to this Agreement, as it may be further
amended, restated, supplemented
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or modified from time to time.
(d) There shall be delivered to the Agent for the benefit of each Bank a
written opinion of Frost & Jacobs, counsel for the Loan Parties (who
may rely on the opinions of such other counsel as may be acceptable to
the Agent), dated the Closing Date and in form and substance
satisfactory to the Agent and its counsel:
(i) as to the matters set forth in Exhibit 7.1(d)
hereto; and
(ii) as to such other matters incident to the
transactions contemplated herein as the Agent may reasonably request.
(e) All legal details and proceedings in connection with the transactions
contemplated by the Agreement and the other Loan Documents shall be in
form and substance satisfactory to the Agent and counsel for the Agent,
and the Agent shall have received all such other counterpart originals
or certified or other copies of such documents and proceedings in
connection with such transactions, in form and substance reasonably
satisfactory to the Agent and said counsel, as the Agent or said
counsel may reasonably request.
(f) The Borrowers shall pay, or cause to be paid, to the Agent for itself
or for the account of the Banks, as applicable, to the extent not
previously paid, the Facility Fees, any other fees payable on or before
the Closing Date, as set forth in the Side Letters, and all other costs
and expenses accrued through the Closing Date for which the Agent and
the Banks are entitled to be reimbursed.
(g) All material consents, including without limitation the consent of the
holders of the Senior Notes, required to effectuate the transactions
contemplated hereby as set forth on Schedule 6.1(m) shall have been
obtained.
(h) There shall be no Material Adverse Change in the Historical Statements
or the Financial Projections (as defined in Section 6.1(i)) since their
respective dates; since December 31, 1998, no Material Adverse Change
in any of the Loan Parties shall have occurred; prior to the Closing
Date, there shall be no material change in the management of the Loan
Parties; and there shall be delivered, to the Agent for the benefit of
each Bank, a certificate dated the Closing Date and signed by the Chief
Executive Officer, President or Chief Financial Officer of the Loan
Parties to each such effect.
(i) The making of the Loans shall not contravene any Law applicable to the
Loan Parties or any of the Banks.
(j) No action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, this Agreement or the
consummation of the transactions contemplated hereby.
(k) The Loan Parties shall deliver evidence acceptable to the Agent that
adequate insurance in
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<PAGE> 59
compliance with Section 8.1(c) is in full force and effect and that all
premiums then due thereon have been paid, with additional insured and
lender loss payable endorsements in form and substance satisfactory to
the Agent and its counsel naming the Agent as additional insured and
lender loss payee.
(l) The Borrowers shall have delivered to the Agent for the benefit of the
Banks a Borrowing Base Certificate for the calendar month of May and a
Quarterly Compliance Certificate for the calendar quarter ending March
31, 1999, certified by the Chief Executive Officer, President or Chief
Financial Officer of the Borrowers in a form acceptable to the Agent.
7.2. Each Additional Loan.
At the time of making any Loans or issuing any Letters of
Credit other than Loans made or Letters of Credit issued on the Closing
Date hereunder and after giving effect to the proposed borrowings: the
representations and warranties of the Loan Parties contained in Article
6 hereof shall be true on and as of the date of such additional Loan or
Letter of Credit with the same effect as though such representations
and warranties had been made on and as of such date (except
representations and warranties which expressly relate solely to an
earlier date or time, which representations and warranties shall be
true and correct on and as of the specific dates or times referred to
therein), and the Loan Parties shall have performed and complied with
all covenants and conditions hereof; no Event of Default or Potential
Default shall have occurred and be continuing or shall exist; the
making of such Loan or the issuance of such Letter of Credit shall not
contravene any Law applicable to the Loan Parties or any of the Banks;
and the Borrowers shall have delivered to the Agent and, if applicable,
the Issuing Letter of Credit Bank a duly executed and completed Loan
Request or request for Letters of Credit, as applicable.
8. COVENANTS
8.1. Affirmative Covenants.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans and interest thereon,
termination or expiration of all of the Letters of Credit, satisfaction
of all of the Loan Parties' other obligations hereunder and termination
of the Revolving Credit Commitments, the Loan Parties shall comply at
all times with the following affirmative covenants:
(a) Preservation of Existence, Etc.
Each of the Loan Parties shall maintain its corporate
or partnership existence and its license or qualification and good
standing in each jurisdiction in which its ownership or lease of
property or the nature of its business makes such license or
qualification necessary.
(b) Payment of Liabilities, Including Taxes, Etc.
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<PAGE> 60
Each of the Loan Parties shall duly pay and discharge
all liabilities to which it is subject or which are asserted against
it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or
any of its properties, assets, income or profits, prior to the date on
which penalties attach thereto, except to the extent that such
liabilities, including taxes, assessments or charges, are being
contested in good faith and by appropriate and lawful proceedings
diligently conducted and for which such reserve or other appropriate
provisions, if any, as shall be required by GAAP shall have been made,
but only to the extent that failure to discharge any such liabilities
would not result in any additional liability which would adversely
affect to a material extent the financial condition of any Loan Party,
provided that each Loan Party will pay all such liabilities forthwith
upon the commencement of proceedings to foreclose any Lien which may
have attached as security therefor.
(c) Maintenance of Insurance.
Each Loan Party shall insure its properties and
assets against loss or damage by fire and such other insurable hazards
against which such assets are commonly insured (including fire,
extended coverage, property damage, worker's compensation, public
liability and business interruption insurance) and against other risks
(including errors and omissions) in such amounts as similar properties
and assets are insured by prudent companies in similar circumstances
carrying on similar businesses, and with reputable and financially
sound insurers, including self-insurance to the extent customary, all
as reasonably determined by the Agent. At the request of the Agent, the
Loan Parties shall deliver (x) on the Closing Date and annually
thereafter an original certificate of insurance signed by the Loan
Parties' independent insurance broker describing and certifying as to
the existence of the insurance on the Collateral required to be
maintained by this Agreement and the other Loan Documents, together
with a copy of the endorsement described in the next sentence attached
to such certificate, and (y) from time to time a summary schedule
indicating all insurance then in force with respect to each of the Loan
Parties. Such policies of insurance shall contain special endorsements,
in form and substance acceptable to the Agent, which shall (i) specify
the Agent as an additional insured and lender loss payee as its
interests may appear, with the understanding that any obligation
imposed upon the insured (including the liability to pay premiums)
shall be the sole obligation of the applicable Loan Parties and not
that of the insured, (ii) provide that the interest of the Banks shall
be insured regardless of any breach or violation by the applicable Loan
Parties of any warranties, declarations or conditions contained in such
policies or any action or inaction of the applicable Loan Parties or
others insured under such policies, (iii) provide a waiver of any right
of the insurers to set-off or counterclaim or any other deduction,
whether by attachment or otherwise, (iv) provide that any and all
rights of subrogation which the insurers may have or acquire shall be,
at all times and in all respects, junior and subordinate to the prior
payment in full of the Indebtedness hereunder and that no insurer shall
exercise or assert any right of subrogation until such time as the
Indebtedness hereunder has been paid in full and the Revolving Credit
Commitments have terminated, (v) provide, except in the case of public
liability insurance and workmen's compensation insurance, that all
insurance proceeds for losses of less than $2,000,000 shall be adjusted
with and payable to the applicable Loan Parties and that all insurance
proceeds for losses of $2,000,000 or more shall be adjusted with and
payable to the Agent, (vi) include
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effective waivers by the insurer of all claims for insurance premiums
against the Agent, (vii) provide that no cancellation of such policies
for any reason (including nonpayment of premium) or any change therein
shall be effective until at least thirty (30) days after receipt by the
Agent of written notice of such cancellation or change, (viii) be
primary without right of contribution of any other insurance carried by
or on behalf of any additional insureds, and (ix) provide that inasmuch
as the policy covers more than one insured, all terms, conditions,
insuring agreements and endorsements (except limits of liability) shall
operate as if there were a separate policy covering each insured. The
applicable Loan Parties shall notify the Agent promptly of any
occurrence causing a material loss or decline in value of its
properties and the estimated (or actual, if available) amount of such
loss or decline. Any monies received by the Agent constituting
insurance proceeds may, at the option of the Agent, (i) be applied by
the Agent to the payment of the Loans in such manner as the Agent may
reasonably determine or (ii) be disbursed to the applicable Loan
Parties on such terms as are deemed appropriate by the Agent for the
repair, restoration and/or replacement of property in respect of which
such proceeds were received.
(d) Maintenance of Properties and Leases.
Each Loan Party shall maintain in good repair,
working order and condition (ordinary wear and tear excepted), in
accordance with the general practice of other businesses of similar
character and size, all of those properties useful or necessary to its
business, and from time to time, such Loan Party will make or cause to
be made all appropriate repairs, renewals or replacements thereof.
(e) Maintenance of Patents, Trademarks, Etc.
Each Loan Party shall maintain in full force and
effect all patents, trademarks, trade names, copyrights, licenses,
franchises, permits and other authorizations necessary for the
ownership and operation of its properties and business if the failure
so to maintain the same would constitute a Material Adverse Change.
(f) Visitation Rights.
Each Loan Party shall permit any of the officers or
authorized employees or representatives of the Agent or any of the
Banks to visit and inspect any of its properties and to examine and
make excerpts from its books and records and discuss its business
affairs, finances and accounts with its officers, all in such detail
and at such times and as often as any of the Banks may reasonably
request, provided that each Bank shall provide the Borrowers and the
Agent with reasonable notice prior to any visit or inspection.
(g) Keeping of Records and Books of Account.
Each Loan Party shall maintain and keep proper books
of record and account which enable the Loan Parties to issue financial
statements in accordance with GAAP and as otherwise required by
applicable Laws of any Official Body having jurisdiction over the Loan
Parties, and in which full, true and correct entries shall be made in
all material respects of
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all its dealings and business and financial affairs.
(h) Plans and Benefit Arrangements.
The Borrowers shall, and shall cause each member of
the ERISA Group to, comply with ERISA, the Internal Revenue Code and
other applicable Laws applicable to Plans and Benefit Arrangements,
except where such failure, alone or in conjunction with any other
failure, would not result in a Material Adverse Change. Without
limiting the generality of the foregoing, the Borrowers shall cause all
of their Plans and all Plans maintained by any member of the ERISA
Group to be funded in accordance with the minimum funding requirements
of ERISA and shall make, and cause each member of the ERISA Group to
make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
(i) Compliance With Laws.
Each Loan Party shall comply with all applicable
Laws, including all Environmental Laws, in all respects, provided that
it shall not be deemed to be a violation of this Section 8.1(i) if any
failure to comply with any Law would not result in fines, penalties,
remediation costs, other similar liabilities or injunctive relief which
in the aggregate would constitute a Material Adverse Change.
(j) Use of Proceeds.
The Borrowers will use the proceeds of the Loans only
for lawful purposes in accordance with Sections 2.11 and 3.5 hereof, as
applicable, and such uses shall not contravene any applicable Law or
any other provision hereof.
(k) Subordination of Intercompany Loans, Other Loans and Advances to the
Borrowers.
The Loan Parties shall cause any intercompany
Indebtedness, loans or advances owed by any of the Loan Parties to any
other Loan Party to be subordinated pursuant to the terms of the
Intercompany Subordination Agreement.
8.2. Negative Covenants.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans and interest thereon,
termination or expiration of all of the Letters of Credit, satisfaction
of all of the Loan Parties' other obligations hereunder and termination
of the Revolving Credit Commitments, the Loan Parties shall comply with
the following negative covenants:
(a) Indebtedness.
Each of the Loan Parties shall not at any time
create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
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(ii) Unsecured leases of equipment in the
ordinary course of business;
(iii) Indebtedness under capitalized leases
or secured by purchase money security interests (other than Nonrecourse
Purchase Money Security Interests) which shall not exceed 2% of
Consolidated Tangible Net Worth in the aggregate at any time;
(iv) Indebtedness secured by Nonrecourse
Purchase Money Security Interests not exceeding 15% of Consolidated
Tangible Net Worth in the aggregate at any time;
(v) Indebtedness under the Senior Notes;
(vi) Indebtedness constituting a Restricted
Transaction;
(vii) Indebtedness of a Loan Party to
another Loan Party;
(viii) the Provident Guaranty in an amount
not to exceed $10,000,000 in principal in the aggregate; and
(ix) Indebtedness not included in clauses
(i) - (viii) above in an amount not to exceed $500,000 in the aggregate
at any time.
(b) Liens.
Each of the Loan Parties shall not at any time
create, incur, assume or suffer to exist any Lien on any of its
property or assets, tangible or intangible, now owned or hereafter
acquired, or agree or become liable to do so, except Permitted Liens.
(c) Guaranties.
Each of the Loan Parties shall not at any time,
directly or indirectly, become or be liable in respect of any Guaranty,
or assume, guarantee, become surety for, endorse or otherwise agree,
become or remain directly or contingently liable upon or with respect
to any obligation or liability of any other person, except for
Guaranties under the Loan Documents, Guaranties constituting a
Restricted Transaction or Guaranties permitted under Section
8.2(a)(viii).
(d) Loans and Investments; Certain Dividends and Distributions.
Each of the Loan Parties shall not at any time make
or suffer to remain outstanding any loan or advance to, or purchase,
acquire or own any stock, bonds, notes or securities of, or any
partnership interest (whether general or limited) in or any other
investment or interest in, or make any capital contribution to, any
other person, or agree, become or remain liable to do any of the
foregoing, or to make or pay, or agree to become liable to make or pay,
any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its
shares of capital stock, partnership interests or limited liability
company interests on account of the purchase, redemption, retirement or
acquisition of its shares of capital stock (or warrants, options or
rights therefor), partnership
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interests or limited liability company interests (except dividends or
other distributions payable to another Loan Party), except:
(i) trade credit extended on usual and
customary terms in the ordinary course of business;
(ii) advances to employees to meet expenses
incurred by such employees in the ordinary course of business;
(iii) Permitted Investments;
(iv) loans, advances, investments, dividends
or distributions constituting a Restricted Transaction;
(v) loans, advances and investments in other
Loan Parties; and
(vi) the net intercompany receivable owing
from Zaring National to Zaring Homes in an amount not greater than
$16,000,000 as of the date hereof, in an amount not greater than
$14,500,000 at September 30, 1999 and in an amount not greater than
$13,000,000 at December 31, 1999, as further reduced from time to time
as a result of any payments but in no event increased (the "Zaring
Homes Receivable").
(e) Changes in the Senior Notes.
Zaring Homes shall not amend or modify any provisions
of the Senior Notes or any related documents without the consent of the
Required Banks.
(f) Liquidations, Mergers, Consolidations, Acquisitions.
Each of the Loan Parties shall not dissolve,
liquidate or wind up its affairs, or become a party to any merger or
consolidation, or acquire by purchase, lease or otherwise all or
substantially all of the assets or capital stock of any other person;
provided that (i) any Loan Party other than the Borrowers may
consolidate or merge into another Loan Party, and (ii) the Loan Parties
may acquire all or substantially all of the assets or all of the
capital stock of other persons engaged in the same business as the
business of the Loan Parties, so long as after giving effect to such
acquisition, no Event of Default or Potential Default shall exist or be
continuing, and prior to the consummation of such acquisition, the
Borrowers shall have provided to the Agent and the Banks pro forma
financial statements for the Borrowers and their Subsidiaries, after
giving effect to such acquisition, demonstrating such compliance;
provided, that the purchase price (including liabilities assumed) for
any such acquisition shall not exceed $6,000,000 for any single
transaction or $12,000,000 in the aggregate during the term of this
Agreement.
(g) Dispositions of Assets or Subsidiaries.
Each of the Loan Parties shall not sell, convey,
assign, lease, abandon or otherwise transfer or dispose of, voluntarily
or involuntarily, any of its properties or assets,
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tangible or intangible (including but not limited to sale, assignment,
discount or other disposition of accounts, contract rights, chattel
paper, equipment or general intangibles, with or without recourse, or
of capital stock, shares of beneficial interest or partnership
interests of a Subsidiary), except:
(i) transactions involving the sale of land
and building inventory in the ordinary course of business;
(ii) any sale, transfer, lease, abandonment
or other disposition of assets in the ordinary course of business which
are no longer necessary or required in the conduct of the Loan Party's
business; and
(iii) any sale, transfer or lease of assets
in the ordinary course of business which are replaced by substitute
assets acquired.
(h) Affiliate Transactions.
Each of the Loan Parties shall not enter into or
carry out any transaction (including, without limitation, purchasing
property or services from or selling property or services to any
Affiliate or other person) unless such transaction is not otherwise
prohibited by this Agreement, is entered into in the ordinary course of
business upon fair and reasonable arm's length terms and conditions
which are fully disclosed to the Agent and is in accordance with all
applicable Law.
(i) Subsidiary, Partnerships and Joint Ventures.
Each of the Loan Parties shall not own or create,
directly or indirectly, any Subsidiaries other than Subsidiaries which
join this Agreement as Guarantors pursuant to Section 11.18. None of
the Loan Parties shall become or agree to become a general or limited
partner in any general or limited partnership or a joint venturer in
any joint venture except for limited partnerships and joint ventures
which constitute Restricted Transactions; provided if any Loan Party
makes a loan or advance in excess of $500,000 to any such limited
partnership or joint venture, then such limited partnership or joint
venture shall join this Agreement as a Guarantor pursuant to Section
11.18.
(j) Continuation of or Change in Business; Geographic Expansion.
Each of the Loan Parties shall not engage in any
business other than the development of residential homes, the provision
of title insurance and the ownership of commercial real estate
incidental to residential real estate development (to the extent such
ownership is permitted hereunder), in each instance as such business
has been conducted and operated by the Loan Parties during the present
fiscal year, and the Borrowers shall not permit any material change in
such business. The Loan Parties shall not, without the consent of the
Required Banks, which consent shall not be unreasonably withheld,
acquire land, develop homes or conduct business in any states other
than Ohio, Kentucky, Indiana, Tennessee, North Carolina and South
Carolina.
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(k) Plans and Benefit Arrangements.
Each of the Loan Parties shall not:
(i) fail to satisfy the minimum funding
requirements of ERISA and the Internal Revenue Code with respect to any
Plan;
(ii) request a minimum funding waiver from
the Internal Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction
with any Plan, Benefit Arrangement or Multiemployer Plan which, alone
or in conjunction with any other circumstances or set of circumstances
resulting in liability under ERISA, would constitute a Material Adverse
Change;
(iv) permit the aggregate actuarial present
value of all benefit liabilities (whether or not vested) under each
Plan, determined on a plan termination basis, as disclosed in the most
recent actuarial report completed with respect to such Plan, to exceed,
as of any actuarial valuation date, the fair market value of the assets
of such Plan;
(v) fail to make when due any contribution
to any Multiemployer Plan that the Borrowers or any member of the ERISA
Group may be required to make under any agreement relating to such
Multiemployer Plan or any Law pertaining thereto;
(vi) withdraw (completely or partially) from
any Multiemployer Plan or withdraw (or be deemed under Section 4062(e)
of ERISA to withdraw) from any Multiple Employer Plan, where any such
withdrawal is likely to result in a material liability of Borrowers or
any member of the ERISA Group;
(vii) terminate, or institute proceedings to
terminate, any Plan, where such termination is likely to result in a
material liability to the Borrowers or any member of the ERISA Group;
(viii) make any amendment to any Plan with
respect to which security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices or
make all disclosures and governmental filings required under ERISA or
the Internal Revenue Code, where such failure is likely to result in a
Material Adverse Change.
(l) Fiscal Year.
None of the Loan Parties shall change its fiscal year
from the twelve-month period beginning January 1 and ending December
31.
(m) Changes in Organizational Documents.
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<PAGE> 67
Each of the Loan Parties shall not amend in any
respect its certificate of incorporation (including any provisions or
resolutions relating to capital stock) without providing at least
fifteen (15) calendar days' prior written notice to the Agent and the
Banks and, in the event such change would be adverse to the Banks as
determined by the Agent in its sole discretion, obtaining the prior
written consent of the Required Banks.
(n) Minimum Fixed Charge Coverage Ratio.
The Loan Parties shall not permit the ratio of
Consolidated Cash Flow From Operations to Consolidated Fixed Charges,
calculated as of the end of each fiscal quarter for the four (4) fiscal
quarters then ending, to be less than the ratio set forth below for the
periods specified below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Fiscal quarters ending 3/31/99, 6/30/99 and 9/30/99 1.10 to 1.0
Fiscal quarters ending 12/31/99 and thereafter 1.20 to 1.0
</TABLE>
(o) Minimum Tangible Net Worth.
The Loan Parties shall not at any time permit
Consolidated Tangible Net Worth to be less than the Base Net Worth.
(p) Maximum Leverage Ratio.
The Loan Parties shall not permit the Leverage Ratio,
for each fiscal quarter for the quarter then ending, to exceed the
ratio set forth below for the periods specified below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Fiscal quarters ending 3/31/99, 6/30/99 and 9/30/99 2.50 to 1.0
Fiscal quarters ending 12/31/99 and thereafter 2.25 to 1.0
</TABLE>
(q) Speculative Units.
The Loan Parties shall not at any time permit (i) the
number of Speculative Units in any Active Community to exceed eight (8)
or (ii) the number of Speculative Units in all Active Communities to
exceed 30% of the aggregate number of Active Units sold during the
previous twelve (12) month period.
(r) Model Units.
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<PAGE> 68
The Loan Parties shall not at any time permit the
number of Model Units owned or leased including without limitation
Model Units leased from First Cincinnati Leasing, LLC (i) in any Active
Community to exceed four (4) in each distinctive price point, as
determined by the Borrowers and acceptable to the Agent, but in no
event more than eight (8) in the aggregate, or (ii) in all Active
Communities of a Loan Party to exceed one hundred fifty percent (150%)
of the number of such Active Communities.
(s) Land Ownership or Acquisition.
The Loan Parties shall not acquire, own, purchase,
lease or otherwise invest in, directly or indirectly, any land or other
real estate other than:
(i) real estate held or acquired by a Loan
Party for construction and sale of Active Units, provided that
Regulatory Approval has been received therefor; and
(ii) real estate which does not fall under
clause (i) above in an amount not to exceed $2,000,000 in the aggregate
at any time.
(t) Zaring National Leverage Ratio.
Zaring National shall not at any time permit the
ratio of Zaring National Total Liabilities to Zaring National Tangible
Net Worth, for each fiscal quarter for the quarter then ending, to
exceed the ratio set forth below for the periods specified below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Fiscal quarters ending 3/31/99, 6/30/99 and 9/30/99 3.50 to 1.0
Fiscal quarters ending 12/31/99 and thereafter 3.00 to 1.0
</TABLE>
(u) Zaring National Fixed Charge Coverage Ratio.
Beginning with the fiscal quarter ending December 31,
1999, Zaring National shall not permit the ratio of Zaring National
Cash Flow From Operations to Zaring National Fixed Charges to be less
than 1.50 to 1.0 as of the end of each fiscal quarter for the four (4)
fiscal quarters then ended.
(v) Off Balance Sheet Financing.
Each of the Loan Parties shall not permit the
aggregate amount of off balance sheet financing provided by or to
parties under common control with Zaring National, any Loan Party or
any Affiliate of any Loan Parties (including without limitation First
Cincinnati Land, LLC and First Cincinnati Leasing, LLC) related to
Model Units and Approved Land Inventory to exceed $30,000,000.
(w) Limitation on Interest Rate.
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<PAGE> 69
Zaring National shall not charge any of its
Subsidiaries or Affiliates (including without limitation any Loan
Party, First Cincinnati Land, LLC and First Cincinnati Leasing, LLC) in
excess of the Base Rate plus one percent (1%) for the use of its
investment capital.
8.3. Reporting Requirements.
The Loan Parties jointly and severally covenant and agree that
until payment in full of the Loans and interest thereon, termination or
expiration of all Letters of Credit, satisfaction of all of the Loan
Parties' other obligations hereunder and termination of the Revolving
Credit Commitments, the Loan Parties will furnish or cause to be
furnished to the Agent and each of the Banks:
(a) Monthly Financial Statements and Reports.
(i) As soon as available and in any event
within thirty (30) calendar days after the end of each calendar month,
the Borrowers' combining balance sheet as of the end of such month and
combining income statement for the month then ended and for the year to
date, all in reasonable detail (and in similar format to the December
31, 1998 financial statements) and certified (subject to normal
year-end audit adjustments) by the Chief Executive Officer, President
or Chief Financial Officer of the Borrowers as having been prepared in
accordance with GAAP, consistently applied.
(ii) As soon as available and in any event
within thirty (30) calendar days after the end of each calendar month,
Zaring National's consolidating balance sheet as of the end of such
month and consolidating income statement for the month then ended and
for the year to date, all in reasonable detail and certified (subject
to normal year-end audit adjustments) by the Chief Executive Officer,
President or Chief Financial Officer of Zaring National as having been
prepared in accordance with GAAP, consistently applied.
(iii) As soon as available and in any event
within thirty (30) calendar days after the end of each calendar month,
a reconciliation of balances presented in the financial statements
delivered pursuant to Sections 8.3(a)(i) and (ii).
(iv) As soon as available and in any event
within fifteen (15) calendar days after the end of each calendar month,
the Borrowers' sales and closing reports as of the end of such month in
form and in such detail as is reasonably acceptable to the Agent.
(b) Quarterly Financial Statements.
As soon as available and in any event within
forty-five (45) calendar days after the end of each of the first three
(3) fiscal quarters in each fiscal year, financial statements of Zaring
National and its Subsidiaries, consisting of (i) a consolidated balance
sheet as of the end of such fiscal quarter; (ii) related consolidated
statements of income together with comparisons to the prior year for
the fiscal quarter then ended and the fiscal year through that date;
and (iii) the consolidated statements of retained earnings and cash
flow (in comparative
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<PAGE> 70
form) for the fiscal year through that date, all in reasonable detail
and certified (subject to normal year-end audit adjustments) by the
Chief Executive Officer, President or Chief Financial Officer of Zaring
National as having been prepared in accordance with GAAP, consistently
applied, and setting forth in comparative form the respective financial
statements for the corresponding date and period in the previous fiscal
year. As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three (3) fiscal
quarters in each fiscal year, Form 10-Q filed by Zaring National with
the Securities and Exchange Commission.
(c) Annual Financial Statements.
As soon as available and in any event within ninety
(90) days after the end of each fiscal year of Zaring National,
financial statements of Zaring National and its Subsidiaries,
consisting of a consolidating and consolidated balance sheet as of the
end of such fiscal year and related consolidating and consolidated
statements of income, retained earnings and cash flows for the fiscal
year then ended, all in reasonable detail and setting forth in
comparative form the financial statements as of the end of and for the
preceding fiscal year, and certified by independent certified public
accountants of nationally recognized standing satisfactory to the
Agent. The certificate or report of accountants shall be free of
qualifications (other than any consistency qualification that may
result from a change in the method used to prepare the financial
statements as to which such accountants concur) and shall not indicate
the occurrence or existence of any event, condition or contingency
which would materially impair the prospect of payment or performance of
any covenant, agreement or duty of any Loan Party under any of the Loan
Documents.
(d) Quarterly Compliance Certificate of the Loan Parties; Updates to
Schedules.
Concurrently with the financial statements of Zaring
National and the Borrowers furnished to the Agent and to the Banks
pursuant to Sections 8.3(b) and 8.3(c) hereof, a certificate of the
Loan Parties signed by the Chief Executive Officer, President or Chief
Financial Officer of the Loan Parties and independent certified public
accountants of nationally recognized standing satisfactory to the
Agent, in the form of Exhibit 8.3(d) hereto (the "Quarterly Compliance
Certificate"), to the effect that, except as described pursuant to
Section 8.3(f) below, (i) the representations and warranties of the
Loan Parties contained in Article 6 hereof are true on and as of the
date of such certificate with the same effect as though such
representations and warranties had been made on and as of such date
(except representations and warranties which expressly relate solely to
an earlier date or time), and the Loan Parties have performed and
complied with all covenants and conditions hereof, (ii) no Event of
Default or Potential Default exists and is continuing on the date of
such certificate, and (iii) containing calculations in sufficient
detail to demonstrate compliance as of the date of the financial
statements with all financial covenants contained in Section 8.2 hereof
and reconciliation with the monthly and quarterly financial statements
provided pursuant to Sections 8.3(a)(i) and 8.3(b). The Loan Parties
shall deliver together with such Quarterly Compliance Certificate the
updated Schedules to the Agreement referred to in Section 6.2.
(e) Borrowing Base Certificate.
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<PAGE> 71
Within twenty (20) calendar days after the end of
each calendar month, a certificate computing the Borrowing Base and
demonstrating compliance with the covenants set forth in Sections
8.2(q), (r) and (s) as of the end of the preceding calendar month in
the form of Exhibit 8.3(e) (the "Borrowing Base Certificate"),
appropriately completed, executed and delivered by an Authorized
Officer together with reconciliation with the monthly financial
statements provided pursuant to Section 8.3(a)(i) any supporting
information which the Agent may from time to time request.
(f) Notice of Default.
Promptly after any officer of any of the Loan Parties
has learned of the occurrence of an Event of Default or Potential
Default, a certificate signed by the Chief Executive Officer, President
or Chief Financial Officer of such Loan Party setting forth the details
of such Event of Default or Potential Default and the action which the
Loan Party proposes to take with respect thereto.
(g) Notice of Litigation.
Promptly after the commencement thereof, notice of
all actions, suits, proceedings or investigations before or by any
Official Body or any other person against any of the Loan Parties
(other than proceedings in the ordinary course of business in
connection with obtaining Regulatory Approval, provided that the
conduct of those proceedings does not otherwise violate the provisions
of this Agreement) involving a claim or series of claims in excess of
$500,000 or which if adversely determined would constitute a Material
Adverse Change with respect to any of the Loan Parties.
(h) Budgets, Forecasts, Deliveries Under the Senior Notes, Other Reports
and Information.
Promptly upon their becoming available to the
applicable Loan Party:
(i) the annual budget and any forecasts or
projections of such Loan Party, to be supplied not later than ninety
(90) days after the commencement of such fiscal year,
(ii) any reports, including management
letters submitted to such Loan Party by independent accountants in
connection with any annual, interim or special audit,
(iii) any reports, notices or proxy
statements generally distributed by such Loan Party to its
stockholders, on a date no later than the date supplied to the
stockholders,
(iv) regular or periodic reports, including
Forms 10-K, 10-Q and 8-K, registration statements and prospectuses,
filed by such Loan Party with the Securities and Exchange Commission,
(v) copies of notices, reports and other
information sent by any of the Loan Parties to the holders of the
Senior Notes under the Senior Notes or any related documents, at the
same time such Loan Party sends the same to such holders,
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<PAGE> 72
(vi) a copy of any order in any proceeding
to which any Loan Party is a party issued by any Official Body which
could result in a Material Adverse Change, and
(vii) such other reports and information as
the Banks may from time to time reasonably request.
(i) Notices Regarding Plans and Benefit Arrangements.
(i) Promptly upon becoming aware of the
occurrence thereof, notice (including the nature of the event and, when
known, any action taken or threatened by the Internal Revenue Service
or the PBGC with respect thereto) of:
(A) any Reportable Event with
respect to the Borrowers or any member of the ERISA Group (regardless
of whether the obligation to report said Reportable Event to the PBGC
has been waived),
(B) any Prohibited Transaction
which could subject the Borrowers or any member of the ERISA Group to a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Internal Revenue Code in connection with
any Plan, Benefit Arrangement or any trust created thereunder,
(C) any assertion of material
withdrawal liability with respect to any Multiemployer Plan,
(D) any partial or complete
withdrawal from a Multiemployer Plan by the Borrowers or any member of
the ERISA Group under Title IV of ERISA (or assertion thereof), where
such withdrawal is likely to result in material withdrawal liability,
(E) any cessation of operations (by
the Borrowers or any member of the ERISA Group) at a facility in the
circumstances described in Section 4063(e) of ERISA,
(F) withdrawal by the Borrowers or
any member of the ERISA Group from a Multiple Employer Plan,
(G) a failure by the Borrowers or
any member of the ERISA Group to make a payment to a Plan required to
avoid imposition of a lien under Section 302(f) of ERISA,
(H) the adoption of an amendment to
a Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA, or
(I) any change in the actuarial
assumptions or funding methods used for any Plan, where the effect of
such change is to materially increase or materially reduce the unfunded
benefit liability or obligation to make periodic contributions.
(ii) Promptly after receipt thereof, copies
of (a) all notices received by
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<PAGE> 73
the Borrowers or any member of the ERISA Group of the PBGC's intent to
terminate any Plan administered or maintained by the Borrowers or any
member of the ERISA Group, or to have a trustee appointed to administer
any such Plan; and (b) at the request of the Agent or any Bank, each
annual report (IRS Form 5500 series) and all accompanying schedules,
the most recent actuarial reports, the most recent financial
information concerning the financial status of each Plan administered
or maintained by the Borrowers or any member of the ERISA Group, and
schedules showing the amounts contributed to each such Plan by or on
behalf of the Borrowers or any member of the ERISA Group in which any
of their personnel participate or from which such personnel may derive
a benefit, and each Schedule B (Actuarial Information) to the annual
report filed by the Borrowers or any member of the ERISA Group with the
Internal Revenue Service with respect to each such Plan.
(iii) Promptly upon the filing thereof,
copies of any Form 5310, or any successor or equivalent form to Form
5310, filed with the PBGC in connection with the termination of any
Plan.
9. DEFAULT
9.1. Events of Default.
An Event of Default shall mean the occurrence or existence of
any one or more of the following events or conditions (whatever the
reason therefor and whether voluntary, involuntary or effected by
operation of Law):
(a) The Borrowers shall fail to pay any principal of any Loan (including
scheduled installments, mandatory prepayments or payment due at
maturity) or shall fail to pay any interest on any Loan or any other
amount owing hereunder or under the other Loan Documents after such
principal, interest or other amount becomes due in accordance with the
terms hereof or thereof;
(b) Any representation or warranty made at any time by any of the Loan
Parties herein or by any of the Loan Parties in any other Loan Document
or in any certificate, other instrument or statement furnished pursuant
to the provisions hereof or thereof shall prove to have been false or
misleading in any material respect as of the time it was made or
furnished;
(c) Any of the Loan Parties shall default in the observance or performance
of any covenant contained in Section 8.1(f) or Section 8.2, and with
respect to a default under Section 8.2(q), such default shall continue
unremedied for a period of thirty (30) days;
(d) Any of the Loan Parties shall default in the observance or performance
of any other covenant, condition or provision hereof or of any other
Loan Document, and such default shall continue unremedied for a period
of ten (10) Business Days after any officer of any Loan Party becomes
aware of the occurrence thereof (such grace period to be applicable
only in the event such default can be remedied by corrective action of
the Loan Parties as determined by the Agent in its reasonable
discretion);
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<PAGE> 74
(e) A default or event of default shall occur at any time under the Senior
Notes or any related documents or under the terms of any other
agreement involving borrowed money or the extension of credit or any
other Indebtedness under which any Loan Party may be obligated as
borrower or guarantor (except for nonrecourse Indebtedness secured by
Nonrecourse Purchase Money Security Interests permitted hereunder) in
excess of $500,000 in the aggregate outstanding at any time, and such
breach, default or event of default consists of the failure to pay
(beyond any period of grace permitted with respect thereto, whether
waived or not) any Indebtedness when due (whether at stated maturity,
by acceleration or otherwise) or if such breach or default permits or
causes the acceleration of any Indebtedness (whether or not such right
shall have been waived) or the termination of any commitment to lend;
(f) Any final judgments or orders for the payment of money (not adequately
covered by insurance) in excess of $500,000 in the aggregate
outstanding at any time shall be entered against any Loan Party by a
court having jurisdiction in the premises, which judgment is not paid
or discharged, vacated, bonded or stayed pending appeal within a period
of thirty (30) days from the date of entry;
(g) Any of the Loan Documents shall cease to be a legal, valid and binding
agreement enforceable against the Loan Parties in accordance with the
respective terms thereof or shall in any way be terminated (except in
accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested or cease to
give or provide the respective rights, titles, interests, remedies,
powers or privileges intended to be created thereby;
(h) There shall occur any material uninsured damage to or loss, theft or
destruction of any assets of the Loan Parties, or any of the Loan
Parties' assets are attached, seized, levied upon or subjected to a
writ or distress warrant, or such come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors
and the same is not cured within thirty (30) days thereafter;
(i) A notice of lien or assessment in excess of $500,000 is filed of record
with respect to all or any part of any of the Loan Parties' assets by
the United States, or any department, agency or instrumentality
thereof, or by any state, county, municipal or other governmental
agency, including, without limitation, the Pension Benefit Guaranty
Corporation, or if any taxes or debts owing at any time or times
hereafter to any one of these become payable and the same are not paid
within thirty (30) days after the same become payable;
(j) Any Loan Party ceases to be solvent or admits in writing its inability
to pay its debts as they mature;
(k) Any of the following occurs: (i) any Reportable Event, which the Agent
determines in good faith constitutes grounds for the termination of any
Plan by the PBGC or the appointment of a trustee to administer or
liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to
terminate any Plan, or a termination notice shall have been filed with
respect to any Plan; (iii) a trustee shall be appointed to administer
or liquidate any Plan; (iv) the PBGC shall give notice of its intent to
institute proceedings to terminate any Plan or Plans or to appoint a
trustee to administer or liquidate any Plan; and, in the
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<PAGE> 75
case of the occurrence of (i), (ii), (iii) or (iv) above, the Agent
determines in good faith that the amount of Borrowers' liability is
likely to exceed 10% of their Consolidated Tangible Net Worth; (v) the
Borrowers or any member of the ERISA Group shall fail to make any
contributions when due to a Plan or a Multiemployer Plan; (vi) the
Borrowers or any member of the ERISA Group shall make any amendment to
a Plan with respect to which security is required under Section 307 of
ERISA; (vii) the Borrowers or any member of the ERISA Group shall
withdraw completely or partially from a Multiemployer Plan; (viii) the
Borrowers or any member of the ERISA Group shall withdraw (or shall be
deemed under Section 4062(e) of ERISA to withdraw) from a Multiple
Employer Plan; or (ix) any applicable Law is adopted, changed or
interpreted by any Official Body with respect to or otherwise affecting
one or more Plans, Multiemployer Plans or Benefit Arrangements; and,
with respect to any of the events specified in (v), (vi), (vii), (viii)
or (ix), the Agent determines in good faith that any such occurrence
would be reasonably likely to result in a Material Adverse Change;
(l) Any Loan Party ceases to conduct its business as contemplated or is
enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business, and such
injunction, restraint or other preventive order is not dismissed within
thirty (30) days after the entry thereof;
(m) A Change of Control occurs;
(n) A proceeding shall have been instituted in a court having jurisdiction
in the premises seeking a decree or order for relief in respect of any
Loan Party in an involuntary case under any applicable bankruptcy,
insolvency, reorganization or other similar Law now or hereafter in
effect, or a receiver, liquidator, assignee, custodian, trustee,
sequestrator or conservator (or similar official) of any Loan Party for
any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of thirty (30)
consecutive days or such court shall enter a decree or order granting
any of the relief sought in such proceeding; or
(o) Any Loan Party shall commence a voluntary case under any applicable
bankruptcy, insolvency, reorganization or other similar Law now or
hereafter in effect, shall consent to the entry of an order for relief
in an involuntary case under any such Law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or conservator (or other
similar official) of itself or for any substantial part of its property
or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due or shall take
any action in furtherance of any of the foregoing.
9.2. Consequences of Event of Default.
(a) If an Event of Default specified under subsections (a) through (m) of
Section 9.1 hereof shall occur and be continuing, the Agent and the
Banks shall be under no further obligation to make Loans or issue
Letters of Credit hereunder, and the Agent may, and upon the request of
the Required Banks shall, (i) by written notice to the Borrowers,
declare the unpaid principal amount of the Notes then outstanding and
all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrowers to the Banks hereunder and thereunder to
be forthwith due and
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<PAGE> 76
payable, and the same shall thereupon become and be immediately due and
payable to the Agent for the benefit of each Bank without presentment,
demand, protest or any other notice of any kind, all of which are
hereby expressly waived, and (ii) require the Co-Borrowers to, and the
Co-Borrowers shall thereupon, deposit in a non-interest-bearing account
with the Agent, as cash collateral for its obligations under the Loan
Documents, an amount equal to the maximum amount currently or at any
time thereafter available to be drawn on all outstanding Letters of
Credit, and the Co-Borrowers hereby pledge to the Agent and the Banks,
and grant to the Agent and the Banks a security interest in, all such
cash as security for such obligations. Upon the curing of all existing
Events of Default to the satisfaction of the Required Banks, the Agent
shall return such cash collateral to the Co-Borrowers; and
(b) If an Event of Default specified under subsections (n) or (o) of
Section 9.1 hereof shall occur, the Banks shall be under no further
obligation to make Loans hereunder, and the unpaid principal amount of
the Notes then outstanding and all interest accrued thereon, any unpaid
fees and all other Indebtedness of the Borrowers to the Banks hereunder
and thereunder shall be immediately due and payable without
presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived; and the Agent may, and upon the request of the
Required Banks shall, require the Co-Borrowers to provide cash
collateral as set forth in Section 9.2(a)(ii); and
(c) If an Event of Default shall occur and be continuing, any Bank to whom
any obligation is owed by any Loan Party hereunder or under any other
Loan Document or any participant of such Bank which has agreed in
writing to be bound by the provisions of Section 10.13 hereof, and any
branch, subsidiary or affiliate of such Bank or participant anywhere in
the world, shall have the right, in addition to all other rights and
remedies available to it, without notice to Borrowers or such Loan
Party, to set off against and apply to the then unpaid balance of all
the Loans and all other obligations of the Borrowers and the other Loan
Parties hereunder or under any other Loan Document any debt owing to,
and any other funds held in any manner for the account of, the
Borrowers or such other Loan Party by such Bank or participant or by
such branch, subsidiary or affiliate, including, without limitation,
all funds in all deposit accounts (whether time or demand, general or
special, provisionally credited or finally credited, or otherwise) now
or hereafter maintained by the Borrowers or such other Loan Party for
its own account (but not including funds held in custodian or trust
accounts or payroll withholding tax accounts) with such Bank or
participant or such branch, subsidiary or affiliate. Such right shall
exist whether or not any Bank or the Agent shall have made any demand
under this Agreement or any other Loan Document, whether or not such
debt owing to or funds held for the account of the Borrowers or such
other Loan Party is or are matured or unmatured and regardless of the
existence or adequacy of any security, right or remedy available to any
Bank or the Agent; and
(d) If an Event of Default shall occur and be continuing, and whether or
not the Agent shall have accelerated the maturity of Loans of the
Borrowers pursuant to any of the foregoing provisions of this Section
9.2, the Agent or any Bank, if owed any amount with respect to the
Notes, may proceed to protect and enforce its rights by suit in equity,
action at law and/or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this
Agreement or the Notes, including as permitted by applicable Law the
obtaining of the ex parte appointment of a receiver, and, if such
amount shall have become due, by declaration or
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otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Agent or such Bank; and
(e) From and after the date on which the Agent has taken any action
pursuant to this Section 9.2 and until all obligations of the Loan
Parties have been paid in full, any and all proceeds received by the
Agent, or any part thereof, or the exercise of any other remedy by the
Agent, shall be applied as follows:
(i) first, to reimburse the Agent and the
Banks for out-of-pocket costs, expenses and disbursements, including
without limitation reasonable attorneys' fees and legal expenses,
incurred by the Agent or the Banks in connection with collection of any
obligations of any of the Loan Parties under any of the Loan Documents;
(ii) second, to the repayment of all
Indebtedness then due and unpaid of the Loan Parties to the Banks
incurred under this Agreement or any of the Loan Documents, whether of
principal, interest, fees, expenses or otherwise, in such manner as the
Agent may determine in its discretion; and
(iii) the balance, if any, as required by
Law.
(f) In addition to all of the rights and remedies contained in this
Agreement or in any of the other Loan Documents, the Agent shall have
all of the rights and remedies under applicable Law, all of which
rights and remedies shall be cumulative and nonexclusive, to the extent
permitted by Law. The Agent may, and upon the request of the Required
Banks shall, exercise all post-default rights granted to the Agent and
the Banks under the Loan Documents or applicable Law.
10. THE AGENT
10.1. Appointment.
Each Bank hereby irrevocably designates, appoints and
authorizes PNC to act as Agent for such Bank under this Agreement to
execute and deliver or accept on behalf of each of the Banks the other
Loan Documents. Each Bank hereby irrevocably authorizes, and each
holder of any Note by the acceptance of a Note shall be deemed
irrevocably to authorize, the Agent to take such action on its behalf
under the provisions of this Agreement and the other Loan Documents and
any other instruments and agreements referred to herein, and to
exercise such powers and to perform such duties hereunder, as are
specifically delegated to or required of the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. PNC
agrees to act as the Agent on behalf of the Banks to the extent
provided in this Agreement.
10.2. Delegation of Duties.
The Agent may perform any of its duties hereunder by or
through agents or employees (provided such delegation does not
constitute a relinquishment of its duties as Agent) and, subject to
Sections 10.5 and 10.6 hereof, shall be entitled to engage and pay for
the advice
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or services of any attorneys, accountants or other experts concerning
all matters pertaining to its duties hereunder and to rely upon any
advice so obtained.
10.3. Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist. The duties of the Agent
shall be mechanical and administrative in nature; the Agent shall not
have, by reason of this Agreement, a fiduciary or trust relationship in
respect of any Bank; and nothing in this Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon the
Agent any obligations in respect of this Agreement except as expressly
set forth herein. Each Bank expressly acknowledges (i) that the Agent
has not made any representations or warranties to it and that no act by
the Agent hereafter taken, including any review of the affairs of any
of the Loan Parties, shall be deemed to constitute any representation
or warranty by the Agent to any Bank; (ii) that it has made and will
continue to make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own
appraisal of the creditworthiness of each of the Loan Parties in
connection with this Agreement and the making and continuance of the
Loans hereunder; and (iii) except as expressly provided herein, that
the Agent shall have no duty or responsibility, either initially or on
a continuing basis, to provide any Bank with any credit or other
information with respect thereto, whether coming into its possession
before the making of any Loan or at any time or times thereafter.
10.4. Actions in Discretion of Agent; Instructions From the Banks.
The Agent agrees, upon the written request of the Required
Banks, to take or refrain from taking any action of the type specified
as being within the Agent's rights, powers or discretion herein,
provided that the Agent shall not be required to take any action which
exposes the Agent to personal liability or which is contrary to this
Agreement or any other Loan Document or applicable Law. In the absence
of a request by the Required Banks, the Agent shall have authority, in
its sole discretion, to take or not to take any such action, unless
this Agreement specifically requires the consent of the Required Banks
or all of the Banks. Any action taken or failure to act pursuant to
such instructions or discretion shall be binding on the Banks, subject
to Section 10.6 hereof. Subject to the provisions of Section 10.6, no
Bank shall have any right of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting hereunder in
accordance with the instructions of the Required Banks or, in the
absence of such instructions, in the absolute discretion of the Agent.
10.5. Reimbursement and Indemnification of Agent by the Borrowers.
The Borrowers unconditionally agree to pay or reimburse the
Agent and save the Agent harmless against (a) liability for the payment
of all reasonable out-of-pocket costs, expenses and disbursements,
including but not limited to fees and expenses of counsel (subject to
the letter dated June 11, 1999 from PNC to Zaring Homes with respect to
the fees and expenses of the Agent's counsel in connection with the
initial closing under this Agreement), appraisers and environmental
consultants, incurred by the Agent (i) in connection with the
development,
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negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the
other Loan Documents, (ii) relating to any requested amendments,
waivers or consents pursuant to the provisions hereof, (iii) in
connection with the enforcement of this Agreement or any other Loan
Document or collection of amounts due hereunder or thereunder or the
proof and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership proceedings
or otherwise, and (iv) in any workout, restructuring or in connection
with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan
Document or in connection with any foreclosure, collection or
bankruptcy proceedings; and (b) all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent, in its capacity as such, in
any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by the Agent hereunder or
thereunder, provided that the Borrowers shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements if the same
result from the Agent's gross negligence or willful misconduct, or if
the Borrowers were not given notice of the subject claim and the
opportunity to participate in the defense thereof, at their expense, or
if the same result from a compromise or settlement agreement entered
into without the consent of the Borrowers. In addition, the Borrowers
agree to reimburse and pay all reasonable out-of-pocket expenses of the
Agent's regular employees and agents engaged periodically to perform
audits of the Loan Parties' books, records and business properties.
10.6. Exculpatory Provisions.
Neither the Agent nor any of its directors, officers,
employees, agents, attorneys or affiliates shall (a) be liable to any
Bank or any Loan Party for any action taken or omitted to be taken by
it or them hereunder, or in connection herewith, including without
limitation pursuant to any Loan Document, unless caused by its or their
own gross negligence or willful misconduct, (b) be responsible in any
manner to any of the Banks for the effectiveness, enforceability,
genuineness, validity or due execution of this Agreement or any other
Loan Document or for any recital, representation, warranty, document,
certificate, report or statement herein or made or furnished under or
in connection with this Agreement or any other Loan Document, or (c) be
under any obligation to any of the Banks to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or
conditions hereof or thereof on the part of the Loan Parties, or the
financial condition of the Loan Parties, or the existence or possible
existence of any Event of Default or Potential Default. Neither the
Agent nor any Bank nor any of their respective directors, officers,
employees, agents, attorneys or affiliates shall be liable to any of
the Loan Parties for consequential damages resulting from any breach of
contract, tort or other wrong in connection with the negotiation,
documentation, administration or collection of the Loans or any of the
Loan Documents.
10.7. Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the
extent not
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reimbursed by the Borrowers and without limiting the obligation of the
Borrowers to do so) in proportion to its Ratable Share from and against
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted
against the Agent, in its capacity as such, in any way relating to or
arising out of this Agreement or any other Loan Document or any action
taken or omitted by the Agent hereunder or thereunder, provided that no
Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements (a) if the same result from the Agent's gross
negligence or willful misconduct, or (b) if such Bank was not given
notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense, or (c) if the same result from a
compromise and settlement agreement entered into without the consent of
such Bank.
10.8. Reliance by Agent.
The Agent shall be entitled to rely upon any writing,
telegram, telex or teletype message, resolution, notice, consent,
certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be genuine and
correct and to have been signed, sent or made by the proper person or
persons, and upon the advice and opinions of counsel and other
professional advisors selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action hereunder unless it
shall first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.
10.9. Notice of Default.
The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Potential Default or Event of Default unless the
Agent has received written notice from a Bank or the Borrowers
referring to this Agreement, describing such Potential Default or Event
of Default and stating that such notice is a "notice of default."
10.10. Notices.
The Agent shall promptly send to each Bank a copy of all
notices received from the Borrowers pursuant to the provisions of this
Agreement or the other Loan Documents promptly upon receipt thereof.
The Agent shall promptly notify the Borrowers and the other Banks of
each change in the Base Rate and the effective date thereof.
10.11. Banks in Their Individual Capacities.
With respect to its Revolving Credit Commitments, the Letters
of Credit and advances in respect of drawings thereunder and the
Revolving Credit Loans made by it, the Agent shall have the same rights
and powers hereunder as any other Bank and may exercise the same as
though it were not the Agent, and the term "Banks" shall, unless the
context otherwise indicates, include the Agent in its individual
capacity. PNC and its affiliates and each of the Banks and their
respective affiliates may, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount drafts
for, act as trustee under indentures of
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and generally engage in any kind of banking or trust business with the
Borrowers and their Affiliates, in the case of the Agent, as though it
were not acting as Agent hereunder and, in the case of each Bank, as
though such Bank were not a Bank hereunder.
10.12. Holders of Notes.
The Agent may deem and treat any payee of any Note as the
owner thereof for all purposes hereof unless and until written notice
of the assignment or transfer thereof shall have been filed with the
Agent. Any request, authority or consent of any person who, at the time
of making such request or giving such authority or consent, is the
holder of any Note shall be conclusive and binding on any subsequent
holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
10.13. Equalization of Banks.
The Banks and the holders of any participations in any Notes
agree among themselves that, with respect to all amounts received by
any Bank or any such holder for application on any obligation hereunder
or under any Note or under any such participation, whether received by
voluntary payment, by realization upon security, by the exercise of the
right of set-off or banker's lien, by counterclaim or by any other
non-pro rata source, equitable adjustment will be made in the manner
stated in the following sentence, so that, in effect, all such excess
amounts will be shared ratably among the Banks and such holders in
proportion to their interests in payments under the Notes, except as
otherwise provided in Section 4.4(b), 5.4(b) or 5.5 hereof. The Banks,
or any such holder receiving any such amount, shall purchase for cash
from each of the other Banks an interest in such Bank's Loans in such
amount as shall result in a ratable participation by the Banks and each
such holder in the aggregate unpaid amount under the Notes; provided
that if all or any portion of such excess amount is thereafter
recovered from the Bank or the holder making such purchase, such
purchase shall be rescinded and the purchase price restored to the
extent of such recovery, together with interest or other amounts, if
any, required by Law (including court order) to be paid by the Bank or
the holder making such purchase.
10.14. Successor Agent.
The Agent may resign as Agent upon not less than thirty (30)
days' prior written notice to the Borrowers and the Banks. If the Agent
shall resign under this Agreement, then either (a) the Required Banks
shall appoint from among the Banks a successor agent for the Banks, and
such successor shall be subject to the consent of the Borrowers, which
shall not be unreasonably withheld, or (b) if a successor agent shall
not be so appointed and approved within the thirty (30) day period
following the Agent's notice to the Banks of its resignation, then the
Agent shall appoint, with the consent of the Borrowers, such consent
not to be unreasonably withheld, a successor agent who shall serve as
Agent until such time as the Required Banks appoint a successor agent.
Upon its appointment pursuant to either clause (a) or (b) above, such
successor agent shall succeed to the rights, powers and duties of the
Agent, and the term "Agent" shall mean such successor agent, effective
upon its appointment; and the former Agent's rights, powers and duties
as Agent shall be terminated without any other or further act or deed
on the
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part of such former Agent or any of the parties to this Agreement.
After the resignation of any Agent hereunder, the provisions of this
Article 10 shall inure to the benefit of such former Agent, and such
former Agent shall not by reason of such resignation be deemed to be
released from liability for any actions taken or not taken by it while
it was an Agent under this Agreement.
10.15. Agent's Fee.
Zaring Homes shall pay to the Agent a nonrefundable fee (the
"Agent's Fee") as set forth in the Side Letters.
10.16. Availability of Funds.
Unless the Agent shall have been notified by a Bank prior to
the date upon which a Loan is to be made that such Bank does not intend
to make available to the Agent such Bank's portion of such Loan, the
Agent may assume that such Bank has made or will make such proceeds
available to the Agent on such date, and the Agent may, in reliance
upon such assumption (but shall not be required to), make available to
the Borrowers a corresponding amount. If such corresponding amount is
not in fact made available to the Agent by such Bank, the Agent shall
be entitled to recover such amount on demand from such Bank (or, if
such Bank fails to pay such amount forthwith, upon such demand from the
Borrowers) together with interest thereon, in respect of each day
during the period commencing on the date such amount was made available
to the Borrowers and ending on the date the Agent recovers such amount,
at a rate per annum equal to the Federal Funds Effective Rate.
10.17. Calculations.
In the absence of gross negligence or willful misconduct, the
Agent shall not be liable for any error in computing the amount payable
to any Bank, whether in respect of the Loans, fees or any other amounts
due to the Banks under this Agreement. In the event an error in
computing any amount payable to any Bank is made, the Agent, the
Borrowers and each affected Bank shall, forthwith upon discovery of
such error, make such adjustments as shall be required to correct such
error, and any compensation therefor will be calculated at the Federal
Funds Effective Rate.
10.18. Beneficiaries.
Except as expressly provided herein, the provisions of this
Article 10 are solely for the benefit of the Agent and the Banks, and
the Loan Parties shall not have any rights to rely on or enforce any of
the provisions hereof. In performing its functions and duties under
this Agreement, the Agent shall act solely as agent of the Banks and
does not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for any of the Loan
Parties.
11. MISCELLANEOUS
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11.1. Modifications, Amendments or Waivers.
With the written consent of the Required Banks, the Agent,
acting on behalf of all the Banks, and the Borrowers, on behalf of the
Loan Parties, may from time to time enter into written agreements
amending or changing any provision of this Agreement or any other Loan
Document or the rights of the Banks or the Loan Parties hereunder or
thereunder, or may grant written waivers or consents to a departure
from the due performance of the obligations of the Loan Parties
hereunder or thereunder. Any such agreement, waiver or consent made
with such written consent shall be effective to bind all the Banks and
the Loan Parties; provided that, without the written consent of all the
Banks, no such agreement, waiver or consent may be made which will:
(a) Reduce the amount of the Commitment Fee or any other fees payable to
any Bank hereunder, or amend Sections 5.2 [Pro Rata Treatment of
Banks], 10.6 [Exculpatory Provisions], 10.13 [Equalization of Banks] or
11.19 [Limitation of Liability] hereof;
(b) Whether or not any Loans are outstanding, extend the time for payment
of principal or interest of any Loan or any fees, or reduce the
principal amount of or the rate of interest borne by any Loan or the
amount of any fees, or otherwise affect the terms of payment of the
principal of or interest on any Loan or any fees or increase the amount
of the commitments or extend the Revolving Credit Expiration Date;
(c) Release any Guarantor from its obligations under the Guaranty
Agreement; or
(d) Amend this Section 11.1, change the definition of Required Banks or
change any requirement providing for the Banks or the Required Banks to
authorize the taking of any action hereunder.
11.2. No Implied Waivers; Cumulative Remedies; Writing Required.
No course of dealing and no delay or failure of the Agent or
any Bank in exercising any right, power, remedy or privilege under this
Agreement or any other Loan Document shall affect any other or future
exercise thereof or operate as a waiver thereof, nor shall any single
or partial exercise thereof or any abandonment or discontinuance of
steps to enforce such a right, power, remedy or privilege preclude any
further exercise thereof or of any other right, power, remedy or
privilege. The rights and remedies of the Agent and the Banks under
this Agreement and any other Loan Document are cumulative and not
exclusive of any rights or remedies which they would otherwise have.
Any waiver, permit, consent or approval of any kind or character on the
part of any Bank of any breach or default under this Agreement or any
such waiver of any provision or condition of this Agreement must be in
writing and shall be effective only to the extent specifically set
forth in such writing.
11.3. Reimbursement and Indemnification of Banks by the Borrowers; Taxes.
The Borrowers jointly and severally agree unconditionally upon
demand to pay or reimburse to each Bank (other than the Agent, as to
which the Borrowers' obligations are set forth in Section 10.5) and to
save such Bank harmless against (i) liability for the payment of all
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reasonable out-of-pocket costs, expenses and disbursements (including
fees and expenses of counsel for each Bank except with respect to (a)
and (b) below) incurred by such Bank (a) in connection with the
administration and interpretation of this Agreement and other
instruments and documents to be delivered hereunder, (b) relating to
any amendments, waivers or consents pursuant to the provisions hereof,
(c) in connection with the enforcement of this Agreement or any other
Loan Document, or collection of amounts due hereunder or thereunder, or
the proof and allowability of any claim arising under this Agreement or
any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (d) in any workout, restructuring or in
connection with the protection, preservation, exercise or enforcement
of any of the terms hereof or of any rights hereunder or under any
other Loan Document, or in connection with any foreclosure, collection
or bankruptcy proceedings; or (ii) all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against such Bank, in its capacity as such,
in any way relating to or arising out of this Agreement or any other
Loan Document or any action taken or omitted by such Bank hereunder or
thereunder, provided that the Borrowers shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements to the
extent such portion resulted from (A) such Bank's gross negligence or
willful misconduct, or (B) the failure to provide the Borrowers with
notice of the subject claim and the opportunity to participate in the
defense thereof, at their expense, or (C) a compromise or settlement
agreement entered into without the consent of the Borrowers. The Banks
will attempt to minimize the fees and expenses of legal counsel for the
Banks which are subject to reimbursement by the Borrowers hereunder by
considering the usage of one law firm to represent the Banks and the
Agent if appropriate under the circumstances. The Borrowers jointly and
severally agree unconditionally to pay all stamp, document, transfer,
recording or filing taxes or fees and similar impositions now or
hereafter determined by the Agent or any Bank to be payable in
connection with this Agreement or any other Loan Document, and the
Borrowers jointly and severally agree unconditionally to save the Agent
and the Banks harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any
omission to pay or delay in paying any such taxes, fees or impositions.
11.4. Holidays.
Whenever any payment or action to be made or taken hereunder
shall be stated to be due on a day which is not a Business Day, such
payment or action shall be made or taken on the next following Business
Day (except as provided in Section 4.2 with respect to Euro-Rate
Interest Periods), and such extension of time shall be included in
computing interest or fees, if any, in connection with such payment or
action.
11.5. Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding.
Each Bank shall have the right from time to time,
without notice to the Borrowers, to deem any branch, subsidiary or
affiliate (which for the purposes of this
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Section 11.5 shall mean any corporation or association which is
directly or indirectly controlled by or is under direct or indirect
common control with any corporation or association which directly or
indirectly controls such Bank) of such Bank to have made, maintained or
funded any Loan to which the Euro-Rate Option applies at any time,
provided that immediately following (on the assumption that a payment
were then due from the Borrowers to such other office) and as a result
of such change, the Borrowers would not be under any greater obligation
pursuant to Section 5.5 hereof than they would have been in the absence
of such change. Notional funding offices may be selected by each Bank
without regard to the Bank's actual methods of making, maintaining or
funding the Loans or any sources of funding actually used by or
available to such Bank.
(b) Actual Funding.
Each Bank shall have the right from time to time to
make or maintain any Loan by arranging for a branch, subsidiary or
affiliate of such Bank to make or maintain such Loan, subject to the
last sentence of this Section 11.5(b). If any Bank causes a branch,
subsidiary or affiliate to make or maintain any part of the Loans
hereunder, all terms and conditions of this Agreement shall, except
where the context clearly requires otherwise, be applicable to such
part of the Loans to the same extent as if such Loans were made or
maintained by such Bank, but in no event shall any Bank's use of such a
branch, subsidiary or affiliate to make or maintain any part of the
Loans hereunder cause such Bank or such branch, subsidiary or affiliate
to incur any cost or expenses payable by the Borrowers hereunder or
require the Borrowers to pay any other compensation to any Bank
(including, without limitation, any expenses incurred or payable
pursuant to Section 5.5 hereof) which would otherwise not be incurred.
11.6. Notices.
All notices, requests, demands, directions and other
communications (collectively "notices") given to or made upon any party
hereto under the provisions of this Agreement shall be by telephone in
person (as opposed to voice mail or answering machine message) or in
writing (including telex or facsimile communication, provided receipt
of such telex or facsimile communication is confirmed within
twenty-four (24) hours of receipt) unless otherwise expressly permitted
hereunder and shall be delivered or sent by telex or facsimile to the
respective parties at the addresses and numbers set forth under their
respective names on the signature pages hereof or in accordance with
any subsequent unrevoked written direction from any party to the
others. All notices shall, except as otherwise expressly herein
provided, be effective (a) in the case of telex or facsimile, when
received, (b) in the case of hand-delivered notice, when hand
delivered, (c) in the case of telephone, when telephoned, provided,
however, that in order to be effective, telephonic notices must be
confirmed in writing no later than the next day by letter, facsimile or
telex, (d) if given by mail, four (4) days after such communication is
deposited in the mail with first-class postage prepaid, return receipt
requested, and (e) if given by any other means (including by air
courier), when delivered; provided, that notices to the Agent shall not
be effective until received. Any Bank giving any notice to any Loan
Party shall simultaneously send a copy thereof to the Agent, and the
Agent shall promptly notify the other Banks of the receipt by it of any
such notice.
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11.7. Severability.
The provisions of this Agreement are intended to be severable.
If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the
remaining provisions hereof in any jurisdiction.
11.8. Governing Law.
This Agreement shall be deemed to be a contract under the laws
of the State of Ohio and for all purposes shall be governed by and
construed and enforced in accordance with the laws of the State of Ohio
without regard to its conflict of laws principles.
11.9. Prior Understanding.
This Agreement supersedes all prior understandings and
agreements, whether written or oral, between the parties hereto and
thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments, except
the Side Letters, which remain in force and effect.
11.10. Duration; Survival.
All representations and warranties of the Loan Parties
contained herein or made in connection herewith shall survive the
making of Loans and shall not be waived by the execution and delivery
of this Agreement, any investigation by the Agent or the Banks, the
making of Loans or payment in full of the Loans. All covenants and
agreements of the Loan Parties contained herein shall continue in full
force and effect from and after the date hereof, so long as the
Borrowers may borrow hereunder and until termination of the Revolving
Credit Commitments, payment in full of the Loans and termination or
expiration of all Letters of Credit. All covenants and agreements of
the Borrowers contained herein relating to the payment of principal,
interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Article 5 and
Sections 10.5, 10.7, and 11.3 hereof, shall survive payment in full of
the Loans, termination of the Revolving Credit Commitments and
termination or expiration of all Letters of Credit.
11.11. Successors and Assigns.
This Agreement shall be binding upon and shall inure to the
benefit of the Banks, the Agent, the Borrowers and their respective
successors and assigns, except that the Borrowers may not assign or
transfer any of their rights and obligations hereunder or any interest
herein. Each Bank may, at its own cost and without the Borrowers'
consent, sell participations in all or any part of its Commitments and
the Loans made by it. Each Bank may, at its own cost, make assignments
of all or any part of its Commitment and the Loans made by it, provided
that each of the following conditions is met: (i) the Commitments and
Loans that are assigned to any assignee, in the aggregate, must equal
or exceed $10,000,000, and (ii) the Agent and, except
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during the continuance of an Event of Default, the Borrowers shall
consent to the assignee, such consent not to be unreasonably withheld.
In the case of an assignment, upon receipt by the
Agent of the Assignment and Assumption Agreement, the assignee shall
have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if
it had been a signatory Bank hereunder, the Commitments in Section 2.1
shall be adjusted accordingly, and upon surrender of any Note subject
to such assignment, the Borrowers shall execute and deliver new Notes
to the assignee in an amount equal to the amount of the Commitments
assumed by it and new Notes to the assigning Bank in an amount equal to
the Commitments retained by it hereunder. The assigning Bank shall pay
to the Agent a service fee in the amount of $2,000 for each assignment.
In the case of a participation, the participant shall
have only the rights specified in Section 9.2(c) (the participant's
rights against such Bank in respect of such participation to be those
set forth in the agreement executed by such Bank in favor of the
participant relating thereto and not to include any voting rights
except with respect to changes of the type referenced in clauses (a),
(b) or (c) under Section 11.1 hereof), all of such Bank's obligations
under this Agreement or any other Loan Document shall remain unchanged,
and all amounts payable by any of the Loan Parties hereunder or
thereunder shall be determined as if such Bank had not sold such
participation. Each Bank may furnish any publicly available information
concerning any of the Loan Parties and any other information concerning
any of the Loan Parties in the possession of such Bank from time to
time to assignees and participants (including prospective assignees or
participants), provided such assignees and participants agree to be
bound by the provisions of Section 11.12 hereof.
11.12. Confidentiality.
The Agent and the Banks each agree to keep confidential all
information obtained from the Borrowers which is nonpublic and
confidential or proprietary in nature (including any information the
Borrowers specifically designate as confidential), except as provided
below, and to use such information only in connection with their
respective capacities under this Agreement and for the purposes
contemplated hereby. The Agent and the Banks shall be permitted to
disclose such information (i) to affiliates of the Agent and the Banks
and to outside legal counsel, accountants and other professional
advisors who need to know such information in connection with the
administration and enforcement of this Agreement, subject to agreement
of such persons to maintain the confidentiality, (ii) to assignees and
participants as contemplated by Section 11.11, (iii) to the extent
requested by any bank regulatory authority or, with notice to the
Borrowers, as otherwise required by applicable Law or by any subpoena
or similar legal process, or in connection with any investigation or
proceeding arising out of the transactions contemplated by this
Agreement, (iv) if it becomes publicly available other than as a result
of a breach of this Agreement or becomes available from a source not
subject to confidentiality restrictions, or (v) if the Borrowers shall
have consented to such disclosure.
11.13. Counterparts.
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This Agreement may be executed by different parties hereto on
any number of separate counterparts, each of which, when so executed
and delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
11.14. Agent's or Bank's Consent.
Whenever the Agent's or any Bank's consent is required to be
obtained under this Agreement or any of the other Loan Documents as a
condition to any action, inaction, condition or event, the Agent and
each Bank shall be authorized to give or withhold such consent in its
sole and absolute discretion and to condition its consent upon the
giving of additional collateral, the payment of money or any other
matter.
11.15. Exceptions.
The representations, warranties and covenants contained herein
shall be independent of each other, and no exception to any
representation, warranty or covenant shall be deemed to be an exception
to any other representation, warranty or covenant contained herein
unless expressly provided, nor shall any such exceptions be deemed to
permit any action or omission that would be in contravention of
applicable Law.
11.16. Consent to Forum; Waiver of Jury Trial.
Each of the Loan Parties hereby irrevocably consents to the
nonexclusive jurisdiction of the Court of Common Pleas of Hamilton
County, Ohio and the United States District Court for the Southern
District of Ohio, and waives personal service of any and all process
upon it and consents that all such service of process be made by
certified or registered mail directed to such Loan Party at the
addresses provided for in Section 11.6 hereof and service so made shall
be deemed to be completed upon actual receipt thereof. Each Loan Party
waives any objection to jurisdiction and venue of any action instituted
against it as provided herein and agrees not to assert any defense
based on lack of jurisdiction or venue. Each Loan Party, the Agent and
the Banks hereby waive trial by jury in any action, suit, proceeding or
counterclaim of any kind arising out of or related to this Agreement or
any other Loan Document to the full extent permitted by Law.
11.17. Tax Withholding Clause.
At least five (5) Business Days prior to the first date on
which interest or fees are payable hereunder for the account of any
Bank, each Bank that is not incorporated under the laws of the United
States of America or a state thereof agrees that it will deliver to
each of the Borrowers and the Agent two (2) duly completed copies of
(i) Internal Revenue Service Form W-9, 4224 or 1001, or other
applicable form prescribed by the Internal Revenue Service, certifying
in either case that such Bank is entitled to receive payments under
this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes or is subject to
such tax at a reduced rate under an applicable tax treaty, or (ii) Form
W-8 or other applicable form or a certificate of the Bank indicating
that no such exemption or reduced rate is allowable with respect to
such payments. Each Bank which so delivers a Form W-8, W-9,
- 88 -
<PAGE> 89
4224 or 1001 further undertakes to deliver to each of the Borrowers and
the Agent two (2) additional copies of such form (or a successor form)
on or before the date that such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent
form so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrowers or the
Agent, either certifying that such Bank is entitled to receive payments
under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes or is subject to
such tax at a reduced rate under an applicable tax treaty or stating
that no such exemption or reduced rate is allowable. The Agent shall be
entitled to withhold United States federal income taxes at the full
withholding rate unless the Bank establishes an exemption or at the
applicable reduced rate as established pursuant to the above
provisions.
11.18. Joinder of Guarantors.
(a) Any Subsidiary of the Borrowers which is required to join this
Agreement pursuant to Section 8.2(i) must execute and deliver to Agent
(i) a Guarantor Joinder attached hereto as Exhibit 1.1(G)(1), (ii) an
Intercompany Subordination Joinder attached hereto as Exhibit
1.1(I)(2), and (iii) documents in the forms described in Section 7.1,
modified as appropriate to relate to such Subsidiary. The Loan Parties
shall deliver the foregoing documents specified in the preceding
clauses (i)-(iii) to the Agent within fourteen (14) Business Days after
the date of the filing of the articles of incorporation or certificate
of limited partnership or other equivalent effective date of the
organization of such Subsidiary if such Subsidiary is not a limited
partnership or corporation. Upon execution and delivery of such
documents, a Subsidiary shall be a party hereto and an obligor under
the Guaranty and one of the Loan Parties and Guarantors hereunder and
under each of the other Loan Documents for all purposes.
11.19. Limitation of Liability.
TO THE FULLEST EXTENT PERMITTED BY LAW, NO CLAIM MAY BE MADE
BY THE BORROWERS OR ANY OTHER LOAN PARTY OR ANY OTHER PERSON AGAINST
THE AGENT AND THE BANKS, OR ANY OF THEM, OR ANY AFFILIATE, DIRECTOR,
OFFICER, EMPLOYEE, ATTORNEY OR AGENT OF THE AGENT OR THE BANKS FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY
CLAIM ARISING FROM OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION HEREWITH OR THEREWITH (WHETHER FOR BREACH OF
CONTRACT, TORT OR ANY OTHER THEORY OF LIABILITY); AND THE BORROWERS
HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR ANY SUCH
DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED
TO EXIST IN THEIR FAVOR.
11.20. Co-Agents.
The Co-Agents shall have no rights, obligations or duties
under this Agreement
- 89 -
<PAGE> 90
other than in their respective capacities as Banks hereunder.
[SIGNATURE PAGE FOLLOWS]
- 90 -
<PAGE> 91
[SIGNATURE PAGE 1 OF 6 OF CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.
BORROWERS AND GUARANTORS:
ATTEST: ZARING HOMES, INC.
_______________________________ By:
[Seal] Name: Ronald G. Gratz
Title:Vice President and Chief
Financial Officer
Address for Notices:
Zaring Homes, Inc.
11300 Cornell Park Drive, Suite 500
Cincinnati, OH 45242-1825
Attention: Ronald G. Gratz
Telecopier No.: (513) 247-2667
Telephone No.: (513) 489-8849
ATTEST: ZARING HOLDINGS, INC.
_______________________________ By:
[Seal] Name: Ronald G. Gratz
Title:Treasurer
Address for Notices:
Zaring Holdings, Inc.
11300 Cornell Park Drive, Suite 500
Cincinnati, OH 45242-1825
Attention: Ronald G. Gratz
Telecopier No.: (513) 247-2667
Telephone No.: (513) 489-8849
- 91 -
<PAGE> 92
[SIGNATURE PAGE 2 OF 6 OF CREDIT AGREEMENT]
HEARTHSIDE HOMES, LLC
By: Zaring National Corporation,
as member
_______________________________ By:
[Seal] Name: Ronald G. Gratz
Title: Secretary/Treasurer
Address for Notices:
11300 Cornell Park Drive, Suite 500
Cincinnati, OH 45242-1825
Attention: Ronald G. Gratz
Telecopier No.: (513) 247-2667
Telephone No.: (513) 489-8849
GUARANTORS:
ZARING NATIONAL CORPORATION
_______________________________ By:
[Seal] Name: Ronald G. Gratz
Title: Secretary/Treasurer
Address for Notices:
11300 Cornell Park Drive, Suite 500
Cincinnati, OH 45242-1825
Attention: Ronald G. Gratz
Telecopier No.: (513) 247-2667
Telephone No.: (513) 489-8849
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<PAGE> 93
[SIGNATURE PAGE 3 OF 6 OF CREDIT AGREEMENT]
ATTEST: ZARING HOMES OF INDIANA, L.L.C.
By: Zaring Homes, Inc., as member
_______________________________ By:
[Seal] Name: Ronald G. Gratz
Title: Vice President and Chief
Financial Officer
Address for Notices:
Zaring Homes of Indiana, L.L.C.
11300 Cornell Park Drive, Suite 300
Cincinnati, OH 45242-1825
Attention: Ronald G. Gratz
Telecopier No.: (513) 247-2667
Telephone No.: (513) 489-8849
ATTEST: ZARING HOMES KENTUCKY, LLC,
By: Zaring Holdings, Inc.,
as manager
_______________________________ By:
[Seal] Name: Ronald G. Gratz
Title: Treasurer
Address for Notices:
Zaring Homes Kentucky, LLC
11300 Cornell Park Drive, Suite 300
Cincinnati, OH 45242-1825
Attention: Ronald G. Gratz
Telecopier No.: (513) 247-2667
Telephone No.: (513) 489-8849
- 93 -
<PAGE> 94
[SIGNATURE PAGE 4 OF 6 OF CREDIT AGREEMENT]
AGENT:
PNC BANK, NATIONAL ASSOCIATION,
as Agent and as a Bank
By:
Name: James A. Harmann,
Title: Vice President
Address for Notices:
PNC Bank, National Association
201 East Fifth Street, 8th Floor
Cincinnati, OH 45202
Attention: Commercial Real Estate
Telecopier No. (513) 651-8931
Telephone No. (513) 651-8988
With a copy to:
PNC Bank, National Association
One PNC Plaza - Fourth Floor Annex
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attention: Multi-Bank Loan
Administration
Telecopier No. (412) 762-8672
Telephone No. (412) 762-3627
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<PAGE> 95
[SIGNATURE PAGE 5 OF 6 OF CREDIT AGREEMENT]
CO-AGENTS:
ATTEST: BANK OF AMERICA NT&SA
(formerly NationsBank, N.A.),
as a Co-Agent and as a Bank
_______________________________ By:
[Seal] Name: Michael V. Atkins
Title: Vice President
Address for Notices:
Homebuilding Division
5 Park Plaza, Suite 500
Irvine, CA 92614
Attention: Michael V. Atkins
Telecopier No.: (949) 260-5639
Telephone No.: (949) 260-5694
ATTEST: BANK ONE, MICHIGAN
(formerly The First National Bank of
Chicago),
as a Co-Agent and as a Bank
_______________________________ By:
[Seal] Name: Steven J. Mahr
Title: First Vice President
Address for Notices:
611 Woodward Avenue
Mail Suite 0315
Detroit, MI 48226
Attention: Steven J. Mahr
Telecopier No.: (313) 226-0857
Telephone No.: (313) 225-3499
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<PAGE> 96
[SIGNATURE PAGE 6 OF 6 OF CREDIT AGREEMENT]
OTHER BANKS:
ATTEST: COMERICA BANK,
_______________________________ By:
[Seal] Name: Charles L. Weddell
Title: Vice President
Address for Notices:
Commercial Real Estate II
500 Woodward Avenue
Mail Code 3256
Detroit, MI 48226
Attention: Charles L. Weddell
Telecopier No.: (313) 222-9295
Telephone No.: (313) 222-3323
ATTEST: THE FIFTH THIRD BANK
_______________________________ By:
[Seal] Name: Brian L. Rogg
Title: Vice President
Address for Notices:
38 Fountain Square Plaza
Mail Drop 109051
Cincinnati, OH 45202
Attention: Brian L. Rogg
Telecopier No.: (513) 744-7717
Telephone No.: (513) 579-5377
- 96 -
<PAGE> 97
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Amount of Commitment Amount of Amount of Ratable
for Revolving Credit Commitment for Outstanding Term Share (%)
Loans ($US) Term Loans ($US) Loans ($US)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PNC Bank, National Association $18,639,800 $ 3,860,200 $1,544,492.50 25.71%
- -----------------------------------------------------------------------------------------------------------------------
Bank of America NT&SA $16,573,500 $ 3,426,500 $1,370,600.00 22.86%
- -----------------------------------------------------------------------------------------------------------------------
Bank One, Michigan $16,573,500 $ 3,426,500 $1,370,600.00 22.86%
- -----------------------------------------------------------------------------------------------------------------------
Comerica Bank $12,426,500 $ 2,573,500 $1,029,400.00 17.14%
- -----------------------------------------------------------------------------------------------------------------------
The Fifth Third Bank $ 8,286,700 $ 1,713,300 $ 684,907.50 11.43%
----------- ----------- ------------- ------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $72,500,000 $15,000,000 $ 6,000,000 100.00%
=========== =========== ============= =======
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 97 -
<PAGE> 1
Exhibit 10.20
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement"), dated as
of March 31, 1999, is made and entered into by and among THE PROVIDENT BANK
("Bank"), an Ohio banking corporation whose mailing address is One East Fourth
Street, Cincinnati, Ohio 45202, as lender, and Zaring National Corporation, an
Ohio corporation ("Borrower"), whose mailing address is 11300 Cornell Park
Drive, Cincinnati, Ohio 45242, as borrower.
1. Definitions. As used herein, the following terms, when
initial capital letters are used, shall have the respective meanings set forth
below. In addition, all terms defined in the Ohio Uniform Commercial Code shall
have the meanings given therein unless otherwise defined herein.
1.1 Affiliate shall mean any Person controlling, controlled by
or under common control with, Borrower, whether such common control is direct or
indirect, and all of the officers, directors and shareholders of Borrower or
such Persons.
1.2 AHC Consent shall mean any consent of American Homestar
Corporation required under the Securityholders Agreement to permit the pledge by
Borrower to Bank, pursuant to the Pledge Agreement, of the capital stock of
HomeMax, Inc. owned by Borrower.
1.3 Applicable Rate shall have the meaning set forth in
Section 2.2.
1.4 Audited Financials shall have the meaning set forth in
Section 4.5.
1.5 Borrower Collateral shall mean all right, title and
interest of Borrower in (a) the Four Million Dollar ($4,000,000) 6% Senior
Subordinated Promissory Note from Homemax, Inc. to Borrower dated March 15, 1999
(the "Senior Subordinated Note"); and (b) the Four Million Four Hundred Eleven
Thousand One Hundred Seventy-Seven Dollar ($4,411,177) Promissory Note from
American Homestar Corporation to Borrower dated March 15, 1999 (the "Investor
Note").
1.6 Borrower Financials shall have the meaning set forth in
Section 4.5.
1.7 Business Day shall mean any day other than Saturday or
Sunday on which Bank is open for business in Cincinnati, Ohio and on which
commercial banks in the City of London, England are open for dealings in U.S.
dollar deposits in the London Interbank Market; provided, however, that during
any period of time during which the entire principal balance of the Loan is
bearing interest at the Prime Based Rate in accordance with the provisions of
this Agreement, the term "Business Day" shall mean any day other than Saturday
or Sunday on which Bank is open for business in Cincinnati, Ohio.
1.8 Call shall have the meaning ascribed to such term in the
Securityholders Agreement.
1.9 Closing Date shall mean March 15, 1999.
1.10 Code shall mean the Internal Revenue Code of 1986, as
amended from time
<PAGE> 2
to time.
1.11 Collateral shall mean the Borrower Collateral.
1.12 Collateral Note Assignment shall mean that certain
Collateral Note Assignment in substantially the form of Exhibit C hereto entered
into between Borrower and Bank to further evidence the pledge of the Borrower
Collateral to Bank.
1.13 Collateral Parties shall mean, collectively, Borrower and
the Guarantor, and Collateral Party shall mean any one of (and each of) the
Collateral Parties.
1.14 Commonly Controlled Entity shall mean any Subsidiary of
Borrower and any entity, whether or not incorporated, which is under common
control with Borrower within the meaning of Section 4001 of ERISA or is part of
a group which includes Borrower and which is treated as a single employer under
Section 414 of the Code.
1.15 Compliance Certificate shall have the meaning set forth
in Section 5.5(b).
1.16 Consolidated Cash Flow From Operations shall mean, for
any period of determination, the following with respect to the Borrower and its
consolidated Subsidiaries for each item for such period determined and
consolidated in accordance with GAAP: (i) the sum of net income, depreciation,
amortization, other noncash charges to net income, interest expense and income
tax expense minus (ii) noncash credits to net income.
1.17 Consolidated Fixed Charges shall mean, for any period of
determination, the sum of interest incurred (capitalized and expensed) and
scheduled principal installments of Indebtedness, in each case of the Borrower
and its Subsidiaries for such period determined and consolidated in accordance
with GAAP.
1.18 Consolidated Tangible Net Worth shall mean, as of any
date of determination, total stockholders' equity minus intangible assets, in
each case of the Borrower and its Subsidiaries as of such date determined and
consolidated in accordance with GAAP.
1.19 Consolidated Total Liabilities shall mean, for any fiscal
quarter for the fiscal quarter than ended, all Indebtedness and, without
duplication, all other liabilities of the Borrower and its Subsidiaries,
determined and consolidated in accordance with GAAP, excluding Indebtedness
secured by Nonrecourse Purchase Money Security Interests not to exceed, in the
aggregate at any time, 15% of Consolidated Tangible Net Worth.
1.20 Default Rate shall have the meaning set forth in Section
2.3.1.
1.21 Environment shall mean the ocean, natural resources
(including flora and fauna), soil, surface water, ground water, any present or
potential drinking water supply, subsurface strata or the ambient air.
1.22 Environmental Laws shall mean all federal, state and
local laws, statutes,
- 2 -
<PAGE> 3
rules, ordinances, guidances, regulations and polices, and all interpretations
thereof by any Governmental Authority, relating to health, safety, ecology or
the Environment.
1.23 ERISA shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
1.24 Event of Default shall mean any event described in
Section 9.1
1.25 GAAP shall mean generally accepted accounting principles,
as in effect in the United States of America as from time to time in effect in
the United States of America for all other purposes.
1.26 Governmental Authority shall have the meaning set forth
in Section 4.2.
1.27 Guarantor shall mean Zaring Homes, Inc, an Ohio
corporation.
1.28 Guaranty shall mean the Unconditional Guaranty in
substantially the form of Exhibit B hereto executed and delivered to Bank by
Guarantor.
1.29 Hazardous Material shall mean any asbestos,
polychlorinated byphenyls and petroleum products, CFCs, solid wastes,
ureaformaldehyde, discharges of sewer or effluent, paint containing lead and any
other hazardous or toxic material, substance or waste which is defined,
determined or identified by those or similar terms or is regulated as such under
any Environmental Laws or by any Governmental Authority (whether as the result
of any judicial or administrative interpretation of any such statute, law,
ordinance, rule or regulation or otherwise) including, but not limited to, any
material, substance or waste which is a hazardous substance within the meaning
of 33 U.S.C. Section 1251 et seq., as amended, or 42 U.S.C. Section 9601 et
seq., as amended, or is a hazardous waste within the meaning of 42 U.S.C.
Section 6901 et seq., as amended.
1.30 HomeMax Cash Flow shall mean, for any applicable period,
Homemax, Inc.'s consolidated net income determined in accordance with GAAP
applied on a basis consistent with prior periods, plus depreciation and
amortization expense deducted in determining net income for such period.
1.31 Indebtedness shall mean, for any Person at any date, (a)
all obligations of such Person, whether direct or indirect, whether absolute or
contingent, for borrowed money or for the deferred purchase price of property or
services, (b) any other obligations of such Person, whether direct or indirect,
whether absolute or contingent, evidenced by a note, bond, debenture, guarantee
or similar instrument, (c) all obligations of such Person under leases, the
obligations of the lessee in respect of which are required to be capitalized on
a balance sheet of such lessee in accordance with GAAP, (d) all obligations of
such Person in respect of acceptances issued or created for the account of such
Person, (e) all obligations or liabilities secured by any lien or encumbrance
(other than Permitted Liens) on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof,
and (f) all obligations and liabilities of such Person required by GAAP to be
set forth on the balance sheet of such Person as a liability or required by GAAP
to be disclosed in the footnotes to such Person's financial statements;
excluding
- 3 -
<PAGE> 4
from the foregoing, however, current liabilities consisting of trade debt
incurred in the ordinary course of business and payable in accordance with
customary practices within not more than sixty (60) days of the earlier of (i)
the date of invoice requesting payment, or (ii) the date such debt is required
by GAAP to be accrued as a liability.
1.32 Loan shall mean the Term Loan.
1.33 Loan Documents shall mean the collective reference to
this Agreement, the Note, the Guaranty, the Collateral Note Assignment and all
other documents, instruments, certificates and agreements executed by any
Collateral Party in connection with this Agreement, including without
limitation, the Pledge Agreement when hereafter executed and delivered by
Borrower to Bank.
1.34 Multiemployer Plan shall mean a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
1.35 Net Book Value shall have the meaning ascribed to such
term in the Securities Purchase Agreement.
1.36 Nonrecourse Purchase Money Security Interest shall mean
Liens upon property securing loans to a Collateral Party or deferred payments by
a Collateral Party for the purchase of such property, provided that the recourse
of the creditor for repayment is limited to such property and does not extend to
any Collateral Party or any Subsidiary of Borrower.
1.37 Note shall mean the Term Note.
1.38 Obligations shall mean, without limitation, the Loan and
all other debts, obligations, or liabilities of every kind and description of
any Collateral Party to Bank, now due or to become due, direct or indirect,
absolute or contingent, presently existing or hereafter arising, joint or
several, secured or unsecured, whether for payment or performance, regardless of
how the same arise or by what instrument, agreement or book account they may be
evidenced, or whether evidenced by any instrument, agreement or book account,
including, without limitation, all loans (including any loan by renewal or
extension), all overdrafts, all guarantees, all bankers acceptances, all
agreements, all letters of credit issued by Bank for any Collateral Party and
the applications relating thereto, all Indebtedness of any Collateral Party to
Bank, all undertakings to take or refrain from taking any action and all
Indebtedness, liabilities and obligations owing from any Collateral Party to
others which Bank may obtain by purchase, negotiation, discount, assignment or
otherwise. Obligations shall also include all interest and other charges
chargeable to any Collateral Party or due from any Collateral Party to Bank from
time to time and all costs and expenses referred to in Section 10.5.
1.39 Permitted Liens shall mean the liens and interests in
favor of Bank granted pursuant to the Loan Documents and, to the extent
reflected on Borrower's books and records and not impairing the operations of
any Collateral Party or any performance under the Loan Documents or contemplated
by the Loan Documents:
(i) liens arising by operation of law for taxes not
yet due and payable;
- 4 -
<PAGE> 5
(ii) statutory liens of mechanics, materialmen,
shippers and warehousemen for
services or materials for which payment is not yet due;
(iii) liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance, social security and other types of payroll taxes for employees of
Collateral Parties;
(iv) liens, if any, specifically permitted by Bank
from time to time in writing;
and
(v) the following if the validity or amount thereof
is being contested in good faith and by appropriate and lawful proceedings
promptly initiated and diligently conducted of which Bank has received prior
written notice and, if requested by Bank, for which appropriate cash reserves
(in Bank's reasonable judgment) have been established at Bank and so long as
levy and execution have been and continue to be stayed: claims and liens for
taxes due and payable and claims of mechanics, materialmen, shippers,
warehousemen, carriers and landlords.
1.40 Person shall mean an individual, a partnership, a
corporation, a business trust, a joint venture, a trust, a limited liability
company, an unincorporated association, a joint stock company or other entity or
Government Authority.
1.41 Plan shall mean at a particular time, any employee
benefit plan which is covered by ERISA and in respect of which Borrower or a
Commonly Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
1.42 Pledge Agreement shall mean that certain Pledge Agreement
in substantially the form of Exhibit D hereto, which is to be entered into
between Borrower and Bank upon receipt of the AHC Consent.
1.43 Positive Cash Flow shall mean, for any applicable period,
HomeMax Cash Flow that is greater than zero.
1.44 Prime Rate shall mean that annual percentage rate of
interest which is established by Bank from time to time as its prime rate,
whether or not such rate is publicly announced, which provides a base to which
loan rates may be referenced. The Prime Rate is not necessarily the lowest
lending rate of Bank.
1.45 Prime TL Rate shall mean, as of any date, the Prime Rate
(as in effect from time to time), plus one percent (1%). The Prime TL Rate shall
change each time and as of the date of change of the Prime Rate.
1.46 Put shall have the meaning ascribed to such term in the
Securityholders Agreement.
- 5 -
<PAGE> 6
1.47 Put/Call Period shall have the meaning ascribed to such
term in the Securityholders Agreement.
1.48 Put/Call Price shall have the meaning ascribed to such
term in the Securityholders Agreement.
1.49 Reportable Event shall mean any of the events set forth
in Section 4063(a) or Section 4043(c) of ERISA, other than those events as to
which the thirty day notice period is waived under Sections .13, .14, .16, .18,
.19 or .20 of PBGC Reg. Section 2615.
1.50 Securityholders Agreement shall mean that certain
Securityholders Agreement dated as of March 15, 1999 among HomeMax, Inc.,
Borrower and American Homestar Corporation.
1.51 Securities Purchase Agreement shall mean the Amended and
Restated Securities Purchase Agreement dated as of March 15, 1999 by and among
Zaring National Corporation, Homemax, Inc., HomeMax Operating Properties, LLC
and American Homestar Corporation.
1.52 Safe Deposit Box Covenant shall mean the covenant of the
Borrower set forth in Section 5.20 hereof.
1.53 Subsidiary shall mean, as to any Person, a corporation,
partnership or other entity of which shares of stock or other ownership
interests having ordinary voting power 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.
1.54 Term Loan shall have the meaning set forth in Section
2.1.
1.55 Term Note shall mean the Term Promissory Note evidencing
the Term Loan pursuant to Section 2.2.
1.56 Total Liabilities shall mean, as of any date of
measurement, the aggregate principal amount of all Indebtedness of Borrower and
its Subsidiaries as of such date of measurement.
1.57 Zaring Homes Credit Agreement shall mean that certain
Amended and Restated Credit Agreement dated as of February 23, 1998 among
Borrower, Guarantor and various Affiliates of Borrower, as borrowers and/or
guarantors, and PNC Bank, National Association, as agent, Nationsbank, N.A. and
The First National Bank of Chicago, as co-agents, and various other banks
referred to therein, as the same may hereafter be amended, modified,
supplemented or restated from time to time.
2. Loan and Interest
- 6 -
<PAGE> 7
2.1 Term Loan. Bank proposes to make a term loan (the "Term
Loan") to Borrower in an aggregate amount not to exceed $15,000,000. The entire
Term Loan, together with all interest and other charges thereon or due
hereunder, shall be due and payable in full on or before the earlier of (as the
case may be, the "Maturity Date") (a) the thirty nine (39) month anniversary of
the Closing Date or (b) ninety (90) days following the exercise of the Put or
the Call pursuant to the Securityholders Agreement, or the earlier date upon
which the proceeds of the Put or Call transaction are received by Borrower.
2.1.1 Term Loan Scheduled Payments. Borrower shall
make three mandatory annual payments of the principal amount of the Note, each
of which payments shall be in the amount of $1,470,392 and shall be due and
payable on or before each of March 15, 2000, March 15, 2001 and March 15, 2002.
2.1.2 Term Loan Cash Flow Payments. In addition to
the scheduled payments required by Section 2.1.1, in the event there is Positive
Cash Flow for any two consecutive full calendar quarters, within 45 days after
the end of the second of such two calendar quarters Borrower shall make a
principal payment to Bank in an amount equal to the aggregate Positive Cash Flow
for such two calendar quarters, and thereafter Borrower shall make principal
payments to Bank within 45 days after the end of each calendar quarter in an
amount equal to the cumulative Positive Cash Flow (if any) for the most recently
ended calendar quarter (the "Positive Cash Flow Payments") until the aggregate
amount of Positive Cash Flow Payments made by Borrower to Bank equals or exceeds
Four Million Dollars ($4,000,000.00); provided, however, that if the HomeMax
Cash Flow for any quarter after the first two consecutive quarters of Positive
Cash Flow is less than zero (the "Negative Quarter"), no Positive Cash Flow
Payments shall be required until the end of the next succeeding quarter during
which the cumulative HomeMax Cash Flow since the beginning of the Negative
Quarter is greater than zero.
2.1.3 Term Loan Proceeds Payments. The proceeds
realized from the exercise of the Put or the Call pursuant to the
Securityholders Agreement shall be paid to Bank to the extent necessary to
result in the payment in full of the Term Loan.
2.2 Term Note. The Term Loan shall be evidenced by a Term
Promissory Note (the "Term Note") in the form attached hereto as Exhibit A.
2.3 Term Loan Interest. The Term Loan shall bear interest on
the daily outstanding balance thereof at the Prime TL Rates per annum, until
maturity, and such interest shall be payable monthly, in arrears, on or before
the first day of each calendar month commencing May 1, 1999. The interest rate
borne by the Term Loan shall change each time and as of the date that the Prime
TL Rate changes. The interest rate applicable to the entire outstanding
principal balance of the Term Loan shall be the Prime TL Rate.
2.3.1 Default Rate. Upon the occurrence of an Event
of Default, the Loan shall bear interest at a rate of 4% per annum greater than
the rate otherwise applicable to the Loan (the "Default Rate").
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<PAGE> 8
2.3.2 Interest Calculation. Interest on the Loan will
be calculated on the basis of the actual number of days elapsed over an assumed
year consisting of 360 days.
2.4 Change in Law. In case of any change in law or
governmental rules, regulations, guidelines or orders (or any interpretations
thereof) or the introduction of new laws, regulations or guidelines, which
increase the costs to Bank of maintaining or funding the Loan or require Bank to
reserve for unfunded credit commitments, Bank may charge Borrower an additional
fee which will compensate Bank for the costs of compliance with such
requirements. Any amount or amounts payable by Borrower to Bank pursuant to this
Section 2.4 shall be paid within ten (10) days of receipt by Borrower from Bank
of a statement setting forth the amount or amounts due and the basis for the
determination from time to time of such amount or amounts, which statement shall
be conclusive and binding upon Borrower absent demonstrable error. Failure on
the part of Bank to demand compensation for any increased costs in any period
shall not constitute a waiver of Bank's right to demand compensation for any
increased costs incurred during any such period or in any other subsequent or
prior period.
2.5 Prepayments. The loan may be prepaid in whole or in part
at any time prior to the Maturity Date, provided, however, that there shall be a
three percent (3%) prepayment fee for any prepayment in whole or in part from
funds generated outside of the terms of the Securities Purchase Agreement, and
provided further that the payment to the Bank caused by the exercise of the Put
or the Call will survive the prepayment of the Loan. Upon the exercise of either
of the Put or the Call pursuant to the Securityholders Agreement, Borrower will
pay a fee to Bank equal to the greater of (i) one percent (1%) of the principal
amount of the Loan then outstanding before application of proceeds of the Put or
Call to the Loan, or (ii) ten percent (10%) of the amount by which the Put/Call
Price exceeds the then outstanding principal balance of the Loan. The foregoing
notwithstanding, the ten percent provision referred to in the preceding sentence
will be reduced by one-quarter of one percent for each full calendar month
between the date of receipt by Borrower of the Put/Call Price and the third
annual anniversary of the date of the Securityholders Agreement.
2.6 Payments. All payments of interest, principal and all
other amounts owing hereunder or under the Note shall be made by Borrower to
Bank in immediately available funds at its principal office in Cincinnati, Ohio
or at such other place as Bank may designate in writing, at such times as shall
be set forth herein or in the Note or if not so set forth, such amounts shall be
payable on demand. Borrower hereby authorizes Bank, at Bank's option, to charge
any account or charge or increase any Loan balance of Borrower at Bank for the
payment or repayment of any interest or principal of the Loan, or any fees,
charges or other amounts due to Bank hereunder or under the Note or the other
Loan Documents, as and when the same become due and payable hereunder, or under
the Note or the other Loan Documents.
2.7 Use of Proceeds. Borrower shall use the proceeds of the
Loan only for the purpose of refinancing outstanding Indebtedness with Bank of
America and Firstar Bank, N.A.
3. Collateral and Documents.
3.1 Borrower Collateral. To secure the full and timely payment
and performance
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<PAGE> 9
of all of the Obligations, Borrower hereby pledges, assigns and grants to Bank a
continuing security interest in all of the Borrower Collateral. Prior to the
making of the Loan, Borrower shall execute and deliver to Bank the Collateral
Note Assignment in the form of Exhibit C hereto. Upon receipt of the AHC
Consent, Borrower shall execute and deliver to Bank the Pledge Agreement in the
form of Exhibit D hereto.
3.2 Guarantor Documents. To secure the full and timely payment
and performance of all of the Obligations, prior to the making of the Loan,
Borrower shall cause Guarantor to execute and deliver to Bank, as additional
security for the Obligations the Guaranty of the Guarantor in the form of
Exhibit B hereto.
4. Representations and Warranties. Borrower hereby represents
and warrants to Bank, on the date hereof and on each subsequent date of
disbursement of any proceeds of the Loan, that:
4.1 Each Collateral Party is a Person duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has the power and authority to conduct its business as now conducted and as
proposed to be conducted while this Agreement is in effect. The execution and
delivery of this Agreement, the Note and all other Loan Documents by each
Collateral Party that is a party to, or intended to be bound by, any such Loan
Documents and the performance of the transactions contemplated hereby and
thereby are within the power and authority of each Collateral Party and have
been duly authorized by all proper and necessary action. The execution and
delivery of this Agreement, the Note and all other Loan Documents by each
Collateral Party that is a party to, or intended to be bound by, any such Loan
Documents and the performance of the transactions contemplated hereby and
thereby will not violate or contravene any provisions of applicable law or the
charter documents of any Collateral Party, or result in a breach or default in
respect of the terms of any other agreement to which any Collateral Party is a
party or by which any Collateral (or any Collateral Party's assets) is bound.
Each Collateral Party is duly qualified as a foreign corporation and is in good
standing and duly authorized to do business in every jurisdiction where the
nature of its properties or the conduct of its business requires such
qualification and authorization. Schedule 4.1 hereto contains the proper name of
each Collateral party, the jurisdiction of formation of each Collateral party,
the type of entity of each Collateral Party and the jurisdictions in which each
Collateral Party is qualified to do business.
4.2 No consent or authorization of, filing with or other act
by or in respect of, any government, governmental department, commission, board,
bureau, agency, authority, instrumentality or court (each a "Governmental
Authority") or any other Person (including the stockholders or other equity
owners of any Collateral Party or any of their respective Subsidiaries) is
necessary to, or required in connection with (i) the borrowings hereunder, (ii)
the execution, delivery, or performance by any Collateral Party of any Loan
Documents, or (iii) the validity or enforceability of this Agreement, the Note,
or any other Loan Documents; excepting only such routine filings as are
necessary under the applicable state's version of the Uniform Commercial Code to
perfect the liens and security interests created hereby and by the Guarantor
Security Agreement.
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<PAGE> 10
4.3 Each Loan Document to which any Collateral Party is a
party is a legal, valid and binding obligation of each such Collateral Party
enforceable in accordance with its respective terms.
4.4 Borrower has no Subsidiaries other than those Persons
listed on Schedule 4.4 hereto.
4.5 Borrower has delivered to Bank its audited consolidated
and consolidating financial statements as of and for the year ending December
31, 1998 (the "Audited Financials") are true and correct in all material
respects, are in accordance with the respective books of account and records of
Borrower and its consolidated Subsidiaries, have been prepared in accordance
with GAAP applied on a basis consistent with prior periods, and fairly and
accurately present the financial condition of Borrower and its assets,
liabilities and results of operations as at the respective dates thereof.
4.6 Since the ending date of the Audited Financials, there has
been no change in the assets, liabilities, financial condition or operation of
Borrower, other than changes in the ordinary course of business, the effect of
which have not, individually or in the aggregate, been materially adverse to
Borrower's business.
4.7 Except to the extent set forth on Schedule 4.7 hereto or
reflected in the Audited Financials, Borrower, as of the date of this Agreement,
does not know or have reasonable grounds to know of any basis for the assertion
against Borrower, of any liabilities or obligations of any nature, direct or
indirect, accrued, absolute or contingent, including, without limitation,
liabilities for taxes due or to become due whether incurred in respect of or
measured by income for any period prior to the date of this Agreement or arising
out of transactions entered into, or any state of facts existing, prior hereto,
other than liabilities and obligations incurred since the date of the Audited
Financials in the ordinary course of business which are not, individually or in
the aggregate, material to Borrower.
4.8 Each of the Collateral Parties has filed all federal,
state, local and other tax returns and reports required to be filed by it and
such returns and reports are true and correct in all material respects. Each of
the Collateral Parties has paid all taxes, assessments and other governmental
charges lawfully levied or imposed on or against it or its properties, other
than those presently payable without penalty or interest.
4.9 Except as described on Schedule 4.9 hereto, there is no
litigation or proceeding or governmental investigation pending or, to the best
of Borrower's knowledge following diligent inquiry, threatened against or
relating to any one or more of the Collateral Parties, or their respective
properties or business which is not reflected and described in the Audited
Financials.
4.10 None of the Collateral Parties is or was in violation of
or default under any statute, regulation, license, permit, order, writ,
injunction or decree of any Governmental Authority, which violation or default
could have a material adverse effect on the business, properties or condition,
financial or otherwise, of any Collateral Party.
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<PAGE> 11
4.11 Except for a default in the Indebtedness described in
Section 2.7 of this Agreement, none of the Collateral Parties is or was in
default (i) under a order, writ, judgment, injunction, decree, indenture,
agreement, lease or other instrument or contract, which default would have a
material adverse effect on the business, properties or condition, financial or
otherwise, of any Collateral Party, or (ii) the performance of any covenants or
conditions respecting any of the Indebtedness of any Collateral Party. Except
for a default in the Indebtedness described in Section 2.7 of this Agreement, no
holder of any Indebtedness of any of the Collateral Parties has given notice of
any asserted default thereunder, and no liquidation or dissolution of any
Collateral Party and no receivership, insolvency, bankruptcy, reorganization or
other similar proceedings relative to any of the Collateral Parties or their
respective properties is pending or, to the best of Borrower's knowledge
following diligent inquiry, threatened.
4.12 Collateral Parties maintain places of business only at
the locations set forth on Schedule 4.12. The chief executive office and
principal place of business of each Collateral Party is located at the address
set forth on Schedule 4.12 and identified by an asterisk.
4.13 With respect to the Borrower Collateral, at the time the
Borrower Collateral becomes subject to Bank's security interest, Borrower has
full right and power to grant Bank a security interest in the Borrower
Collateral, and the Borrower Collateral is free from all liens, encumbrances and
security interests in favor of any Person other than Bank (except Permitted
Liens). All information furnished to Bank concerning the Borrower Collateral is
and will be complete, accurate and correct in all material respects when
furnished.
4.14 No proceeds of any Loan or advance made by Bank to
Borrower hereunder will be used to acquire any security in any transaction which
is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as
amended.
4.15 No part of the proceeds of any Loan will be used for
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulation U issued by the Board of Governors of
the Federal Reserve System (as now and from time to time hereafter in effect) or
for any purpose which violates the provisions of the Regulations of such Board
of Governors. At Bank's request from time to time, Borrower will furnish to Bank
a statement to the foregoing effect in conformity with the requirements of FR
Form U-1 referred to in said Regulation U.
4.16 No Reportable Event or "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA) whether or not waived has occurred
during the immediately preceding six-year period prior to the date on which this
representation is made or deemed made with respect to any Plan which could
reasonably be expected to have a material adverse effect on the financial
condition or results of operations of Collateral Parties (or any one of them),
and each Plan has complied and has been administered in accordance with the
applicable provisions of ERISA and the Code. The present value of all accrued
benefits under each Plan (based on those assumptions used to fund the Plans as
determined pursuant to Section 302(c)(3)(A) of ERISA) 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 Collateral Party or any Commonly Controlled Entity has
during the immediately preceding six-year period had a
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<PAGE> 12
complete or partial withdrawal from any Multiemployer Plan, and no Collateral
Party or any Commonly Controlled Entity is a party to or participant in any
Multiemployer Plan. No Collateral Party or any Commonly Controlled Entity
provides post retirement benefits to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA).
4.17 None of the Collateral Parties 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
Collateral Parties is subject to regulation under any federal or state statute
or other requirement of law which restricts its ability to incur Indebtedness.
4.18 Except as described in Section 4.4, none of the
Collateral Parties has an equity or other ownership interest in any Person.
4.19 None of the Collateral Parties is subject to any
collective bargaining agreement with respect to any employees, nor does any of
the Collateral Parties have any duty to bargain with any collective bargaining
unit with respect to any employees. There are no strikes pending or threatened
against any Collateral Party, and the hours worked and payments made to
employees of each of the Collateral Parties are not in violation of the Fair
Labor Standards Act or any other applicable requirement of law. All material
payments due from any Collateral Party, or for which any claim may be made
against any Collateral Party, on account of wages and employee health and
welfare insurance and other benefits have been paid or accrued as a liability on
the books of Collateral Parties and are reflected in the Audited Financials.
4.20 None of the Collateral Parties is in violation of any
applicable Environmental Law and no Hazardous Material is located on any real
property owned, leased or operated by any Collateral Party in violation of
applicable Environmental Law or has been discharged from or to, or penetrated
into, any real property (or surface or subsurface rivers or streams crossing or
adjoining any real property) owned, leased or operated by any Collateral Party
or the aquifer underlying any real property owned, leased or operated by any
Collateral Party, which in any case could result in any liability to Collateral
Parties (or any one or more of them) or any Environmental Claim against
Collateral Parties (or any one or more of them).
4.21 Each of the Collateral Parties possesses adequate
licenses, patents, patent applications, copyrights, service marks, trademarks
and trade names to conduct its operations and business as heretofore conducted
and as intended to be hereafter conducted and all such items are, and will
continue to be, owned by Collateral Parties free and clear of conflicting claims
or uses of any other Person. Schedule 4.21 attached hereto sets forth a true and
complete list of all registered or filed licenses, patents, patent applications,
copyrights, service marks, trademarks, trade names and other intellectual
property, identifying with respect to each such item (i) the date of grant or
filing (as applicable), (ii) the date of expiration, (iii) the owner, (iv) the
filing or registration number, and (v) the jurisdiction where filed or
registered.
4.22 On and as of the date of this Agreement and at all times
thereafter, each of the Collateral Parties will have capital sufficient to carry
on its business and transactions and all businesses and transactions in which it
is about to engage and will be solvent and able to pay its
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<PAGE> 13
debts as they mature, and each of the Collateral Parties will own property, the
fair saleable value of which is greater than the amount required to pay each
such Collateral Party's Indebtedness and other liabilities as they mature.
4.23 No factual information contained herein, in any of the
other Loan Documents or in any report, financial statement or schedule prepared
by or furnished in writing by or on behalf of Collateral Parties (or any one or
more of them) to Bank contained, contains or will on the date of delivery
contain any material misstatement of fact, or omitted, omits or will on the date
of delivery omit to state any material fact necessary to make the statements
therein not misleading. All projections, budgets, plans, forecasts or other
prospective information prepared or to be prepared by or on behalf of Borrower
for Bank have been or will be prepared on the basis of assumptions believed by
Borrower in good faith to be reasonable as of the date of preparation of such
projections, budgets, plans, forecasts and other prospective information.
4.24 Except for an existing default in the Indebtedness
described in Section 2.7 of this Agreement, the execution and delivery of this
agreement and the performance of the Borrower's obligations hereunder will not
cause an event of default under the Zaring Homes Credit Agreement or any other
agreements between the Borrower and any other party.
4.25 The foregoing representations and warranties are made by
Borrower with the knowledge and intention that Bank will rely thereon, and shall
survive the execution and delivery of this Agreement and the making of all Loan
hereunder, and shall be deemed to be made on the date hereof and at the time of
each advance of Loan proceeds hereunder.
4.26 All significant date-sensitive hardware, software,
processes, procedures, interfaces and operating systems and core business
functions (jointly referred to as the "Systems") used within each of the
Collateral Party's operations contain acceptable design and performance
specifications so that such Systems will not abruptly end or provide invalid or
incorrect results with respect to the period on or after January 1, 2000 or
during the operation of its business on or after January 1, 2000. All such
significant Systems have been designed to ensure Year 2000 compatibility,
including but not limited to data century recognition, calculations that
accommodate same century and multi-century formulas and date values, and date
data interface values that reflect the century and which include Year 2000 leap
year calculations.
4.27 Each of the Collateral Parties has used reasonable
efforts to confirm with its material suppliers that all significant
date-sensitive hardware, software, processes, procedures, interfaces and
operating systems used within the supplier's operations contain acceptable
design and performance specification so that such systems will not abruptly end
or provide invalid or incorrect results with respect to the period on or after
January 1, 2000 or during the operation of any Collateral Party's business on or
after January 1, 2000 and that all such systems have been designed to ensure
Year 2000 compatibility, including but not limited to: date data century
recognition, calculations that accommodate same century and multi-century
formulas and date values, and date data interface values that reflect the
century and which include Year 2000 leap year calculations.
5. Affirmative Covenants. Borrower covenants and agrees that
until all of the Obligations have been paid in full and this Agreement has been
terminated, unless Bank shall
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otherwise consent in writing, it shall, and shall cause each of the other
Collateral Parties to:
5.1 Maintain complete and accurate books of account and
records pertaining to the Collateral and the operations of Collateral Parties,
and all such books of account and records shall be kept and maintained at the
places of business specified in Section 4.12. Collateral Parties shall not move
such books of account and records or change chief executive offices or principal
places of business or the location of Collateral Parties' other offices or the
location of any Collateral without giving Bank at least 30 days prior written
notice. Prior to moving any of such books of account and records or changing the
location of offices or any Collateral, Collateral Parties shall execute and
deliver to Bank financing statements reasonably satisfactory to Bank. All such
books of account and records and all financial statements and reports furnished
to Bank shall be maintained and prepared in accordance with GAAP applied on a
basis consistent with prior periods.
5.2 Grant Bank, and its representatives, full and complete
access to the Collateral to all books of account, records, correspondence and
other papers relating to the Collateral, during normal business hours and the
right to inspect, examine, verify and make abstracts from the copies of such
books of account, records, correspondence and other papers, and to investigate
such other records, activities and business of Collateral Parties as they may
reasonably deem necessary or appropriate at the time.
5.3 From time to time as Bank may require, deliver to Bank
copies of debtor's invoices, franchise agreements, license agreements,
management agreements and such other schedules and information as Bank may
reasonably request. The items to be provided under this Section 5.3 are to be
prepared and delivered to Bank from time to time solely for Bank's convenience
in maintaining records of the Collateral and Collateral Parties' failure to give
any of such items to Bank shall not affect, terminate, modify or otherwise limit
Bank's security interest.
5.4 Deliver to Bank:
(a) As soon as available, but in any event not more
than 90 days after the close of each fiscal year of Borrower, or within such
further time as Bank may permit, audited financial statements for Borrower,
Zaring Homes, Zaring Financial Services, Homemax, Inc. and other related
entities, including consolidated and consolidating balance sheets and related
profit and loss statements, prepared in accordance with GAAP and audited by an
independent certified public accountants reasonably acceptable to Bank, who
shall give their unqualified opinion with respect thereto; and
(b) As soon as available, but in any event not more
than 30 days after the end of each calendar month and each calendar quarter, or
within such further time as bank may permit, consolidated and consolidating
financial statements for Borrower, Zaring Homes, Zaring Financial Services,
Homemax, Inc. and other related entities, including the consolidated financial
statements of Borrower, prepared in accordance with GAAP.
5.5 Deliver to Bank:
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<PAGE> 15
(a) Concurrently with the delivery of the financial
statements referred to in Section 5.4(a), a certificate of the independent
certified public accountants reporting on such financial statements stating that
in making the examination necessary therefor, no knowledge was obtained of any
Event of Default, except as specified in such certificate;
(b) Concurrently with the delivery of the financial
statements referred to in Sections 5.4(a) and (b), a Compliance Certificate in
the form of Exhibit E hereto, duly completed and executed by the Chief Financial
Officer of Borrower (a "Compliance Certificate"); and
5.6 Furnish to Bank such other financial and business
information and reports in form and substance satisfactory to Bank promptly upon
Bank's request therefor.
5.7 (a) Maintain its existence in good standing; (b) Make no
change in the nature or character of its business or engage in any business
which is, in Bank's reasonable judgement, materially different than the business
in which it is engaged on the date of this Agreement; (c) Maintain and keep in
full force and effect all licenses and permits necessary to the proper conduct
of its business, and (d) At the request of Bank, qualify as a foreign Person and
obtain all requisite licenses and permits in each state (other than the state of
its formation) where it does business.
5.8 Give prompt notice in writing to Bank of any Event of
Default hereunder, or of any condition which with the passage of time or the
giving of notice or both could give rise to an Event of Default, and of any
development, financial or otherwise, which could materially adversely affect the
business, properties or affairs of any Collateral Party to perform its
obligations under any of the Loan Documents.
5.9 Pay all taxes, assessments or governmental charges
lawfully levied or imposed on or against it and its properties prior to the date
when such taxes, assessments or charges shall become delinquent, unless the
validity thereof is being contested in good faith through proper proceedings,
Bank has received prior written notice of such contest, and, if requested by
Bank, a bond or other security or cash reserve in an amount required by Bank, in
Bank's reasonable discretion, is maintained against the payment thereof.
5.10 Immediately upon learning thereof, report to Bank any
material claim or dispute asserted against any Collateral Party by any debtor or
other Person, and any other matters affecting the value and enforceability or
collectibility of any of the Borrower Collateral. In addition, Borrower shall,
and shall cause all Collateral Parties to, at their sole cost and expense
(including attorney's fees), settle any and all such claims and disputes and
indemnity and protect Bank against any liability, loss or expense arising
therefrom.
5.11 Defend the Borrower Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein and
pay all costs and expenses (including attorneys' fees) incurred in connection
with such defense.
5.12 At the reasonable request of Bank, execute and deliver
such financing statements, documents and instruments, and perform all other acts
as Bank deems necessary or
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<PAGE> 16
desirable, to carry out and perform the intent and purpose of this Agreement,
and pay, upon demand, all expenses (including attorneys' fees) incurred by Bank
in connection therewith. A photocopy of this Agreement shall be sufficient as a
financing statement and may be filed in any appropriate office in lieu thereof.
5.13 Maintain a ratio of Consolidated Cash Flow From
Operations to Consolidated Fixed Charges of not less than the minimum ratio of
such items established and in effect for the period ending December 31, 1999
under the Zaring Homes Credit Agreement, measured annually at December 31 of
each year on an annual basis.
5.14 Comply in all material respects with all applicable laws,
rules, regulations and orders, non-compliance with which may materially
adversely affect (i) the financial condition or operations of any Collateral
Party, or (ii) the ability of Collateral Party to perform its obligations under
any of the Loan Documents.
5.15 Maintain a minimum Consolidated Tangible Net Worth of
Forty Million Dollars ($40,000,000.00) plus an amount not less than zero equal
to one hundred percent (100%) of aggregate cumulative net earnings (determined
in accordance with GAAP) of Borrower and its consolidated Subsidiaries after
December 31, 1998, measured quarterly; provided, however, that First Cincinnati
Land LLC and First Cincinnati Leasing LLC shall be excluded from the calculation
of the covenants set forth in this Section 5.16.
5.16 Provide Bank with its Annual Business Plan/Cash Flow
Projection on both a consolidated and consolidating basis for the one-year
period commencing on each January 1 prior to the commencement of the period
covered thereby.
5.17 Deposit in a safety deposit box at the Bank all capital
stock of Homemax, Inc. owned by Borrower, with control of access to such safety
deposit box to be retained by the Bank.
5.18 Cause Homemax, Inc. to make payments of principal and
interest on the Senior Subordinated Note directly to Bank, and cause American
Homestar Corporation to make payments on the Investor Note directly to Bank.
5.19 Obtain the AHC Consent within 60 days after the date of
this Agreement.
5.20 Exercise the Put prior to the end of the Put/Call Period.
5.21 Pay to Bank the $75,000 balance of the $150,000 closing
fee on or before the first annual anniversary of the date of this Agreement.
6. Negative Covenants. Borrower covenants and agrees that
until the Obligations have been paid in full and this Agreement has been
terminated, unless Bank shall consent in advance in writing, it shall not and
shall not permit any of the other Collateral Parties to:
6.1 Discontinue its business, sell, transfer, assign or
otherwise dispose of, or
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<PAGE> 17
transfer, whether by sale, merger, consolidation, liquidation, dissolution or
otherwise, any of the Borrower Collateral; provided, however, that it may sell
in the ordinary course of business and for a full consideration in money or
money's worth, any product, merchandise or service produced, marketed or
furnished by it.
6.2 Except as permitted in Section 3.1, pledge, grant or
suffer to exist a security interest, lien, mortgage or other encumbrance on any
of the Borrower Collateral to any Person other than Bank, or permit any lien,
encumbrance or security interest to attach to any of the Borrower Collateral,
except in favor of Bank and except Permitted Liens.
6.3 Endorse, guarantee or become surety for the obligations of
any Person (except obligations payable to Bank), except for the Obligations and
except that Collateral Parties may endorse checks and negotiable instruments for
collection or deposit in the ordinary course of business.
6.4 Make any loans, investments, dividends or extensions of
credit or other such uses of funds to any Person, other than the extension of
credit in the ordinary course of business, except that each Collateral Party
shall be permitted to make unsecured loans and extensions of credit to other
Collateral Parties and their Affiliates so long as any note or other document
evidencing such loans or extensions of credit are pledged and delivered to Bank
(together with any endorsements requested by Bank) to secure the Obligations.
6.5 Amend, modify, supplement, waive any rights under or
otherwise change the Securities Purchase Agreement, the Securityholders
Agreement or any note or other instrument evidencing or securing the Borrower
Collateral, including but not limited to terms and conditions of the Senior
Subordinated Note and Investor Note.
6.6 Permit the ratio of Consolidated Total Liabilities to
Consolidated Tangible Net Worth to exceed 2.75 to 1.0, measured quarterly;
provided, however, that First Cincinnati Land LLC and First Cincinnati Leasing
LLC shall be excluded from the calculation of the covenants set forth in this
Section 6.6.
6.7 Permit the Net Book Value to be less than $14,000,000,
measured quarterly.
7. Conditions Precedent. The agreement of Bank to make the
Loan is subject to the satisfaction, prior to or concurrently with the making of
such Loan, of each of the following conditions precedent.
7.1 Bank shall have received the following, each of which
shall be acceptable in form and substance to Bank:
7.1.1 The Note, executed and delivered to Bank by
a duly authorized officer of Borrower;
7.1.2 The Guaranty, executed and delivered to Bank
by a duly authorized
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officer of Guarantor;
7.1.3 The Collateral Note Assignment, duly
executed and delivered to Bank by Borrower,
together with (i) evidence satisfactory to
Bank that all action necessary to perfect
the pledge and security interests granted by
thereby shall have been taken, and (ii) the
original Pledged Notes, duly endorsed to
Bank or accompanied by an assignment
separate from the notes duly executed and
delivered to Bank by a duly authorized
officer of Borrower;
7.1.4 The executed legal opinion of Frost & Jacobs
LLP, counsel to Collateral Parties,
substantially in the form of Exhibit F;
7.1.5 A copy of the resolutions, in form and
substance satisfactory to Bank, of the Board
of Directors of each Collateral Party
authorizing (i) the execution, delivery and
performance of the Loan Documents to which
it is a party, (ii) the Indebtedness
contemplated by such Loan Documents and
(iii) the granting by such Collateral Party
of the security interests pursuant to such
Loan Documents, certified, in each case, by
the Secretary or other custodian of the
official records of such Collateral Party as
of the date hereof which certificate shall
state that the resolutions thereby certified
have not been amended, modified, revoked or
rescinded and shall be in form and substance
satisfactory to Bank;
7.1.6 A certificate of the Secretary of each
Collateral Party dated the date hereof as to
the incumbency and signature of the
respective officers executing each Loan
Document together with satisfactory evidence
of the incumbency of each such Secretary;
7.1.7 Correct and complete copies of (i) the
Certificate/Articles of Incorporation or
other formation document of each Collateral
Party certified as correct and complete by
the Secretary or other custodian of the
official records of such Collateral Party
and the Secretary of State of the State of
its incorporation and (ii) the
Bylaws/Regulations or other charter
documents of each Collateral Party certified
as correct and complete by the Secretary or
other custodian of the official records of
each such Collateral Party;
7.1.8 A Certificate of Good Standing of each
Collateral Party from the secretary of State
of its state of organization and from all
other jurisdictions in which it owns or
leases property or conducts business, each
of which shall be dated as of a recent date;
7.1.9 A $75,000 installment of the $150,000
closing fee; and
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<PAGE> 19
7.1.10 Payment and/or reimbursement of Bank's
out-of-pocket expenses and expenses incurred
by Bank in connection with the financing of
the transaction set forth in this agreement,
the reasonable fees and expenses of Bank's
counsel, and all UCC search, filing,
recording costs and other costs connected
with the perfection of the Bank's security
interest granted herein.
7.2 Bank shall have received satisfactory lien and judgment
searches with respect to each of the Collateral Parties showing only such
matters as are acceptable to Bank, in its sole discretion.
7.3 Collateral Parties shall have provided such documents,
instruments and information, executed such agreements and certificates and
generally taken such actions as Bank, in its sole discretion, may reasonably
request.
8. One General Obligation.
8.1 Cross Collateral. All Loan and advances by Bank to
Borrower under this Agreement, the other Loan Documents and all other agreements
constitute one loan, and all Indebtedness and Obligations of Borrower to Bank
under this Agreement, the other Loan Documents and all other agreements, present
and future, constitute one general obligation secured by the Collateral, and
other security held and to be held by Bank hereunder and by virtue of all other
assignments and security agreements between Borrower and Bank now and hereafter
existing. It is expressly understood and agreed that all of the rights of Bank
contained in this Agreement shall likewise apply insofar as applicable to any
modification of or supplement to this Agreement, any of the other Loan Documents
and to any other agreements, present and future, between Bank and Borrower.
8.2 Collateral Party Agreements.
8.2.1 Obligations Unconditional. The obligations of
each Collateral Party under the Loan Documents shall be
unconditional, irrespective of (i) the validity or
enforceability against Collateral Parties (or any one or more
of them) of any of the Loan Documents, (ii) the absence of any
attempt to collect from any of the other Collateral Parties or
other action to enforce the same, (iii) the waiver or consent
by Bank with respect to any provision of any Loan Document or
any other agreement now or hereafter executed by any of the
other Collateral Parties and delivered to Bank, (iv) failure
by Bank to take any steps to perfect and maintain its security
interest in, or to preserve its rights to, any security or
Collateral for the Obligations, (v) Bank's election, in any
proceeding instituted under the Bankruptcy Code, of the
application of Section 1111(b)(2) of the Bankruptcy Code, (vi)
any borrowing or grant of a security interest by any of the
other Collateral Parties (or any one or more of them), as
debtor-in-possession, under Section 364 of the Bankruptcy
Code, (vii) the disallowance of all or any portion of Bank's
claim(s) for repayment under
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<PAGE> 20
Section 502 of the Bankruptcy Code, or (viii) any other
circumstance which might otherwise constitute a legal or
equitable discharge or defense.
8.2.2 Diligence, Presentment, Etc. Borrower hereby
waives diligence, presentment, demand of payment, filing of
claims with a court in the event of receivership or bankruptcy
of any of the other Collateral Parties, protest or notice with
respect to any amounts due hereunder and all demands
whatsoever, and covenants that Borrower will not be
discharged, except by complete performance and payment of all
amounts due hereunder and under all other Loan Documents. Upon
any Event of Default, Bank may, at its sole election, proceed
directly and at once, without notice, against Borrower or any
of the other Collateral Parties to collect and recover the
full amount of the Obligations or any portion thereof, without
first proceeding against any security or Collateral. Bank
shall have the exclusive right to determine the application of
payments and credits, if any, from Collateral Parties (or any
one of them), or from any other Person on account of any
amounts due hereunder or of any other liability of Collateral
Parties (or any one of them) to Bank.
8.2.3 Amendments. Bank is hereby authorized, without
notice or demand and without affecting the liability of
Borrower hereunder, to, from time to time, (i) renew, extend,
accelerate or otherwise change the time for payment of, or
other terms relating to, the Obligations (or any portion
thereof), or otherwise modify, amend or change the terms of
the Note, any other Loan Document, or any promissory note or
other agreement, document or instrument now or hereafter
executed by any Collateral Parties (or any one or more of
them) and delivered to Bank; (ii) accept partial payments on
the Obligations; (iii) take and hold security or Collateral
for the Obligations of Borrower hereunder, or any other
Obligations or other liabilities of Collateral Parties (or any
one or more of them) to Bank and exchange, enforce, waive and
release any such security or Collateral; (iv) apply such
security or Collateral and direct the order or manner of sale
thereof as in its sole discretion it may determine; and (v)
settle, release, compromise, collect or otherwise liquidate
the Obligations and any security or Collateral therefor in any
manner, in each case without affecting or impairing the
obligations of Borrower hereunder or under any other Loan
Document.
8.2.4 Offset. At any time after maturity of the
Obligations, Bank may, in its sole discretion, without notice
to Borrower and regardless of the acceptance of any security
or Collateral for the payment hereof, appropriate and apply
toward the payment of the Obligations (i) any Indebtedness due
or to become due from Bank to Borrower, and (ii) any moneys,
credits, deposits, account balances or other property
belonging to Borrower, now existing or at any time held by or
coming into the possession of Bank or any affiliate of Bank.
8.2.5 Assumption of Risk. Borrower hereby assumes
responsibility for keeping itself informed of the financial
condition of all other Collateral Parties, and any and all
indorsers and/or other guarantors of any instrument or
document evidencing all or any part of the Obligations and of
all other circumstances bearing upon the risk of nonpayment or
performance of the Obligations or any part thereof
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<PAGE> 21
that diligent inquiry would reveal, and Borrower hereby agrees
that Bank shall have no duty to advise Borrower of information
known to Bank regarding such condition or any such
circumstances. In the event Bank, in its sole discretion,
undertakes at any time or from time to time to provide any
such information to Borrower, Bank shall be under no
obligation (i) to undertake any investigation not a part of
its regular business routine, (ii) to disclose any information
which, pursuant to accepted or reasonable commercial finance
practices, Bank wishes to maintain confidential, or (iii) to
make any other or future disclosures of such information or
any other information to Borrower.
8.2.6 Marshalling and Reinstatements. Borrower
consents and agrees that Bank shall be under no obligation to
marshall any assets in favor of any Collateral Party or
against or in payment of any or all of the Obligations.
Borrower further agrees that, to the extent that any
Collateral Party makes a payment or payments to Bank, or Bank
receives any proceeds of Collateral, which payment or payments
or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set aside and/or required to be
repaid to any Collateral Party, its estate, trustee, receiver
or any other party under the Bankruptcy Code or any bankruptcy
law, state or federal law, common law or equitable cause, then
to the extent of such payment or repayment, the Obligations or
part thereof which has been paid, reduced or satisfied by such
amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or
satisfaction occurred.
8.2.7 Waiver of Subrogation. Except for the limited
purposes described in Section 8.2.8 below, until the
Obligations are fully and finally paid and satisfied, Borrower
will not attempt to exercise in any way, and hereby
subordinates any (i) rights which it might otherwise have had
or acquired against Bank or any other Collateral Party or any
other party by way of subrogation or otherwise because of any
payment made by any Borrower hereunder or otherwise, (ii)
right to enforce any remedy which Bank now has or may
hereafter have against any other Collateral Party, any
indorser or any guarantor of all or any part of the
Obligations, and (iii) any benefit of, and any right to
participate in, any security or Collateral given to Bank to
secure payment of the Obligations or any other liability of
Collateral Parties to Bank; Borrower further agrees that any
and all claims Borrower against any other Collateral Party,
any indorser or any other guarantor of all or any part of the
Obligations, or against any of their respective properties,
whether arising by reason of any payment by any Borrower to
Bank pursuant to the provisions hereof, or otherwise, shall be
subordinate and subject in right of payment to the prior
payment, in full, of all principal and interest, all
reasonable costs of collection (including, but not by way of
limitation, attorneys' fees) and any other liabilities or
obligations owing to Bank which constitute the Obligations or
may arise either with respect to or on any Loan Document.
Borrower also waives all setoffs and counterclaims and all
presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance hereof. Borrower further
waives all notices of the existence, creation or incurring of
new or additional Indebtedness, arising either from additional
loans extended to any Collateral Party or otherwise,
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<PAGE> 22
and also waive all notices that the principal amount, or any
portion thereof, and/or any interest on any instrument or
document evidencing all or any part of the Obligations is due,
notices of any and all proceedings to collect from any
Collateral Party or other indorser or any guarantor of all or
any part of the Obligations, or from anyone else, and, to the
extent permitted by law, notices of exchange, sale, surrender
or other handling of any Collateral or other security given to
Bank to secure payment of the Obligations.
8.2.8 Prevention of Insolvency. It is the intent of
Borrower that the obligations of each Collateral Party under
the Loan Documents not be subject to challenge on any basis.
Accordingly, as of the date hereof, the liability of Borrower
hereunder and under all other Loan Documents, together with
all of its other liabilities, debts, claims and Indebtedness
to all persons as of the date hereof and as of any other date
on which a transfer is deemed to occur by virtue of the Loan
Documents, whether fixed or contingent (collectively the
"Dated Liabilities") is, and is to be, less than the present
fair salable value of all of its assets, and, if different,
the fair valuation of all of its assets, as of such
corresponding date (as the case may be "Dated Assets"), and
Borrower has, and shall have, on the date hereof and on any
other date on which a transfer is deemed to have occurred by
virtue of the Loan Documents, Dated Assets in an amount
sufficient to pay its Dated Liabilities as they become
absolute and matured. To this end, Borrower grants to and
recognizes in each other Collateral Party rights of
subrogation and contribution in the amount, if any, necessary
to cause the statements in the preceding sentence to be and
remain true. In determining the value of the Dated Assets and
the Dated Liabilities, it is understood that Borrower will
take into consideration its respective rights to subrogation
and contribution against the other Collateral Parties. It is a
material objective of this Section 8.2.8 that Borrower
recognize rights of subrogation and contribution rather than
be deemed to be insolvent (or in contemplation thereof).
Notwithstanding anything in this Section 8.2.8 to the
contrary, the agreements in this Section 8.2.8 are to
establish the relative rights of contribution of the
Collateral Parties and shall not modify the joint and several
and primary nature of the obligations of Borrower owed to the
Bank or impair the right of the Bank to hold Borrower liable
for payment of the full amount of the Obligations.
8.2.9 Joint and Several Obligations. The obligations
and undertakings of Borrower shall be joint, several, and
primary and shall be binding upon their respective successors
and assigns, and shall inure to the benefit of Bank and its
successors and assigns. Borrower shall be or be deemed to be
an accommodation party with respect to the Obligations. All
references herein to Borrower shall be deemed to include
Borrower and its successors and assigns, including, without
limitation, a receiver, trustee or debtor in possession of or
for Borrower. All references to the singular shall be deemed
to include the plural where the context so requires.
8.2.10 Agent for Collateral Parties. For purposes of
making extensions of credit, rendering statements, receiving
requests from, or otherwise communicating
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<PAGE> 23
with Collateral Parties, or in the Bank's administration of
this loan transaction, Collateral Parties have appointed
Borrower as their agent and have authorized Bank to deal with
Borrower exclusively, and any act done or omitted or any
document, certificate, or instrument executed or delivered by
Borrower for Collateral Parties, or any one of them, will be
binding upon each Collateral Party. Borrower hereby accepts
such appointment and agrees to act and serve as agent for the
Collateral Parties as contemplated herein.
8.2.11 Dependency and Benefits. To induce Bank to
make the Loan to Borrower in the manner set forth herein,
Borrower hereby represents, warrants, covenants and states to
Bank that: (i) Collateral Parties are dependent on each other
for their strategic management, operations, financing, and
general administrative services; (ii) Collateral Parties
desire to utilize their borrowing potential on a consolidated
basis, to the extent(s) possible as if they were merged into a
single corporate entity and, consistent with realizing such
potential, to make available to Bank security commensurate
with the amount and nature of their aggregate borrowings;
(iii) Collateral Parties (and each of them) have determined
that they will benefit specifically and materially from the
advances of credit contemplated hereby; and (iv) Collateral
Parties have requested and bargained for the structure and
terms of and security for the advances contemplated hereby.
9. Events of Default and Remedies.
9.1 The following shall constitute Events of Default under
this Agreement, it being agreed that time is of the essence hereof: (a) failure
of Collateral Parties (or any one or more of them) to pay when due any of the
Obligations; (b) failure of Zaring Homes, Inc., Zaring Financial Services LLC,
Cincinnati Land Co. and any other related entity of Borrower to pay when due any
obligation which exists or shall exist to Bank; (c) failure of American Homestar
Corporation or HomeMax, Inc. to pay when due any principal or interest under the
promissory notes to Borrower which constitute the Borrower Collateral; (d) any
default under the Floor Plan Facility dated February 19, 1998 between HomeMax,
Inc. and Nationsbank, N.A.; (e) failure of Collateral Parties (or any one or
more of them) to observe or perform any covenant contained in any of the other
Loan Documents or in any agreement between Collateral Parties (or any one or
more of them) and Bank; (f) discovery that any representation or warranty at any
time made by Collateral Parties (or any one or more of them) to Bank in any of
the Loan Documents or in any other agreement between Collateral Parties (or any
one or more of them) and Bank, or in any document or instrument delivered to
Bank pursuant to any such Loan Document or agreement is, or becomes, untrue or
misleading in any material respect; (g) acceleration of the maturity of any of
the Obligations; (h) any misrepresentation by Collateral Parties (or any one or
more of them), orally or in writing, to Bank for the purpose of obtaining credit
or an extension of credit; (i) failure of any Collateral Party, after request by
Bank, to furnish financial information or to permit the inspection of its books
of account and records; (j) suspension by any Collateral Party of the operation
of its present business, or the insolvency of any Collateral Party or the
inability of any Collateral Party to meet its debts as they mature, or its
admission in writing to such effect, or its calling any meeting of all or any of
its creditors or committing any act of bankruptcy, or the filing by or against
any Collateral Party of any petition under any provision of Bankruptcy Act, as
amended, or the entry of any judgment or
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<PAGE> 24
judgements in an amount of in excess of $50,000 (in the aggregate for all such
judgments) against Collateral Parties (or any one or more of them); (k) loss,
theft, damage, destruction or encumbrance of any of the Collateral, or any
encumbrance, levy, seizure or attachment of any of the Collateral; (l) (i) any
Person or entity shall engage in any nonexempt "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 Single Employer Plan,
(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 Bank, likely to result in the termination of such Single Employer
Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) any Collateral Party or any
Commonly Controlled Entity shall, or in the opinion of Bank 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 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 be reasonably expected to have a material adverse
effect on the assets, liabilities, business, condition (financial or otherwise)
or prospects of any Collateral Party; and (m) any Collateral Party denies its
obligation with respect to all or any portion of the Obligations or attempts to
limit or terminate its obligation with respect to all or any portion of the
Obligations, including future Loan advances. If an Event of Default occurs under
paragraphs (a), (b), (c), (d) or (e) of this Section 9.1, the Borrower shall
have ten (10) business days in which to cure such Event of Default.
9.2 Upon the occurrence of an Event of Default described in
Section 9.1, or at any time in the sole discretion of Bank if the Loan is due on
demand, Bank at its option may: (a) declare the Obligations immediately due and
payable, without presentment, notice, protest or demand of any kind for the
payment of all or any part of the Obligations (all of which are expressly waived
by Borrower) and exercise all of its rights and remedies against Borrower and
any Collateral provided herein, in any other Loan Document or in any other
agreement between Collateral Parties (or any one or more of them) and Bank and
(b) exercise all rights granted to a secured party under the Ohio Uniform
Commercial Code or otherwise.
9.3 Bank shall have the right to apply the proceeds of any
disposition of the Collateral to the payment of the Obligations in such order of
application as Bank may, in its sole discretion, elect.
9.4 The rights, options and remedies of Bank shall be
cumulative and no failure or delay by Bank in exercising any right, option or
remedy shall be deemed a waiver thereof or of any other right, option or remedy,
or waiver of any Event of Default hereunder, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
Bank shall not be deemed to have waived any of Bank's rights hereunder or under
any other agreement, instrument or paper signed by Borrower unless such waiver
be in writing and signed by Bank.
10. Miscellaneous
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<PAGE> 25
10.1 Governing Law; Jurisdiction and Venue. The provisions of
this Agreement shall be governed by and interpreted in accordance with the laws
of the State of Ohio. Bank and Borrower hereby designate all courts of record
sitting in Cincinnati, Ohio, both state and federal, as the exclusive forums
where any action, suit or proceeding in respect of or arising out of this
Agreement or the transactions contemplated by this Agreement may be prosecuted
as to all parties, their successors and assigns, and by the foregoing
designation Bank and Borrower consent to the jurisdiction and venue of such
courts.
10.2 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR BANK TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE
OPPORTUNITY TO CONSULT COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO
TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS AGREEMENT OR ARISING
IN ANY WAY FROM THE OBLIGATIONS.
10.3 Other Waivers. Borrower waives notice of nonpayment,
demand, notice of demand, presentment, protest and notice of protest with
respect to the Obligations, or notice of acceptance hereof, notice of Loan made,
credit extended, Collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein.
10.4 Collection Costs. All reasonable costs and expenses
incurred by Bank to obtain, enforce or preserve the security interests granted
by this Agreement and to collect the Obligations, including, without limitation,
stationery and postage, telephone and telegraph, secretarial and clerical
expenses, the fees or salaries of any collection agents utilized, all costs to
maintain and preserve the Collateral and all attorneys' fees and legal expenses
incurred in obtaining or enforcing payment of any of the Obligations or
foreclosing Bank's security interest in any of the Collateral, whether through
judicial proceedings or otherwise, or in enforcing or protecting its rights and
interests under this Agreement, under any Loan Document or under any other
instrument or document delivered pursuant hereto, or in protecting the rights of
any holder or holders with respect thereto, or in defending or prosecuting any
actions or proceedings arising out of or relating to Bank's transactions with
Borrower, shall be paid by Borrower to Bank, upon demand, or, at Bank's
election, charged to Borrower's account and added to the Obligations, and Bank
may take judgment against Borrower for all such costs, expense and fees in
addition to all other amounts due from Borrower hereunder.
10.5 Expenses. Borrower shall reimburse Bank for all
reasonable out-of-pocket costs and expenses incurred by Bank in connection with
the preparation, negotiation, closing, enforcement and amendment of this
Agreement and all other Loan Documents and the making of the Loan hereunder,
including the reasonable fees and expenses of Bank's counsel, and for all UCC
search, filing, recording and other costs connected with the perfection of
Bank's security interest in the Collateral.
10.6 Notices. All notices, requests, directions, demands,
waivers and other communications provided for herein shall be in writing and
shall be deemed to have been given or
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<PAGE> 26
made when delivered personally or sent by registered or certified mail, postage
prepaid and return receipt requested, addressed to Borrower or Bank, as the case
may be, at their respective addresses set forth at the beginning of this
Agreement. Notices of changes of address shall be given in the same manner.
10.7 Severability. Any provision of this Agreement which is
prohibited and 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 or affecting the validity or
enforceability of such provision in any other jurisdiction.
10.8 Entire Agreement, Modification, Benefit. This Agreement
shall constitute the entire agreement of the parties and no provision of this
Agreement, including the provisions of this Section 10.8, may be modified,
deleted or amended in any manner except by agreement in writing executed by the
parties. All terms of this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective successors and
assigns, provided, however, that Borrower shall not assign or transfer its
rights hereunder.
10.9 Construction. All references in this Agreement to the
single number and neuter gender shall be deemed to mean and include the plural
number and all genders, and vice versa, unless the context shall otherwise
require.
10.10 Headings. The underlined headings contained herein are
for convenience only and shall not affect the interpretation of this Agreement.
10.11 Counterparts. This Agreement may be executed in more
than one counterpart, each of which shall be deemed an original.
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<PAGE> 27
IN WITNESS WHEREOF, Borrower, by its duly authorized officer,
and the Bank, by its duly authorized officer, have executed this Agreement in
the City of Cincinnati, County of Hamilton, State of Ohio, as of the date and
year first above written.
THE PROVIDENT BANK ZARING NATIONAL CORPORATION
By:_________________________ By:_________________________
Name:_______________________ Name:_______________________
Title:______________________ Title:______________________
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<PAGE> 28
EXHIBIT A
TERM PROMISSORY NOTE
Cincinnati, Ohio
$15,000,000.00 March 31, 1999
The undersigned, for value received, hereby promises to pay to
the order of THE PROVIDENT BANK, its successors or assigns (the "Bank"), the sum
of FIFTEEN MILLION DOLLARS ($15,000,000.00), which amount was loaned to the
undersigned pursuant to the provisions of the Loan and Security Agreement
between the undersigned and the Bank dated March 31, 1999 (as the same may
hereafter be amended and modified from time to time, the "Loan Agreement"),
together with interest thereon at the Prime TL Rate (as hereinafter defined) per
annum until maturity. Upon the occurrence of any Event of Default (as defined in
the Loan Agreement) and for so long thereafter as such Event of Default
continues, this Note shall bear interest at a rate 4% per annum greater than the
Prime TL Rate (the "Default Rate"). Interest on this Note will be calculated on
the basis of the actual number of days elapsed over an assumed year consisting
of 360 days.
For purposes of this Note, the following capitalized terms,
when used herein, shall have the indicated meanings:
Prime TL Rate shall mean, as of any date, the Prime
Rate (as in effect from time to time), plus one percent (1%).
The Prime TL Rate shall change each time and as of the date of
change of the Prime Rate.
Prime Rate shall mean that annual percentage rate of
interest which is established by Bank from time to time as its
prime rate, whether or not such rate is publicly announced,
which provides a base to which loan rates may be referenced.
The Prime Rate is not necessarily the lowest lending rate of
Bank.
Capitalized terms used in this Note and not otherwise defined
shall have the meanings ascribed thereto in the Loan Agreement.
Interest on this Note shall be due and payable monthly in
arrears commencing on May 1, 1999 and on or before the first day of each
calendar month thereafter, and on the date this Note is due (whether by
maturity, acceleration or otherwise).
The entire outstanding principal and all remaining accrued
interest on this Note and all other charges payable pursuant to the Loan
Agreement shall be due and payable in full on or before the earlier of (as the
case may be, the "Maturity Date") (a) the thirty nine (39) month anniversary of
the Closing Date or (b) ninety (90) days following the exercise of the Put or
the Call pursuant to the Securityholders Agreement, or the earlier date upon
which the proceeds of the Put or Call transaction are received by Borrower.
Except as set forth in the proviso to this sentence, the
principal amount of this Note may be prepaid in whole or in part, at any time
and from time to time, provided, however, that there shall be a three percent
(3%) prepayment fee for any prepayment in whole or in part
<PAGE> 29
from funds generated outside of the terms of the Securities Purchase Agreement.
In addition to the payments required by the next two sentences
of this paragraph, the undersigned shall make three mandatory annual payments of
the principal amount of this Note, each of which payments shall be in the amount
of $1,470,392 and shall be due and payable on or before each of March 15, 2000,
March 15, 2001 and March 15, 2002. In addition to the payments required by the
immediately preceding sentence or by the last sentence of this paragraph, in the
event there is Positive Cash Flow for any two consecutive full calendar
quarters, within 45 days after the end of the second of such two calendar
quarters the undersigned shall make a principal payment to Bank in an amount
equal to the aggregate Positive Cash Flow for such two calendar quarters, and
thereafter the undersigned shall make principal payments to Bank within 45 days
after the end of each calendar quarter in an amount equal to the cumulative
Positive Cash Flow (if any) for the most recently ended calendar quarter (the
"Positive Cash Flow Payments") until the aggregate amount of Positive Cash Flow
Payments made by the undersigned to Bank equals or exceeds Four Million Dollars
($4,000,000.00); provided, however, that if the HomeMax Cash Flow for any
quarter after the first two consecutive quarters of Positive Cash Flow is less
than zero (the "Negative Quarter"), no Positive Cash Flow Payments shall be
required until the end of the next succeeding quarter during which the
cumulative HomeMax Cash Flow since the beginning of the Negative Quarter is
greater than zero. In addition to the payments required by the first two
sentences of this paragraph, the undersigned shall make further payments to Bank
of the proceeds realized from the exercise of the Put or the Call pursuant to
the Securityholders Agreement to the extent necessary to result in the payment
in full of the principal and all remaining accrued interest on this Note and all
other charges payable pursuant to the Loan Agreement.
If any payment of principal or interest is not paid on the
date due, or if the undersigned shall otherwise be in default in the performance
of any obligations hereunder, under the Loan Agreement or under any of the other
Loan Documents, the Bank, at its option, may charge and collect, or add to the
unpaid principal balance hereof, a late charge of up to $250.00 for each such
delinquency to cover the extra expense incident to handling delinquent accounts,
and/or increase the interest rate on the unpaid principal and interest hereof to
the Default Rate.
If any payment of principal or interest is not paid on the
date due, or if any other Event of Default as described in the Loan Agreement
shall occur, this Note shall, at the option of the Bank, become immediately due
and payable, without demand or notice, and the Bank may exercise all rights and
remedies provided herein, in the Loan Agreement or in the other Loan Documents
or otherwise available at law or in equity; provided, however, that upon the
occurrence of an Event of Default as described in Section 9.1(j) of the Loan
Agreement, this Note shall, without demand or notice, become automatically and
immediately due and payable in full.
This Note is secured by all of the Borrower Collateral. The
undersigned also hereby authorizes Bank, at Bank's option to charge any account
or charge or increase any Loan balance of the undersigned at Bank for the
payment or repayment of any interest or principal of the Loan, or any fees,
charges or other amounts due to Bank hereunder or under the other Loan
Documents, as and when the same become due and payable hereunder, or under the
other Loan Documents.
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<PAGE> 30
The undersigned hereby agrees that all of its obligations
hereunder (including, without limitation, its obligations to pay principal and
interest hereunder, collectively hereinafter referred to as the "Note
Obligations") shall be unconditional, irrespective of (i) the validity or
enforceability against the undersigned or any Collateral Party of the Note
Obligations or of this Note or any other promissory note or other Loan Document
evidencing or securing all or any part of the Note Obligations, (ii) the absence
of any attempt to collect the Note Obligations from the undersigned or any
Collateral Party or other action to enforce the same, (iii) the waiver or
consent by Bank with respect to any provision of this Note or any other Loan
Document evidencing the Note Obligations, or any part thereof, or any other
agreement now or hereafter executed by the undersigned or any Collateral Party
and delivered to Bank, (iv) failure by Bank to take any steps to perfect and
maintain its security interest in, or to preserve its rights to, any security or
Collateral for the Note Obligations, (v) Bank's election, in any proceeding
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
the undersigned or any Collateral Party as debtor-in-possession, under Section
364 of the Bankruptcy Code, (vii) the disallowance of all or any portion of
Bank's claim(s) for repayment of the Note Obligations under Section 502 of the
Bankruptcy Code, or (viii) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense.
The undersigned hereby waives diligence, presentment, demand
of payment, filing of claims with a court in the event of receivership or
bankruptcy of the other undersigned, protest or notice with respect to the Note
Obligations and all demands whatsoever, and covenants that the undersigned will
not be discharged, except by complete performance and payment of the Note
Obligations. Upon any Event of Default, Bank may, at its sole election, proceed
directly and at once, without notice, against the undersigned to collect and
recover the full amount or any portion of the Note Obligations, without first
proceeding against any security or Collateral for the Note Obligations. Bank
shall have the exclusive right to determine the application of payments and
credits, if any, from the undersigned, or from any other Person on account of
the Note Obligations or of any other liability of the undersigned to Bank.
At any time after maturity of the Note Obligations, Bank may,
in its sole discretion, without notice to the undersigned and regardless of the
acceptance of any security or collateral for the payment hereof, appropriate and
apply toward the payment of the Note Obligations (i) any indebtedness due or to
become due from Bank to the undersigned, and (ii) any moneys, credits, deposits,
account balances or other property belonging to the undersigned, now existing or
at any time held by or coming into the possession of Bank or any affiliate of
Bank.
No delay on the part of Bank in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Bank of any right or remedy shall preclude any further exercise thereof, nor
shall any modification or waiver of any of the provisions hereof be binding upon
Bank, except as expressly set forth in a writing duly signed and delivered on
Bank's behalf by an authorized officer or agent of Bank. Bank's failure at any
time or times hereafter to require strict performance by the undersigned of any
of the provisions, warranties, terms and conditions contained in this Note or
any other Loan Document shall not waive, affect or diminish any right of Bank at
any time or times hereafter to demand strict performance thereof and such right
shall not be deemed to have been waived by any act or knowledge of Bank, its
agents, officers or employees, unless such waiver is contained in an instrument
in writing signed by an officer or agent of Bank and directed to the undersigned
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<PAGE> 31
specifying such waiver. No waiver by Bank of any Event of Default shall operate
as a waiver of any other Event of Default or the same Event of Default on a
future occasion, and no action by Bank permitted hereunder shall in any way
affect or impair Bank's rights or the obligations of the undersigned hereunder.
Any determination by a court of competent jurisdiction of the amount of any
principal and/or interest owing by the undersigned to Bank on the Note
Obligations shall be conclusive and binding on the undersigned irrespective of
whether the undersigned was not a party to the suit or action in which such
determination was made. The undersigned agrees, consents to and confirms that
any extension of any statute of limitations resulting from any payment of the
obligations by the undersigned, any guarantor or any other Person and affecting
enforcement or collection of the obligations of the undersigned, or of the
liabilities of the undersigned hereunder shall to the same degree also extend
any statute of limitations affecting enforcement and collection of the Note
Obligations hereunder.
The undersigned hereby represents that the purpose of the loan
evidenced by this Note is to refinance outstanding indebtedness, and that no
portion of the proceeds of this Note will constitute "purpose credit" as such
term is defined in Regulation U, 12 CFR 221.1 et. seq.
The provisions of this Note shall be governed by and
interpreted in accordance with the laws of the State of Ohio.
AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE BANK TO EXTEND
CREDIT TO THE UNDERSIGNED, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL,
THE UNDERSIGNED AND ALL INDORSERS HEREBY EXPRESSLY WAIVE THE RIGHT TO TRIAL BY
JURY IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY
FROM ANY INDEBTEDNESS OR OTHER TRANSACTIONS INVOLVING THE BANK AND THE
UNDERSIGNED.
The undersigned hereby designates all courts of record sitting
in Cincinnati, Ohio and having jurisdiction over the subject matter, state and
federal, as the exclusive forums where any action, suit or proceeding in respect
of or arising from or out of this Note, its making, validity or performance,
shall be prosecuted as to all parties, their successors and assigns, and by the
foregoing designation the undersigned consents to the jurisdiction and venue of
such courts.
IN WITNESS WHEREOF, the undersigned, by its duly authorized
officer, has executed this Note in the City of Cincinnati, County of Hamilton,
State of Ohio, as of the date and year first above written.
ZARING NATIONAL CORPORATION
By:_________________________
Name:_______________________
Title:______________________
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<PAGE> 32
EXHIBIT B
THE PROVIDENT BANK UNCONDITIONAL GUARANTY
WHEREAS, the undersigned is a wholly owned subsidiary of
Zaring National Corporation ("Borrower"); and
WHEREAS, Borrower and The Provident Bank ("Provident") will
enter into, or have entered into, that certain Loan and Security Agreement date
March 31, 1999 (the "Loan Agreement") pursuant to which Provident will make
loans and other financial accommodations to Borrower for the benefit of all
Collateral Parties (as defined in the Loan Agreement); and
WHEREAS, the undersigned has received a copy of the Loan
Agreement and such other information regarding the financing contemplated by the
Loan Agreement as the undersigned deems necessary and the undersigned has
determined that it will receive direct and material benefits from the financing
contemplated by the Loan Agreement and the other Loan Documents (as defined in
the Loan Agreement); and
WHEREAS, the execution and delivery of this Unconditional
Guaranty to Provident by the undersigned is a condition precedent to Provident's
obligation and willingness to make the loans and other financial accommodations
contemplated by the Loan Agreement;
NOW, THEREFORE, in consideration of the premises and to induce
Provident to make and continue to make loans and other financial accommodations
to Borrower, whether to Borrower alone or to Borrower and others, and in
consideration of the extension of such credit, the undersigned hereby absolutely
and unconditionally guarantees the full and timely payment and performance of
all of the Obligations (as defined in the Loan Agreement) and of any and all
existing and future indebtedness or liability of every kind, nature or character
(including, without limitation, principal, interest, all costs of collection,
and attorneys' fees) owing to Provident by Borrower, all whether direct or
indirect, absolute or contingent and whether incurred as primary debtor,
co-maker or guarantor (together with the Obligations, the foregoing is
hereinafter referred to as the "Indebtedness"). The undersigned further
absolutely and unconditionally guarantees the prompt performance when due of all
terms, covenants, and conditions of the Loan Documents and any other agreement
between any Collateral Party (as defined in the Loan Agreement) and Provident
that relates to the Indebtedness. The undersigned undertakes this continuing,
absolute, and unconditional guaranty of the aforementioned payment and
performance notwithstanding that any portion of the Indebtedness shall be void
or voidable as between the Borrower and any of its creditors, including, without
limitation, any bankruptcy trustee of the Borrower. NOTWITHSTANDING ANYTHING
HEREIN TO THE CONTRARY, THE LIABILITY OF THE UNDERSIGNED TO PROVIDENT HEREUNDER
IS LIMITED TO AN AMOUNT NOT GREATER THAN THE PRINCIPAL CAP (AS HEREINAFTER
DEFINED) PLUS ALL EXPENSE OF ANY NATURE WHATSOEVER, INCLUDING WITHOUT LIMITATION
ATTORNEYS' FEES, INCURRED OR PAID BY PROVIDENT IN EXERCISING ANY RIGHT, POWER OR
REMEDY HEREUNDER. FOR PURPOSES OF THIS GUARANTY, THE TERM "PRINCIPAL CAP" SHALL
INITIALLY MEAN $10,000,000, BUT SHALL BE SUBJECT TO REDUCTION SO LONG AS NO
EVENT OF
<PAGE> 33
DEFAULT (AS DEFINED IN THE LOAN AGREEMENT) HAS OCCURRED IN AN AMOUNT EQUAL TO
THE PRINCIPAL PAYMENTS INDEFEASIBLY RECEIVED BY PROVIDENT AND APPLIED TO
PERMANENTLY REDUCE THE PRINCIPAL BALANCE OF THE NOTE (AS DEFINED IN THE LOAN
AGREEMENT) AFTER THE PRINCIPAL BALANCE OUTSTANDING ON THE NOTE IS INDEFEASIBLY
REDUCED TO $10,000,000 OR LESS.
This absolute, continuing, unconditional, and unrestricted
guaranty is a guaranty of payment and not a guaranty of collection. Upon the
failure of Borrower to pay the Indebtedness promptly when due, Provident, at its
sole option, may proceed against the undersigned, to collect the Indebtedness,
with or without proceeding against the Borrower, any co-maker or co-surety or
co-guarantor, any indorser or any collateral held as security for the
Indebtedness. Any and all payments upon the Indebtedness made by the Borrower,
the undersigned, or any other person, and the proceeds of any and all collateral
securing the payment of the Indebtedness and this guaranty, may be applied by
Provident in whatever manner it may determine in its sole discretion. The
undersigned agrees to reimburse Provident for all expenses of any nature
whatsoever including, without limitation. attorneys fees, incurred or paid by
Provident in exercising any right, power, or remedy conferred by this guaranty.
The obligations of the undersigned set forth in this guaranty
shall extend to all amendments, supplements, modifications, renewals,
replacements or extensions of the Indebtedness at any rate of interest. The
liability of the undersigned and the rights of Provident under this guaranty
shall not be impaired or affected in any manner by, and the undersigned hereby
consents in advance to and waives any requirement of notice for, any (1)
disposition, impairment, release, surrender, substitution, or modification of
any collateral securing the Indebtedness or the obligations created by this
guaranty or any failure to perfect a security interest in any collateral; (2)
release (including adjudication or discharge in bankruptcy) or settlement with
any person primarily or secondarily liable for the Indebtedness (including,
without limitation, any maker, indorser, guarantor or surety); (3) delay in
enforcement of payment of the Indebtedness or delay in enforcement of this
guaranty; (4) delay, omission, waiver, or forbearance in exercising any right or
power with respect to the Indebtedness of this guaranty; (5) defense arising
from the enforceability or validity of the Indebtedness or any part thereof or
the genuiness, enforceability or validity of any agreement relating thereto; (6)
defenses or counterclaims that the Borrower may assert on the Indebtedness,
including, but not limited to, failure of consideration, breach of warranty,
fraud, payment, statute of frauds, bankruptcy, infancy, statute of limitations,
lender liability, accord and satisfaction and usury; or (7) other act or
omission which might constitute a legal or equitable discharge of the
undersigned. The undersigned waives presentment, protest, demand for payment,
any right of set-off, notice of dishonor or default, notice of acceptance of
this guaranty, notice of the incurring of any of the Indebtedness and notice of
any other kind in connection with the Indebtedness or this guaranty. The
undersigned also waives any right to require a commercially reasonable
disposition of any collateral securing the Indebtedness.
The undersigned agrees that in the event of (i) the
dissolution or insolvency of Borrower, (ii) the inability of Borrower to pay its
debts as they become due, (iii) an assignment by Borrower for the benefit of its
creditors, or (iv) the institution of any bankruptcy or other proceeding by or
against Borrower alleging insolvency or inability to pay its debts as they
become due, and whether or not such event shall occur at a time when the
Indebtedness is not then due and payable,
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<PAGE> 34
the undersigned shall pay the Indebtedness to Provident promptly upon demand as
if the Indebtedness was then due and payable.
The undersigned agrees that this guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal, interest or any other amount with respect to the
Indebtedness is rescinded or must otherwise be restored by Provident upon the
bankruptcy or reorganization of Borrower.
In order to secure the payment of the Indebtedness and the
obligations created by this guaranty, the undersigned hereby grants to Provident
a security interest in the accounts, securities, and properties in which the
undersigned has any interest, and that are now, or are at any time hereafter, in
the possession of Provident. Upon any portion of the Indebtedness becoming due
and not being fully paid and satisfied, the total sum then due hereunder may
immediately be charged against any account or accounts maintained by the
undersigned with Provident, without notice to or further consent from the
undersigned. The undersigned shall promptly provide such financial information
as Provident shall reasonably request from time to time.
Provident shall not be compelled to resort first to any
collateral for payment of any of the Indebtedness or the obligations created by
this guaranty, but may at its election require the obligation to be paid by the
undersigned, with or without suit. The provisions of this guaranty shall apply
to any new or additional collateral given by the undersigned to further secure
the Indebtedness and the obligations created by this guaranty.
Except for the limited purposes described in next succeeding
paragraph, until the Indebtedness is fully and finally paid and satisfied, the
undersigned will not attempt to exercise in any way, and hereby subordinates any
(i) rights which it might otherwise have had or acquired against Borrower or any
other party by way of subrogation or otherwise because of any payment made by
the undersigned hereunder or otherwise, (ii) right to enforce any remedy which
Provident now has or may hereafter have against Borrower, any indorser or any
guarantor of all or any part of the Indebtedness, and (iii) any benefit of, and
any right to participate in, any security or collateral given to Provident to
secure payment of the Indebtedness or any other liability of Borrower to Bank;
the undersigned further agrees that any and all claims the undersigned has
against Borrower, any indorser or any other guarantor of all or any part of the
Indebtedness, or against any of their respective properties, whether arising by
reason of any payment by the undersigned to Provident pursuant to the provisions
hereof, or otherwise, shall be subordinate and subject in right of payment to
the prior payment, in full, of all principal and interest, all reasonable costs
of collection (including, but not by way of limitation, attorneys' fees) and any
other liabilities or obligations owing to Provident which constitute the
Indebtedness or may arise either with respect to or on any Loan Document. The
undersigned also waives all setoffs and counterclaims and all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance hereof. The undersigned
further waives all notices of the existence, creation or incurring of new or
additional Indebtedness, arising either from additional loans extended to
Borrower or otherwise, and also waives all notices that the principal amount, or
any portion thereof, and/or any interest on any instrument or document
evidencing all or any part of the Indebtedness is due, notices of any and all
proceedings to collect from Borrower or other indorser or any guarantor of all
or any part of the Indebtedness, or from anyone else, and, to the
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<PAGE> 35
extent permitted by law, notices of exchange, sale, surrender or other handling
of any collateral or other security given to Provident to secure payment of the
Indebtedness.
It is the intent of the undersigned that the obligations of
each Collateral Party under the Loan Documents not be subject to challenge on
any basis. Accordingly, as of the date hereof, the liability of the undersigned
hereunder and under all other Loan Documents, together with all of its other
liabilities, debts, claims and indebtedness to all persons as of the date hereof
and as of any other date on which a transfer is deemed to occur by virtue of the
Loan Documents, whether fixed or contingent (collectively the "Dated
Liabilities") is, and is to be, less than the present fair salable value of all
of its assets, and, if different, the fair valuation of all of its assets, as of
such corresponding date (as the case may be "Dated Assets"), and the undersigned
has, and shall have, on the date hereof and on any other date on which a
transfer is deemed to have occurred by virtue of the Loan Documents, Dated
Assets in an amount sufficient to pay its Dated Liabilities as they become
absolute and matured. To this end, the undersigned grants to and recognizes in
Borrower rights of subrogation and contribution in the amount, if any, necessary
to cause the statements in the preceding sentence to be and remain true. In
determining the value of the Dated Assets and the Dated Liabilities, it is
understood that the undersigned will take into consideration its respective
rights to subrogation and contribution against the Borrower. It is a material
objective of this paragraph that the undersigned recognize rights of subrogation
and contribution rather than be deemed to be insolvent (or in contemplation
thereof). Notwithstanding anything in this paragraph to the contrary, the
agreements in this paragraph are to establish the relative rights of
contribution of the Collateral Parties and shall not modify the joint and
several and primary nature of the obligations of the undersigned owed to
Provident or impair the right of Provident to hold the undersigned liable for
payment of the full amount of the Indebtedness.
The obligations and undertakings of the undersigned and the
Borrower shall be joint, several, and primary and shall be binding upon their
respective successors and assigns, and shall inure to the benefit of Provident
and its successors and assigns. Neither the undersigned nor Borrower shall be or
be deemed to be an accommodation party with respect to the Indebtedness. All
references herein to the undersigned shall be deemed to include the undersigned
and its successors and assigns, including, without limitation, a receiver,
trustee or debtor in possession of or for the undersigned. All references to the
singular shall be deemed to include the plural where the context so requires.
For purposes of making extensions of credit, rendering
statements, receiving requests from, or otherwise communicating with the
undersigned, or in Provident's administration of this guaranty and the loan
transaction, the undersigned hereby appoints Borrower as its agent and
authorizes Provident to deal with Borrower exclusively, and the undersigned
acknowledges and agrees that any act done or omitted or any document,
certificate, or instrument executed or delivered by Borrower for the undersigned
will be binding upon the undersigned.
To induce Provident to make the loans and other financial
accommodations to Borrower in the manner contemplated by the Loan Agreement, the
undersigned hereby represents, warrants, covenants and states to Provident that:
(i) Collateral Parties are dependent on each other for their strategic
management, operations, financing, and general administrative services; (ii)
Collateral Parties desire to utilize their borrowing potential on a consolidated
basis, to the extent(s)
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<PAGE> 36
possible as if they were merged into a single corporate entity and, consistent
with realizing such potential, to make available to Provident security
commensurate with the amount and nature of their aggregate borrowings; (iii)
Collateral Parties (and each of them) have determined that they will benefit
specifically and materially from the advances of credit contemplated the Loan
Agreement; and (iv) Collateral Parties have requested and bargained for the
structure and terms of and security for the advances contemplated the Loan
Agreement.
The undersigned hereby assumes responsibility for keeping
itself informed of the financial condition of Borrower, and any and all
indorsers and/or other guarantors of any instrument or document evidencing all
or any part of the Indebtedness and of all other circumstances bearing upon the
risk of nonpayment or performance of the Indebtedness or any part thereof that
diligent inquiry would reveal, and the undersigned hereby agrees that Provident
shall have no duty to advise the undersigned of information known to Provident
regarding such condition or any such circumstances. In the event Provident, in
its sole discretion, undertakes at any time or from time to time to provide any
such information to the undersigned, Provident shall be under no obligation (i)
to undertake any investigation not a part of its regular business routine, (ii)
to disclose any information which, pursuant to accepted or reasonable commercial
finance practices, Provident wishes to maintain confidential, or (iii) to make
any other or future disclosures of such information or any other information to
the undersigned.
As a specifically bargained inducement for Provident to extend
credit pursuant to the Loan Agreement: (i) THE UNDERSIGNED HEREBY EXPRESSLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS
GUARANTY OR ARISING IN ANY WAY FROM THE INDEBTEDNESS OR TRANSACTIONS INVOLVING
PROVIDENT AND THE BORROWER AND (ii) THE UNDERSIGNED HEREBY DESIGNATE(S) ALL
COURTS OF RECORD SITTING IN CINCINNATI, OHIO AND HAVING JURISDICTION OVER THE
SUBJECT MATTER, STATE AND FEDERAL, AS THE EXCLUSIVE FORUMS WHERE ANY ACTION,
SUIT OR PROCEEDING IN RESPECT OF OR ARISING FROM OR OUT OF THIS GUARANTY, ITS
MAKING, VALIDITY OR PERFORMANCE, MAY BE PROSECUTED AS TO ALL PARTIES, THEIR
SUCCESSORS AND ASSIGNS, AND BY THE FOREGOING DESIGNATION THE UNDERSIGNED
CONSENT(S) TO THE JURISDICTION AND VENUE OF SUCH COURTS.
This guaranty shall inure to the benefit of and bind the
parties hereto, their successors and assigns, and their legal representatives or
heirs. Provident may, at its option, assign this guaranty to any other person
who is or becomes the indorsee or assigned of any part of the Indebtedness or
who is in possession of or the bearer of any part of the Indebtedness that is
payable to the bearer, and the undersigned shall continue to be liable under
this guaranty to such other party to the extent of such indorsed, assigned, or
possessed Indebtedness.
The undersigned that warrants that it has the corporate power
to execute this guaranty, that all the necessary corporate actions have been
taken to permit the undersigned to give this guaranty, and that the person(s)
executing this guaranty is (are) duly empowered to do so on behalf of the
undersigned.
Signed and delivered by the undersigned at Cincinnati, Ohio on
March 31, 1999.
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<PAGE> 37
ZARING HOMES, INC.
By:_________________________
Name:_______________________
Title:______________________
Address:
____________________________
____________________________
____________________________
____________________________
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<PAGE> 38
EXHIBIT C
COLLATERAL NOTE ASSIGNMENT
THIS COLLATERAL NOTE ASSIGNMENT ("Collateral Assignment
Agreement") dated as of March 31, 1999, is made and entered into by and between
ZARING NATIONAL CORPORATION, (the "Pledgor"), and THE PROVIDENT BANK ("Bank",
which term shall include its successors and assigns).
This Collateral Assignment Agreement has been executed and
delivered by the Pledgor to Bank pursuant to the Loan Agreement (as defined
below). To induce the Bank to enter into the Loan Agreement and to make loans
and other financial accommodations to the Pledgor, the Pledgor has agreed to
grant to the Bank a security interest in the Pledged Collateral (as defined
below).
NOW, THEREFORE, in consideration of the Bank's loans and other
financial accommodations to the Pledgor, the parties hereby agree as follows:
1. Defined Terms. As used in this Collateral Assignment
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and the plural forms of the term
defined):
"Loan Agreement" means the Loan and Security
Agreement dated as of the date hereof, between the Bank and Pledgor, as the same
may be amended or modified from time to time.
"Loan Documents" means (i) the Loan Agreement and all
notes, guaranties, mortgages, security agreements, certificates, indemnification
agreements and other documents and agreements executed in connection with, or
evidencing or securing the obligations under the Loan Agreement and (ii) all
notes, guaranties, mortgages, security agreements, certificates, indemnification
agreements and other documents or instruments evidencing or securing any debts,
liabilities and obligations of any one or more of the Obligors to Bank.
"Obligors" means the collective reference to Pledgor
and Zaring Homes, Inc.
"Pledged Collateral" means the loans evidenced by the
Pledged Notes, together with (i) Pledgor's entire rights, title and interest in,
to and under the Pledged Notes and all substitutions therefor and restatements,
renewals, replacements and extensions thereof, proceeds thereof and therefrom
and all interest, principal or other payments in respect thereof as well as all
securities or other property which are issued or delivered pursuant thereto or
in payment thereof, and all collateral and other property securing the payment
or performance thereof, (ii) all stock and other securities or property issued
pursuant to conversion, redemption, exercise of rights, or other act which are
referable to the Pledged Collateral (such stock or other securities are
hereinafter referred
<PAGE> 39
to as the "Additional Pledged Securities") and (iii) all distributions, whether
cash or otherwise, in the nature of a partial or complete liquidation,
dissolution or winding up which are referable to the Pledged Collateral (such
distributions are hereinafter referred to as "Liquidating Distributions").
"Pledged Notes" shall mean all right, title and
interest of Pledgor in (a) the Four Million Dollar ($4,000,000) promissory note
from Homemax, Inc. to Pledgor dated March 15, 1999 (the "Senior Subordinated
Note"); and (b) the Four Million Four Hundred Eleven Thousand One Hundred
Seventy-Seven Dollar ($4,411,177) promissory note from American Homestar
Corporation to Pledgor dated March 15, 1999 (the "Investor Note").
All other capitalized terms used herein which are not
otherwise defined shall have the meanings assigned to them in the Loan Agreement
unless the context hereof otherwise requires.
2. Pledge and Grant of Security Interests. Pledgor hereby
pledges, assigns, hypothecates and transfers to Bank all Pledged Collateral,
together with appropriate undated assignments separate from the Pledged Notes
duly executed in blank, and hereby grants to and creates in favor of Bank liens
and security interests in the Pledged Collateral as collateral security for (i)
the due and punctual payment when due (whether at maturity, by acceleration or
otherwise) in full of all amounts due under the Term Promissory Note in the
aggregate amount of Fifteen Million Dollars ($15,000,000.00) executed and
delivered by Borrower to Bank pursuant to the Loan Agreement; (ii) the due and
punctual performance and observance by the Obligors of their respective
agreements, obligations, liabilities and duties under the Loan Documents,
including, without limitation the Loan Agreement and the Guaranty; (iii) the due
and punctual performance and observance by the Pledgor of all of its agreements,
obligations, liabilities and duties under this Collateral Assignment Agreement;
(iv) all debts, obligations or liabilities of every kind and description of any
one or more of the Obligors to Bank, now due or to become due, direct or
indirect, absolute or contingent, presently existing or hereafter arising, joint
or several, secured or unsecured, whether for payment or performance, regardless
of how the same arise or by what instrument, agreement or book account they may
be evidenced, or whether evidenced by any instrument, agreement or book account,
including, without limitation, all loans (including any loan by renewal or
extension), all overdrafts, all guarantees and all other evidences of
indebtedness, howsoever owned, held or acquired by the Bank; and (v) all costs
incurred by Bank to obtain, perfect, preserve and enforce the liens and security
interests granted by this Collateral Assignment Agreement, to collect the
Obligations Secured Hereby (as hereinafter defined) and to maintain and preserve
the Pledged Collateral, with such costs including but not limited to
expenditures made by Bank for reasonable attorneys' fees and other legal
expenses and expenses of collection, possession and sale of the Pledged
Collateral, together with interest on all such costs at the Default Rate (the
foregoing subsections (i), (ii), (iii), (iv), and (v) are collectively referred
to herein as the "Obligations Secured Hereby").
3. Delivery of Pledged Collateral. On the date hereof, the
Pledgor shall place the Pledged Collateral in pledge by delivering the Pledged
Notes to and depositing them with Bank. The Pledgor shall also deliver to Bank
concurrently therewith undated assignments separate from the Pledged Notes duly
executed in blank and all other applicable and appropriate documents and
assignments in form suitable to enable Bank to effect the transfer of all or any
portion of the Pledged Collateral to the extent hereinafter provided.
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<PAGE> 40
4. Delivery of Additional Pledged Securities and Liquidating
Distributions; Proceeds, Cash Dividends and Voting. If the Pledgor shall
hereafter become entitled to receive or shall receive any notes, any Additional
Pledged Securities, any Liquidating Distributions, or any other non-cash
payments or collateral on account of the Pledged Collateral, the Pledgor agrees
to accept the same as Bank's agent and to hold the same in trust on behalf of
and for the benefit of Bank and agrees to promptly deliver the same forthwith to
Bank or its agent in the exact form received, with the endorsement of the
Pledgor, when necessary, to be held by Bank or its agent subject to the terms
hereof.
5. Representations and Warranties of the Pledgors. To induce
Bank to enter into this Collateral Assignment Agreement and the Loan Documents,
the Pledgor makes the following representations and warranties to Bank:
(a) The pledge of the Pledged Collateral pursuant to
this Collateral Assignment will, when the Pledged Notes have been delivered to
the possession of Bank, create a valid first lien and first perfected security
interest in such Pledged Collateral without the need of any additional filings
or obtaining any consents of whatsoever nature.
(b) The Pledgor is the legal, record and beneficial
owner of and has good and marketable title to all of the Pledged Collateral.
(c) The Pledgor holds the Pledged Collateral free and
clear of all liens, charges, encumbrances, security interests, options, voting
trusts and restrictions of every kind and nature whatsoever except only the
liens and security interests created by this Collateral Assignment Agreement.
(d) Each of the Pledged Notes has been duly executed
and delivered and is the legal and binding obligation of the maker thereof.
(e) This Collateral Assignment Agreement has been
duly executed and delivered by the Pledgor and constitutes the legal, valid and
binding obligation of the Pledgor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, reorganization, moratorium or other
similar laws affecting generally the enforcement of creditors' rights.
(f) No consent or approval of any governmental body,
regulatory authority or securities exchange or other Person or entity is
required to be obtained by the Pledgor in connection with the execution,
delivery and performance of this Collateral Assignment Agreement.
(g) The execution, delivery and performance of this
Collateral Assignment Agreement will not violate any provision of any applicable
law or regulation or of any writ or decree of any court or governmental
instrumentality or of any indenture, contract, agreement or other undertaking to
which the Pledgor is a party or which purports to be binding upon any the
Pledgor or upon any of its assets and will not result in the creation or
imposition of any lien, charge or encumbrance on or security interest in any of
the assets of such Pledgor except as contemplated by this Collateral Assignment
Agreement.
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<PAGE> 41
(h) The obligations of the makers under the Pledged
Notes are evidenced solely by, or reflected solely in, the Pledged Notes and the
Securities Purchase Agreement.
(i) True and complete copies of the Securities
Purchase Agreement and the original of each of the Pledged Notes, and all
amendments thereto, have been delivered to the Bank.
(j) There is now due and owing on the Pledged Notes,
without offset or defense of any kind, the aggregate principal sum of
$8,000,000, with interest thereon as provided in the Pledged Notes.
(k) Pledgor has not executed or permitted to occur
any waiver, release, discharge, satisfaction, cancellation, sale, transfer or
conveyance of the Pledged Notes (or any amounts due thereunder).
(l) Neither Pledgor nor any of the makers of the
Pledged Notes is in breach or default of any of the Pledged Notes or the
Securities Purchase Agreement.
6. Pledgor's Covenants.
(a) The Pledgor covenants and agrees that it will
defend Bank's lien and security interest in and to the Pledged Collateral
against the claims and demands of all persons whomsoever.
(b) The Pledgor covenants and agrees that it will not
sell, convey or otherwise dispose of any of the Pledged Collateral, or create,
incur or permit to exist any pledge, lien, mortgage, hypothecation, security
interest, charge, option or any other encumbrance or restriction with respect to
any of the Pledged Collateral, or any interest therein, or any proceeds thereof,
except for the liens and security interests created by this Collateral
Assignment Agreement.
(c) Pledgor shall not take any action or permit any
action to be taken which would result in any breach or default by Pledgor of any
of its obligations under the Securities Purchase Agreement.
(d) At any time and from time to time, upon the
written request of the Bank, and at the sole expense of the Pledgor, the Pledgor
covenants and agrees that it will promptly and duly execute and deliver such
further instruments and documents and take such further actions as Bank may
reasonably request for the purposes of obtaining or preserving the full benefits
of this Collateral Assignment Agreement and of the rights and powers herein
granted. If any amount payable under or in connection with any of the Pledged
Collateral shall be or become evidenced by any promissory note, certificate or
other instrument or chattel paper, such note, certificate, instrument or chattel
paper shall be immediately delivered to Bank, duly endorsed in a manner
satisfactory to Bank, to be held as Pledged Collateral pursuant to this
Collateral Assignment Agreement.
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<PAGE> 42
(e) The Pledgor covenants and agrees to pay, and to
save the Bank harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Pledged Collateral or in connection with any of the transactions
contemplated by this Collateral Assignment Agreement.
(f) Pledgor shall not waive any rights under, or
release, discharge, cancel, sell, transfer or convey the Pledged Notes or the
Securities Purchase Agreement (or any interest therein or amounts due thereunder
or any property and assets covered thereby).
(g) Pledgor shall not amend or modify the Pledged
Notes or the Securities Purchase Agreement or grant its consent to any action or
omission with respect to which Pledgor's consent is required under the Pledged
Notes or the Securities Purchase Agreement.
(h) Pledgor shall immediately notify Bank in writing
of any information which Pledgor has or may receive with respect to the Pledged
Notes or the Securities Purchase Agreement (or the property and assets covered
thereby) which might in any manner materially and adversely affect the value
thereof or the rights of Pledgor or the Bank with respect thereto, and without
limiting the generality of the foregoing, Pledgor shall provide to Bank a copy
of any notice of default or any other notice or communication sent by the
Pledgor to, or received by the Pledgor from, any obligor under the Pledged
Notes.
(i) Pledgor shall, promptly upon receipt by Pledgor
and without demand or notice, deliver to Bank all proceeds, payments, interest,
principal and other distributions made with respect to the Pledged Collateral,
all of which shall thereafter be held by the Bank as additional collateral or,
at Bank's option, applied to reduce the Obligations Secured Hereby.
(j) Pledgor shall provide such assignments, documents
and other instruments as Bank may reasonably request in order to enable Bank to
further evidence, perfect or realize upon Bank's interest in the Pledged
Collateral.
7. Rights and Remedies upon Default. If any default or Event
of Default under this Collateral Assignment Agreement or any of the Loan
Documents shall occur and be continuing, Bank may do any one or more of the
following: (i) declare the Obligations Secured Hereby to be forthwith due and
payable, whereupon such Obligations Secured Hereby shall become immediately due
and payable without presentment, demand, protest or other notice of any kind;
and/or (ii) proceed to protect and enforce its rights under this Collateral
Assignment Agreement or any of the other Loan Documents through other
appropriate proceedings, and Bank shall have, without limitation, all of the
rights and remedies provided by applicable law, including, without limitation,
the rights and remedies of a secured party under the Ohio Uniform Commercial
Code and, in addition thereto, Bank shall be entitled, at Bank's option, to
exercise all voting and corporate rights with respect to the Pledged Collateral
as it may determine, without liability therefor except for gross negligence or
willful misconduct, but Bank shall not have any duty to exercise any voting and
corporate rights in respect of the Pledged Collateral and shall not be
responsible or liable to the Pledgor or any other person for any failure to do
so or delay in so doing.
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<PAGE> 43
Without limiting the generality of the foregoing, the Bank
shall have the right to take any one or more of the following actions:
(1) Transfer all or any part of the Pledged
Collateral into the name of the Bank or its
nominee, with or without disclosing that
such Pledged Collateral is subject to the
lien and security interest hereunder;
(2) Notify the parties obligated on any of the
Pledged Collateral to make payment to the
Bank of any amount due or to become due with
respect thereto;
(3) Enforce collection of any of the Pledged
Collateral by suit or otherwise;
(4) Endorse any checks, drafts or other writings
in Pledgor's name to allow collection of the
Collateral;
(5) Take control of any proceeds of the Pledged
Collateral; and
(6) Execute (in the name, place and stead of the
Pledgor) endorsements, assignments and other
instruments of conveyance or transfer with
respect to all or any portion of the Pledged
Collateral.
In furtherance of the exercise by the Bank of the rights and
remedies granted to it hereunder, the Pledgor agrees that, upon request of the
Bank and at the expense of the Pledgor, it will use its best efforts to obtain
all third party and governmental approvals necessary for or incidental to the
exercise of remedies by the Bank with respect to the Pledged Collateral or any
part thereof.
8. Power of Attorney. Pledgor hereby irrevocably appoints Bank
and any officer or employee of Bank as Pledgor's true and lawful attorney in
fact, with full power of substitution, for Pledgor, and in Pledgor's name, place
and stead, upon the occurrence of any Event of Default, and in the event that
Bank elects to exercise any rights granted to it hereunder. As attorney in fact,
Bank may act for Pledgor with respect to the Pledged Collateral as if Bank were
the owner thereof, and may endorse and cash promissory notes, checks and other
instruments, institute legal proceedings, make, adjust, and settle claims, and
do all other acts necessary and incidental to the exercise of its rights
provided hereunder, or otherwise available to it upon the occurrence of an Event
of Default. Neither Bank nor its agents shall be liable for any acts or
omissions or for any error of judgment or mistake of fact or law in its capacity
as such attorney-in-fact.
9. Limitation on Duties Regarding Pledged Collateral. The
Bank's sole duty with respect to the custody, safekeeping and physical
preservation of the Pledged Collateral in its possession, under Section 9-207 of
the Code or otherwise, shall be to deal with it in the same manner as the Bank
deals with similar securities and property for its own account. Neither the Bank
nor any of its directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Pledged Collateral or for
any delay in doing so or shall be under any obligation to
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<PAGE> 44
see or otherwise dispose of any Pledged Collateral upon the request of the
Pledgor or otherwise.
10. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Pledged Collateral are irrevocable
and powers coupled with an interest.
11. Indemnification. The Pledgor agrees to indemnify and hold
harmless Bank (to the full extent permitted by law) from and against any and all
claims, demands, losses, judgments and liabilities for penalties and excise
taxes of whatever nature, and to reimburse Bank for all costs and expenses,
including reasonable legal fees and disbursements, growing out of or resulting
from the Pledged Collateral, this Collateral Assignment Agreement or the
administration and enforcement of this Collateral Assignment Agreement or
exercise of any right or remedy granted to Bank hereunder except with respect to
such claims, etc. arising solely from the gross negligence or willful misconduct
of Bank, but including without limitation, any tax liability incurred by Bank or
any of its affiliates as a result of the exercise by Bank of any of its rights
hereunder. In no event shall Bank be liable to the Pledgor for any matter or
thing in connection with this Collateral Assignment Agreement other than to
account for proceeds of the Pledged Collateral actually received by Bank.
12. Distribution of Pledged Collateral. Upon enforcement of
this Collateral Assignment Agreement following the occurrence of a default or
Event of Default under any of the Loan Agreements, the proceeds of the Pledged
Collateral shall be applied to the Obligations Secured Hereby in such order and
manner as Bank may determine in its sole discretion.
13. Governing Law. This Collateral Assignment Agreement shall
be governed by, and construed and enforced in accordance with the laws of the
State of Ohio.
14. No Waiver; Cumulative Remedies. Bank shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by
Bank, and then such waiver shall be valid only to the extent therein set forth.
A waiver by Bank of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which Bank would otherwise have on
any future occasion. No failure to exercise or any delay in exercising on the
part of Bank any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and not exclusive of any rights and remedies provided by
law.
15. Severability of Provisions. The provisions of this
Collateral Assignment Agreement are severable, and if any clause or provision
hereof shall be held invalid or unenforceable in whole or in part, then such
invalidity or unenforceability shall attach only to such clause or provision or
part thereof and shall not in any manner affect any other clause or provision in
this Collateral Assignment Agreement.
16. Amendments; Binding Effect.
(a) None of the terms or provisions of this
Collateral Assignment Agreement may be altered, modified or amended except by an
instrument in writing, duly executed
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<PAGE> 45
by each of the parties hereto.
(b) This Collateral Assignment Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
17. Notices. All notices, requests, directions, demands,
waivers and other communications provided for herein shall be in writing and
shall be deemed to have been given or made when delivered personally or sent by
registered or certified mail, postage prepaid and return receipt requested,
addressed to the Pledgor or the Bank, as the case may be, at their respective
addresses set forth in the Loan Agreement. Notices of changes of address shall
be given in the same manner.
18. Headings. The descriptive headings hereunder used are for
convenience only and shall not be deemed to limit or otherwise effect the
construction of any provision hereof.
19. Counterpart Execution. This Collateral Assignment
Agreement may be executed in several counterparts each of which shall constitute
an original, but all of which shall together constitute one and the same
agreement.
20. Jurisdiction and Venue. AS SPECIFICALLY BARGAINED
INDUCEMENT FOR BANK TO ACCEPT THIS COLLATERAL ASSIGNMENT AGREEMENT AND TO EXTEND
CREDIT TO THE PLEDGORS, THE PLEDGOR AGREES THAT ANY ACTION, SUIT OR PROCEEDING
IN RESPECT OF OR ARISING OUT OF THIS COLLATERAL ASSIGNMENT AGREEMENT, ITS
VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF BANK, ITS SUCCESSORS AND ASSIGNS,
SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR HEIRS, SUCCESSORS
AND ASSIGNS AT CINCINNATI, OHIO. BANK AND THE PLEDGOR EACH CONSENTS TO AND
SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED AT
CINCINNATI, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO THE PLEDGOR AND BANK AT THEIR
ADDRESSES AS SET FORTH HEREIN AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) BUSINESS DAYS AFTER SUCH PROCESS SHALL HAVE BEEN DEPOSITED IN
THE U.S. MAIL, POSTAGE PREPAID. THE PLEDGOR WAIVES TRIAL BY JURY, ANY OBJECTION
BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
21. Irrevocable Authorization and Instruction to Issuers. The
Pledgor hereby authorizes and instructs each issuer or maker of Pledged
Collateral to comply with any instruction received by it from Bank in writing
that (a) states that an Event of Default has occurred and (b) is otherwise in
accordance with the terms of this Collateral Assignment Agreement, without any
other or further instructions from the Pledgor, and the Pledgor agrees that the
issuer or maker shall be fully protected in so complying.
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<PAGE> 46
IN WITNESS WHEREOF, the parties have caused this Collateral
Assignment Agreement to be duly executed and delivered as of the day and year
first above written.
WITNESSES: PLEDGOR:
ZARING NATIONAL CORPORATION
_____________________ By:_________________________
Name:_______________________
_____________________ Title:______________________
BANK:
THE PROVIDENT BANK
_____________________ By:_________________________
Glenn R. McEachern
_____________________ Senior Vice President
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<PAGE> 47
ACKNOWLEDGEMENT
The undersigned, HOMEMAX, INC., hereby acknowledges receipt of
a copy of this Collateral Assignment Agreement and agrees to (i) note the
restrictions herein on its books, records, ledgers and certificates, (ii) not
make or permit any payments or distributions with respect to its obligations to
Pledgor except as permitted in this Collateral Assignment Agreement, and (iii)
not make or permit any sale, transfer or issuance of any of its obligations to
Pledgor except as permitted in this Collateral Assignment Agreement.
HOMEMAX, INC.
By:_________________________
Name:_______________________
Title:______________________
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<PAGE> 48
ACKNOWLEDGEMENT
The undersigned, AMERICAN HOMESTAR CORPORATION, hereby
acknowledges receipt of a copy of this Collateral Assignment Agreement and
agrees to (i) note the restrictions herein on its books, records, ledgers and
certificates, (ii) not make or permit any payments or distributions with respect
to its obligations to Pledgor except as permitted in this Collateral Assignment
Agreement, and (iii) not make or permit any sale, transfer or issuance of any of
its obligations to Pledgor except as permitted in this Collateral Assignment
Agreement.
AMERICAN HOMESTAR CORPORATION
By:__________________________
Name:________________________
Title:_______________________
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<PAGE> 49
ASSIGNMENT SEPARATE FROM NOTE
FOR VALUE RECEIVED, Zaring National Corporation, an Ohio
corporation (hereinafter the "Corporation"), hereby sells, assigns and transfers
to The Provident Bank, its successors and assigns (hereinafter referred to as
"Bank"), that certain 6% Senior Subordinated Promissory Note in the original
principal amount of $4,000,000 given by Homemax, Inc. to the Corporation and
dated March 15, 1999 (the "Note"). The Corporation hereby irrevocably
constitutes and appoints the Bank as attorney to transfer the said Note and to
endorse the name of the Corporation thereon, with full power of substitution in
the premises.
ZARING NATIONAL CORPORATION
WITNESSES:
_____________________ By:_________________________
Name:_______________________
_____________________ Title:______________________
STATE OF ___________________ )
) SS:
COUNTY OF __________________ )
The foregoing instrument was acknowledged before me this 31st
day of March, 1999, by _________________________, the ________________________
of Zaring National Corporation, an Ohio corporation, on behalf of the
corporation.
_____________________
Notary Public
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<PAGE> 50
ASSIGNMENT SEPARATE FROM NOTE
FOR VALUE RECEIVED, Zaring National Corporation, an Ohio
corporation (hereinafter the "Corporation"), hereby sells, assigns and transfers
to The Provident Bank, its successors and assigns (hereinafter referred to as
"Bank"), that certain Promissory Note in the original principal amount of
$4,411,177 given by American Homestar Corporation to the Corporation and dated
March 15, 1999 (the "Note"). The Corporation hereby irrevocably constitutes and
appoints the Bank as attorney to transfer the said Note and to endorse the name
of the Corporation thereon, with full power of substitution in the premises.
ZARING NATIONAL CORPORATION
WITNESSES:
_____________________ By:_________________________
Name:_______________________
_____________________ Title:______________________
STATE OF ___________________ )
) SS:
COUNTY OF __________________ )
The foregoing instrument was acknowledged before me this 31st
day of March, 1999, by _________________________, the ________________________
of Zaring National Corporation, an Ohio corporation, on behalf of the
corporation.
_____________________
Notary Public
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<PAGE> 51
EXHIBIT D
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Pledge Agreement") dated as of March
___, 1999, is made and entered into by and between ZARING NATIONAL CORPORATION
(the "Pledgor"), and THE PROVIDENT BANK ("Bank", which term shall include its
successors and assigns).
WHEREAS, in connection with loans and other financial
accommodations made by Bank to Pledgor, Bank requires that Pledgor execute and
deliver this Pledge Agreement to Bank; and
WHEREAS, to induce Bank to make loans and financial
accommodations to Pledgor, pursuant to the Loan Agreement (as defined below),
the Pledgor has agreed to grant to the Bank a security interest in the Pledged
Stock (as defined below);
NOW, THEREFORE, in consideration of the Bank's loans and other
financial accommodations to Pledgor and its affiliates, the parties hereby agree
as follows:
1. Defined Terms. As used in this Pledge Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and the plural forms of the term defined):
"Certificates" means any and all notes, warrants, options,
certificates or other documents or instruments now or hereafter received or
receivable by Pledgor and representing Pledgor's interest in the Pledged Stock.
"Loan Agreement" means that certain Loan and Security
Agreement dated March 31, 1999 between Pledgor and Bank, as the same may
hereafter be amended or modified from time to time.
"Loan Documents" means (i) the Loan Agreement and all
notes, guaranties, mortgages, security agreements, certificates, indemnification
agreements and other documents and agreements executed in connection with, or
evidencing or securing the obligations under the Loan Agreement and (ii) all
notes, guaranties, mortgages, security agreements, certificates, indemnification
agreements and other documents or instruments evidencing or securing any debts,
liabilities and obligations of any one or more of the Obligors to Bank.
"Obligors" means the collective reference to Pledgor and
Zaring Homes, Inc.
"Pledged Stock" means the warrants, options and shares of
capital stock described on the attached Exhibit A, together with all
substitutions therefor, proceeds thereof and therefrom and all interest, cash
dividends or other payments in respect thereof as well as all stock and other
securities or property which are issued pursuant to conversion, redemption,
<PAGE> 52
exercise of rights, stock split, recapitalization, reorganization, stock
dividends or other corporate act which are referable to the Pledged Stock (such
stock or other securities are hereinafter referred to as the "Additional Pledged
Securities") and all distributions, whether cash or otherwise, in the nature of
a partial or complete liquidation, dissolution or winding up which are referable
to the Pledged Stock (such distributions are hereinafter referred to as
"Liquidating Distributions").
All other capitalized terms used herein have the meanings
assigned to them in the Loan Agreement unless the context hereof otherwise
requires.
2. Pledge and Grant of Security Interests. Pledgor hereby
pledges, assigns, hypothecates and transfers to Bank all Pledged Stock, together
with appropriate undated assignments separate from the Certificates duly
executed in blank, and hereby grants to and creates in favor of Bank liens and
security interests in the Pledged Stock as collateral security for (i) the due
and punctual payment when due (whether at maturity, by acceleration or
otherwise) in full of all amounts due under the Term Promissory Note in the
aggregate amount of Fifteen Million Dollars ($15,000,000.00) executed and
delivered by Borrower to Bank pursuant to the Loan Agreement; (ii) the due and
punctual performance and observance by the Obligors of their respective
agreements, obligations, liabilities and duties under the Loan Documents,
including, without limitation the Loan Agreement and the Guaranty; (iii) the due
and punctual performance and observance by the Pledgor of all of its agreements,
obligations, liabilities and duties under this Collateral Assignment Agreement;
(iv) all debts, obligations or liabilities of every kind and description of any
one or more of the Obligors to Bank, now due or to become due, direct or
indirect, absolute or contingent, presently existing or hereafter arising, joint
or several, secured or unsecured, whether for payment or performance, regardless
of how the same arise or by what instrument, agreement or book account they may
be evidenced, or whether evidenced by any instrument, agreement or book account,
including, without limitation, all loans (including any loan by renewal or
extension), all overdrafts, all guarantees and all other evidences of
indebtedness, howsoever owned, held or acquired by the Bank; and (v) all costs
incurred by Bank to obtain, perfect, preserve and enforce the liens and security
interests granted by this Collateral Assignment Agreement, to collect the
Obligations Secured Hereby (as hereinafter defined) and to maintain and preserve
the Pledged Collateral, with such costs including but not limited to
expenditures made by Bank for reasonable attorneys' fees and other legal
expenses and expenses of collection, possession and sale of the Pledged
Collateral, together with interest on all such costs at the Default Rate (the
foregoing subsections (i), (ii), (iii), (iv), and (v) are collectively referred
to herein as the "Obligations Secured Hereby").
3. Delivery of Pledged Stock. Pledgor shall place the Pledged
Stock in pledge by delivering the Certificates to and depositing them with Bank
or its agent. Pledgor also delivered to Bank or its agent concurrently therewith
undated assignments separate from the Certificates duly executed in blank and
all other applicable and appropriate documents and assignments in form suitable
to enable Bank to effect the transfer of all or any portion of the Pledged Stock
to the extent hereinafter provided.
4.Delivery of Additional Pledged Securities and Liquidating
Distributions; Proceeds, Cash Dividends and Voting
(a) If the Pledgor shall hereafter become entitled to
receive or shall receive any interest, cash dividends, cash proceeds, any
Additional Pledged Securities, any
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<PAGE> 53
Liquidating Distributions, or any other cash or non-cash payments on account of
the Pledged Stock, the Pledgor agrees to accept the same as Bank's agent and to
hold the same in trust on behalf of and for the benefit of Bank and agrees to
promptly deliver the same or any Certificates therefor forthwith to Bank or its
agent in the exact form received, with the endorsement of the Pledgor, when
necessary, or appropriate undated assignments separate from the Certificates
duly executed in blank, to be held by Bank or its agent subject to the terms
hereof.
(b) Notwithstanding anything contained in this Pledge
Agreement to the contrary, Pledgor shall be entitled to exercise voting rights
with respect to the Pledged Stock, so long as there has not occurred any default
or Event of Default under the Loan Agreement, the Note or any of the other Loan
Documents.
5. Representations and Warranties of the Pledgor. To induce
Bank to enter into this Pledge Agreement and the Loan Agreement, Pledgor makes
the following representations and warranties to Bank:
(a) Pledgor owns that number of shares and percentage of
the issued and outstanding capital stock of Homemax, Inc. set forth on Exhibit
A.
(b) Pledgor is the legal, record and beneficial owner of
and has good and marketable title to all of the Pledged Stock.
(c) Pledgor holds the Pledged Stock free and clear of all
liens, charges, encumbrances, security interests, options, voting trusts and
restrictions of every kind and nature whatsoever except only (i) the liens and
security interests created by this Pledge Agreement, (ii) restrictions imposed
by applicable state and federal securities laws generally, and (iii) the
put/call rights under the Securities Purchase Agreement.
(d) Each security which is a part of the Pledged Stock has
been duly authorized and validly issued and is fully paid and nonassessable.
(e) This Pledge Agreement has been duly executed and
delivered by Pledgor and constitutes the legal, valid and binding obligation of
Pledgor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, reorganization, moratorium or other similar laws
affecting generally the enforcement of creditors' rights.
(f) No consent or approval of any governmental body,
regulatory authority, securities exchange or other Person is required to be
obtained by Pledgor in connection with the execution, delivery and performance
of this Pledge Agreement.
(g) The execution, delivery and performance of this Pledge
Agreement will not violate any provision of any applicable law or regulation or
of any writ or decree of any court or governmental instrumentality or of any
indenture, contract, agreement or other undertaking to which Pledgor is a party
or which purports to be binding upon Pledgor or upon any of its assets and will
not result in the creation or imposition of any lien, charge or encumbrance on
or security interest in any of the assets of Pledgor except as contemplated by
this Pledge Agreement.
(h) The pledge, assignment and delivery of the Pledged
Stock
- 53 -
<PAGE> 54
pursuant to this Pledge Agreement creates a valid first lien and first security
interest in the Pledged Stock, which lien and security interest are perfected
and senior to any pledge, lien, mortgage, hypothecation, security interest,
charge, option or encumbrance affecting or purporting to affect the Pledged
Stock and to any agreement purporting to grant to any third party a security
interest in the property or assets of Pledgor which would include the Pledged
Stock.
6. Pledgor's Covenants.
(a) Pledgor covenants and agrees that it will defend Bank's
lien and security interest in and to the Pledged Stock against the claims and
demands of all persons whomsoever.
(b) Pledgor covenants and agrees that without the prior
written consent of Bank, it will not sell, convey or otherwise dispose of any of
the Pledged Stock, or create, incur or permit to exist any pledge, lien,
mortgage, hypothecation, security interest, charge, option or any other
encumbrance or restriction with respect to any of the Pledged Stock, or any
interest therein, or any proceeds thereof, except for (i) the liens and security
interests created by this Pledge Agreement, (ii) restrictions imposed by
applicable state and federal securities laws generally, and (iii) the put/call
rights under the Securities Purchase Agreement.
(c) Pledgor covenants and agrees that it will not consent
to or permit the issuance of any additional shares of capital stock of any class
by any issuer of the Pledged Stock unless such shares are pledged and the
Certificates therefor delivered to Bank, simultaneously with the issuance
thereof, together with appropriate undated assignments separate from the
Certificates duly executed in blank.
(d) At any time and from time to time, upon the written
request of the Bank, and at the sole expense of the Pledgor, the Pledgor
covenants and agrees that it will promptly and duly execute and deliver such
further instruments and documents and take such further actions as Bank may
reasonably request for the purposes of obtaining or preserving the full benefits
of this Pledge Agreement and of the rights and powers herein granted. If any
amount payable under or in connection with any of the Pledged Stock shall be or
become evidenced by any promissory note, other instrument or chattel paper, such
note, instrument or chattel paper shall be immediately delivered to Bank, duly
endorsed in a manner satisfactory to Bank, to be held as Pledged Stock pursuant
to this Pledge Agreement.
(e) The Pledgor covenants and agrees to pay, and to save
the Bank harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Pledged
Stock or in connection with any of the transactions contemplated by this Pledge
Agreement.
7. Rights and Remedies upon Default. If any default or Event
of Default under the Loan Agreement, the Notes, this Pledge Agreement or any of
the other Loan Documents shall occur and be continuing, Bank may do any one or
more of the following: (i) declare the Obligations Secured Hereby to be
forthwith due and payable, whereupon such Obligations Secured Hereby shall
become immediately due and payable without presentment,
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<PAGE> 55
demand, protest or other notice of any kind; and/or (ii) proceed to protect and
enforce its rights under this Pledge Agreement, the Loan Agreement, and/or any
of the other Loan Documents, and Bank shall have, without limitation, all of the
rights and remedies provided by applicable law, including, without limitation,
the rights and remedies of a secured party under the Uniform Commercial Code
and, in addition thereto, Bank shall be entitled, at Bank's option, to exercise
all voting and corporate rights with respect to the Pledged Stock as it may
determine, without liability therefor, but Bank shall not have any duty to
exercise any voting and corporate rights in respect of the Pledged Stock and
shall not be responsible or liable to Pledgor or any other Person for any
failure to do so or delay in so doing.
Without limiting the generality of the foregoing, the Bank
shall have the right to sell the Pledged Stock, or any part thereof, at public
or private sale or at any broker's board or on any securities exchange for cash,
upon credit or for future delivery, and at such price or prices as the Bank may
deem best, and the Bank may be the purchaser of any or all of the Pledged Stock
so sold and thereafter the Bank or any other purchaser shall hold the same free
from any right or claim of whatsoever kind. The Bank is authorized, at any such
sale, if it deems it advisable so to do, to restrict the number of prospective
bidders or purchasers and/or further restrict such prospective bidders or
purchasers to persons who will represent and agree that they are purchasing for
their own account, for investment, and not with a view to the distribution or
resale of the Pledged Stock and may otherwise require that such sale be
conducted subject to restrictions as to such other matters as the Bank may deem
necessary in order that such sale may be effected in such manner as to comply
with all applicable state and federal securities laws. Upon any such sale the
Bank shall have the right to deliver, assign and transfer to the purchaser
thereof the Pledged Stock so sold.
Each purchaser at any such sale shall hold the
property sold, absolutely free from any claim or right of whatsoever kind,
including any equity or right of redemption of Pledgor, who hereby specifically
waives all rights of redemption, stay or appraisal which it has or may have
under any rule of law or statute now existing or hereafter adopted. In the event
any notice is required in connection with any such sale, Pledgor agrees that if
the Bank shall give Pledgor not less than ten (10) days' written notice of its
intention to make any such public or private sale at broker's board or on a
securities exchange, such notice shall be reasonable.
Any such public sale shall be held at such time or
times within the ordinary business hours and at such place or places as the Bank
may fix in the notice of such sale. At any sale the Pledged Stock may be sold in
one lot as an entirety or in parts, as the Bank may determine. The Bank shall
not be obligated to make any sale pursuant to any such notice. The Bank may,
without notice or publication, adjourn any sale, and such sale may be made at
any time or place to which the same may be so adjourned. In case of any sale of
all or any part of the Pledged Stock on credit or for future delivery, the
Pledged Stock so sold may be retained by the Bank until the selling price is
paid by the purchaser thereof, but the Bank shall not incur any liability in
case of the failure of such purchaser to take up and pay for the Pledged Stock
so sold and, in case of any such failure, such Pledged Stock may again be sold
upon like notice.
The Bank, instead of exercising the power of sale
herein conferred upon it, may proceed by a suit or suits at law or in equity to
foreclose this Agreement and sell the Pledged Stock, or any portion thereof,
under a judgment or decree of a court or courts of competent jurisdiction.
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<PAGE> 56
On any sale of the Pledged Stock, the Bank is hereby
authorized to comply with any limitation or restriction in connection with such
sale that it may be advised by counsel is necessary in order to avoid any
violation of applicable law or in order to obtain any required approval of the
purchaser or purchasers by any third party or any governmental regulatory
authority or officer or court. Compliance with the foregoing procedures shall
result in such sale or disposition being considered or deemed to have been made
in a commercially reasonable manner.
In furtherance of the exercise by the Bank of the rights
and remedies granted to it hereunder, Pledgor agrees that, upon request of the
Bank and at the expense of the Pledgor, it will use its best efforts to obtain
all third party and governmental approvals necessary for or incidental to the
exercise of remedies by the Bank with respect to the Pledged Stock or any part
thereof.
8. Registration Rights; Private Sales. (a) If Bank shall
determine to exercise its right to sell any or all of the Pledged Stock pursuant
to Section 7 hereof, and if in the opinion of Bank it is necessary or advisable
to have the Pledged Stock, or that portion thereof to be sold, registered under
the provisions of the Securities Act of 1933, as amended (the "Securities Act"),
the Pledgor will cause the applicable issuer or issuers of the Pledged
Securities to (i) execute and deliver, and cause the directors and officer of
such issuer or issuers to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts, as may be, in the
opinion of Bank, necessary or advisable to register the Pledged Stock, or that
portion thereof to be sold, under the provisions of the Securities Act, (ii) use
its best efforts to cause the registration statement relating thereto to become
effective and to remain effective for a period of one year from the date of the
first public offering of the Pledged Stock, or that portion thereof to be sold,
and (iii) make all amendments thereto and/or to the related prospectus which, in
the opinion of the Bank, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor agrees to
cause such issuer or issuers to comply with the provisions of the securities or
"Blue Sky" laws of any and all jurisdictions which Bank shall designate and to
make available to its security holders, as soon as practicable, an earnings
statement (which need not be audited) which will satisfy the provisions of
Section 11(a) of the Securities Act.
(b) Pledgor hereby acknowledges that, notwithstanding that
a higher price might be obtained for the Pledged Stock at a public sale than at
a private sale or sales, the making of a public sale of the Pledged Stock may be
subject to registration requirements and other legal restrictions compliance
with which could require such actions on the part of Pledgor, could entail such
expenses and could subject the Bank and any underwriter through whom the Pledged
Stock may be sold and any controlling Person of any thereof to such liabilities,
as would make the making of a public sale of the Pledged Stock impractical.
Accordingly, Pledgor hereby agrees that private sales made by the Bank in
accordance with the provisions of Section 7 hereof may be at prices and on other
terms less favorable to the seller than if the Pledged Stock were sold at public
sale, and that the Bank shall not have any obligation to take any steps in order
to permit the Pledged Stock to be sold at a public sale complying with the
requirements of federal and state securities and similar laws.
(c) The Pledgor further agrees to use its best efforts to
do or cause to
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<PAGE> 57
be done all such other acts as may be necessary to make any sale or sales of all
or any portion of the Pledged Stock pursuant to Section 7 and this Section 8
valid and binding and in compliance with any and all other applicable
requirements of law. The Pledgor further agrees that a breach of any of the
covenants contained in Section 7 and this Section 8 will cause irreparable
injury to the Bank, that the Bank has no adequate remedy at law in respect of
such breach and, as a consequence, that each and every covenant contained in
Section 7 and this Section 8 shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no default or event of default has occurred under the Loan
Agreement or any of the other Loan Documents.
9. Limitation on Duties Regarding Pledged Stock. The Bank's
sole duty with respect to the custody, safekeeping and physical preservation of
the Pledged Stock in its possession shall be to deal with it in the same manner
as the Bank deals with similar securities and property for its own account.
Neither the Bank nor any of its directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon any of the Pledged
Stock or for any delay in doing so or shall be under any obligation to see or
otherwise dispose of any Pledged Stock upon the request of the Pledgor or
otherwise.
10. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Pledged Stock are irrevocable and
powers coupled with an interest.
11. Indemnification. Pledgor agrees to indemnify and hold
harmless Bank (to the full extent permitted by law) from and against any and all
claims, demands, losses, judgments and liabilities for penalties and excise
taxes of whatever nature, and to reimburse Bank for all costs and expenses,
including reasonable legal fees and disbursements, growing out of or resulting
from the Pledged Stock, this Pledge Agreement or the administration and
enforcement of this Pledge Agreement or exercise of any right or remedy granted
to Bank hereunder except with respect to such claims, etc. arising solely from
the gross negligence or willful misconduct of Bank, but including without
limitation, any tax liability incurred by Bank or any of its affiliates as a
result of the exercise by Bank of any of its rights hereunder. In no event shall
Bank be liable to Pledgor for any matter or thing in connection with this Pledge
Agreement other than to account for proceeds of the Pledged Stock actually
received by Bank.
12. Distribution of Pledged Stock. Upon enforcement of this
Pledge Agreement following the occurrence of a default or event of default under
the Loan Agreement or any of the other Loan Documents, the proceeds of the
Pledged Stock shall be applied to the Obligations Secured Hereby in such order
and manner as Bank may determine in its sole discretion. In the event such
monies shall be insufficient to pay all of the Obligations Secured Hereby,
Pledgor shall be liable to Bank for any deficiency therein.
13. Further Assurances. The Pledgor agrees that at any time
and from time to time upon the request of Bank, the Pledgor will execute and
deliver such further documents and do such further acts and things as Bank
reasonably requests in order to effect the purposes of this Pledge Agreement.
14. No Waiver; Cumulative Remedies. Bank shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and
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<PAGE> 58
no waiver shall be valid unless in writing, signed by Bank, and then such waiver
shall be valid only to the extent therein set forth. A waiver by Bank of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Bank would otherwise have on any future occasion. No
failure to exercise or any delay in exercising on the part of Bank any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights and remedies provided by law.
15. Severability of Provisions. The provisions of this Pledge
Agreement are severable, and if any clause or provision hereof shall be held
invalid or unenforceable in whole or in part, then such invalidity or
unenforceability shall attach only to such clause or provision or part thereof
and shall not in any manner affect any other clause or provision in this Pledge
Agreement.
16. Amendments; Choice of Law; Binding Effect.
(a) None of the terms or provisions of this Pledge
Agreement may be altered, modified or amended except by an instrument in
writing, duly executed by each of the parties hereto.
(b) This Pledge Agreement shall be governed by and be
construed and interpreted in accordance with the law of the State of Ohio.
(c) This Pledge Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
17. Notices. All notices, requests, directions, demands,
waivers and other communications provided for herein shall be in writing and
shall be deemed to have been given or made when delivered personally or sent by
registered or certified mail, postage prepaid and return receipt requested,
addressed to the Pledgor or the Bank, as the case may be, at their respective
addresses set forth at the beginning of this Agreement.
Notices of changes of address shall be given in the same manner.
18. Headings. The descriptive headings hereunder used are for
convenience only and shall not be deemed to limit or otherwise effect the
construction of any provision hereof.
19. Counterpart Execution. This Pledge Agreement may be
executed in several counterparts each of which shall constitute an original, but
all of which shall together constitute one and the same agreement.
20. Jurisdiction, Venue and Waiver of Jury Trial. AS
SPECIFICALLY BARGAINED INDUCEMENT FOR BANK TO ACCEPT THIS PLEDGE AGREEMENT AND
TO EXTEND CREDIT TO THE PLEDGOR, THE PLEDGOR AGREES THAT ANY ACTION, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS PLEDGE AGREEMENT, ITS VALIDITY
OR PERFORMANCE, AT THE SOLE OPTION OF BANK, ITS SUCCESSORS AND ASSIGNS, SHALL BE
INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR
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<PAGE> 59
HEIRS, SUCCESSORS AND ASSIGNS AT CINCINNATI, OHIO. BANK AND THE PLEDGOR EACH
CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER HIS PERSON BY ANY
COURT SITUATED AT CINCINNATI, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER,
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON HIM AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO THE PLEDGOR
AND BANK AT THEIR ADDRESSES AS SET FORTH HEREIN AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED FIVE (5) BUSINESS DAYS AFTER SUCH PROCESS SHALL HAVE BEEN
DEPOSITED IN THE U.S. MAIL, POSTAGE PREPAID. THE PLEDGOR WAIVES TRIAL BY JURY,
ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
21. Irrevocable Authorization and Instruction to Issuers. The
Pledgor hereby authorizes and instructs each issuer of Pledged Stock to comply
with any instruction received by it from Bank in writing that (a) states that
any default or Event of Default has occurred under the Loan Agreement, the Notes
or any of the other Loan Documents and (b) is otherwise in accordance with the
terms of this Pledge Agreement, without any other or further instructions from
the Pledgor, and the Pledgor agrees that the issuer shall be fully protected in
so complying.
IN WITNESS WHEREOF, the parties have caused this Pledge
Agreement to be duly executed and delivered as of the day and year first above
written.
PLEDGOR:
ZARING NATIONAL CORPORATION
By:_________________________
Name:_______________________
Title:______________________
BANK:
THE PROVIDENT BANK
By:_________________________
Name: Glenn R. McEachern
Title: Senior Vice President
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<PAGE> 60
ACKNOWLEDGEMENT
The undersigned hereby acknowledges receipt of a copy of this
Pledge Agreement and agrees to (i) note the restrictions herein on its books,
records, ledgers and certificates maintained with respect to its capital stock,
(ii) not make or permit any dividends or distributions with respect to its
capital stock except as permitted in this Pledge Agreement, and (iii) not make
or permit any sale, transfer or issuance of any of its capital stock or of any
rights to acquire its capital stock except as permitted in this Pledge
Agreement.
HOMEMAX, INC.
By:_________________________
Name:_______________________
Title:______________________
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<PAGE> 61
EXHIBIT A TO PROVIDENT BANK PLEDGE AGREEMENT
<TABLE>
<CAPTION>
NAME CLASS NUMBER
OF ISSUER OF STOCK OF SHARES PERCENTAGE
- --------- -------- --------- ----------
<S> <C> <C> <C>
Homemax, Inc. Class A Voting Common 67,500 75% (reducing to 50% upon
conversion of American
Homestar Corporation Note)
</TABLE>
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<PAGE> 62
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _________________________ does hereby
sell, assign and transfer unto _______________________, ____________________
(______) Shares of the Common Capital Stock of Homemax, Inc. standing in its
name on the books of such corporation represented by Certificate No. ______ and
does hereby irrevocably constitute and appoint ___________________________
attorney to transfer such stock on the books of the within named Corporation
with full power of substitution in the premises.
Further under penalties of perjury, the undersigned certifies:
1. That the number shown on this form is the
undersigned's correct taxpayer
identification number.
2. That the undersigned is not subject to
backup withholding either because the
undersigned has not been notified that the
undersigned is subject to backup withholding
as a result of a failure to report all
interest or dividends, or the Internal
Revenue Service has notified the undersigned
that the undersigned is no longer subject to
backup withholding.
Taxpayer Identification # _________________________________
Dated:______________________________________________________
ZARING NATIONAL CORPORATION
In presence of:
By:_________________________
Name:_______________________
Title:______________________
____________________________
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<PAGE> 63
EXHIBIT E
COMPLIANCE CERTIFICATE
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Attn: Glenn R. McEachern
Re: Loan and Security Agreement Dated March 31, 1999 (As
Amended and Currently in Effect, the "Loan
Agreement") between The Provident Bank, as lender,
and Zaring National Corporation, as Borrower
-----------------------------------------------------
Gentlemen:
Borrower hereby certifies and warrants that the attached
financial statements of [DESCRIBE ALL FINANCIAL STATEMENTS ATTACHED AS REQUIRED
BY THE LOAN AGREEMENT] as at and for the period ending __________, 19__ (the
"Computation Date") are accurate and complete and fairly present the matters
stated therein and have been prepared in accordance with GAAP on a basis
consistent with such financial statements prepared for prior periods. Borrower
further certifies and warrants as follows:
(a) No Event of Default has occurred.
(b) Borrower has observed and performed all of its
covenants and other agreements and satisfied every
condition contained in the Loan Agreement and each of
the other Loan Documents to be observed, performed or
satisfied by it.
(c) Attached hereto are calculations which show that the
ratio of Consolidated Cash Flow From Operations to
Consolidated Fixed Charges as of the Computation Date
is _____ to 1.0, which [complies] [does not comply]
with the requirement of Section 5.13 of the Loan
Agreement that such ratio not be less than ____ to
1.0;
(d) Attached hereto are calculations which show that the
Consolidated Tangible Net Worth as of the Computation
Date is $_____________, which [complies] [does not
comply] with the requirement of Section 5.15 of the
Loan Agreement that such amount not be less than
$40,000,000 plus an amount not less than zero equal
to the aggregate cumulative net earnings of Borrower
and its Subsidiaries after December 31, 1998, which
net earnings are $________________ as of the
Computation Date;
(e) Attached hereto are calculations which show that the
ratio of Consolidated Total Liabilities to
Consolidated Tangible Net Worth as of the Computation
Date is _____ to 1.0, which [complies] [does not
comply] with the requirement of Section 6.6 of the
Loan
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<PAGE> 64
Agreement that such ratio not exceed 2.75 to 1.0; and
(f) Attached hereto are calculations which show that the
Net Book Value as of the Computation Date is
$____________, which [complies] [does not comply]
with the requirement of Section 6.7 of the Loan
Agreement that such amount not be less than
$14,000,000.
All of the computations made herein were made pursuant to and in accordance with
the Loan Agreement. All capitalized terms used in this Compliance Certificate
that are not otherwise specifically defined shall have the meanings ascribed
thereto in the Loan Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Compliance Certificate
to be executed and delivered by its duly authorized officer this _____ day of
__________, 19__.
ZARING NATIONAL CORPORATION
By:_________________________
Name:_______________________
Title:______________________
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<PAGE> 65
EXHIBIT F
DRAFT OF BORROWER'S COUNSEL'S OPINION LETTER
March __, 1999
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Attn: Glenn R. McEachern
Re: Loan and Security Agreement Dated March 31, 1999 (As
Amended and Currently in Effect, the "Loan
Agreement") between The Provident Bank, as lender,
and Zaring National Corporation, as borrower
-----------------------------------------------------
Gentlemen:
We have acted as counsel for Zaring National Corporation, an Ohio
corporation ("Borrower"), in connection with the $15,000,000 principal amount
credit facility in favor of Borrower from the Provident Bank ("Bank") pursuant
to the terms of a Loan and Security Agreement of even date herewith between
Borrower and the Bank (the "Loan Agreement"). We have also acted as counsel for
Zaring Homes, Inc. ("Guarantor") in connection with the Guaranty (as defined in
the Loan Agreement), and we have participated on behalf of Borrower and
Guarantor in connection with the negotiation, execution and delivery of the Loan
Agreement and all other Loan Documents ( as defined in the Loan Agreement). This
Opinion Letter is provided to you at the request of the Borrower pursuant to
Section 7.1 of the Loan Agreement. Except as otherwise indicated, capitalized
terms used herein are defined as set forth in the Loan Agreement.
In so acting, we have considered such matters of law and of fact, and
relied upon such certifications and other information furnished to us, as we
have deemed appropriate as a basis for our opinions set forth below.
The law covered by the opinions expressed herein is limited to the
federal law of the United States and the laws of the State of Ohio.
Based on the foregoing, we are of the opinion that:
1. Borrower is a corporation duly incorporated and validly existing in
good standing under the laws of Ohio and is qualified to do business under the
laws of all other states and jurisdictions where such qualification is required
by such states and jurisdictions.
<PAGE> 66
2. Guarantor is a corporation duly incorporated and validly existing in
good standing under the laws of Ohio and is qualified to do business under the
laws of all other states and jurisdictions where such qualification is required
by such states and jurisdictions.
3. Each of the Collateral Parties has full power and authority to carry
on its business as presently conducted by it, to own and operate the properties
used in such business and to enter into and perform its obligations under the
Loan Documents to which it is a party.
4. The Loan Documents have been duly authorized, executed and delivered
on behalf of each of the Collateral Parties that is a party thereto. The Loan
Documents are legal, valid and binding instruments enforceable in accordance
with their respective terms against each of the Collateral Parties that is a
party thereto, except that (i) such enforceability may be subject to and limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
now or hereafter in effect relating to creditors' rights generally; (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; and (iii) the Loan
Documents are subject to limitations on future rights in the collateral
resulting from the application of 11 U.S.C. Section 364 and 11 U.S.C. Section
552 in insolvency proceedings; provided, however, that notwithstanding the
preceding exceptions, the remedies available pursuant to the Loan Documents are
adequate for the practical realization by Bank of the rights afforded thereby.
5. The execution and delivery of the Loan Documents by each of the
Collateral Parties that is a party thereto and the performance by each of the
Collateral Parties of its respective obligations thereunder will not violate any
provision of its Articles of Incorporation/Certificate of Incorporation,
By-Laws/Regulations or any resolution of its Board of Directors.
6. No governmental or third party approvals, authorizations, licenses
or consents are required to be obtained in connection with the execution and
delivery by any of the Collateral Parties of the Loan Documents, the performance
by each Collateral Party of its obligations in accordance therewith, or the
exercise by Bank of its rights thereunder.
7. The security interests granted to Bank pursuant to the Loan
Documents are valid and have been duly and properly created, attached and
perfected.
8. To the best of our knowledge and belief after due inquiry, the
execution and delivery by the Collateral Parties of the Loan Documents to which
they are a party, and the performance of their respective obligations
thereunder, will not violate or result in the breach of any term or provision
of, constitute a default under, or permit the acceleration of maturity under,
any loan agreement, note, debenture, indenture, mortgage, deed of trust or other
agreement or instrument to which any Collateral Party is a party or by which any
Collateral Party or its assets are bound.
9. To the best of our knowledge and belief after due inquiry, there is
no threatened or pending legal proceeding or governmental proceeding or action
to which any Collateral Party is a party or to which any of its property is
subject, except as set forth on Schedule 1 hereto (which Schedule describes
generally the nature of each such proceeding or action and the amount involved).
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<PAGE> 67
10. No taxes or governmental fees or charges are required to be paid in
connection with the execution or delivery, or any recording or filing, of the
Loan Documents, or the performance of the transactions contemplated thereunder,
other than fees which are nominal in amount charged for the filing of UCC
financing statements.
This Opinion Letter may be relied upon by you in connection with the
Loan Agreement and the other Loan Documents and may not be used or relied upon
by you or any other person for any purpose whatsoever, without, in each
instance, our prior written consent, except that this opinion may be delivered
to and relied upon by any banking institution that acquires an interest in the
Loans.
Very truly yours,
[Borrower's Counsel's Name]
By:_________________________
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<PAGE> 68
TERM PROMISSORY NOTE
Cincinnati, Ohio
$15,000,000.00 March 31, 1999
The undersigned, for value received, hereby promises to pay to the
order of THE PROVIDENT BANK, its successors or assigns (the "Bank"), the sum of
FIFTEEN MILLION DOLLARS ($15,000,000.00), which amount was loaned to the
undersigned pursuant to the provisions of the Loan and Security Agreement
between the undersigned and the Bank dated March 31, 1999 (as the same may
hereafter be amended and modified from time to time, the "Loan Agreement"),
together with interest thereon at the Prime TL Rate (as hereinafter defined) per
annum until maturity. Upon the occurrence of any Event of Default (as defined in
the Loan Agreement) and for so long thereafter as such Event of Default
continues, this Note shall bear interest at a rate 4% per annum greater than the
Prime TL Rate (the "Default Rate"). Interest on this Note will be calculated on
the basis of the actual number of days elapsed over an assumed year consisting
of 360 days.
For purposes of this Note, the following capitalized terms, when used
herein, shall have the indicated meanings:
Prime TL Rate shall mean, as of any date, the Prime Rate (as
in effect from time to time), plus one percent (1%). The Prime TL Rate
shall change each time and as of the date of change of the Prime Rate.
Prime Rate shall mean that annual percentage rate of interest
which is established by Bank from time to time as its prime rate,
whether or not such rate is publicly announced, which provides a base
to which loan rates may be referenced. The Prime Rate is not
necessarily the lowest lending rate of Bank.
Capitalized terms used in this Note and not otherwise defined shall
have the meanings ascribed thereto in the Loan Agreement.
Interest on this Note shall be due and payable monthly in arrears
commencing on May 1, 1999 and on or before the first day of each calendar month
thereafter, and on the date this Note is due (whether by maturity, acceleration
or otherwise).
The entire outstanding principal and all remaining accrued interest on
this Note and all other charges payable pursuant to the Loan Agreement shall be
due and payable in full on or before the earlier of (as the case may be, the
"Maturity Date") (a) the thirty nine (39) month anniversary of the Closing Date
or (b) ninety (90) days following the exercise of the Put or the Call pursuant
to the Securityholders Agreement, or the earlier date upon which the proceeds of
the Put or Call transaction are received by Borrower.
Except as set forth in the proviso to this sentence, the principal
amount of this Note may be prepaid in whole or in part, at any time and from
time to time, provided, however, that there shall be a three percent (3%)
prepayment fee for any prepayment in whole or in part from funds generated
outside of the terms of the Securities Purchase Agreement.
<PAGE> 69
In addition to the payments required by the next two sentences of this
paragraph, the undersigned shall make three mandatory annual payments of the
principal amount of this Note, each of which payments shall be in the amount of
$1,470,392 and shall be due and payable on or before each of March 15, 2000,
March 15, 2001 and March 15, 2002. In addition to the payments required by the
immediately preceding sentence or by the last sentence of this paragraph, in the
event there is Positive Cash Flow for any two consecutive full calendar
quarters, within 45 days after the end of the second of such two calendar
quarters the undersigned shall make a principal payment to Bank in an amount
equal to the aggregate Positive Cash Flow for such two calendar quarters, and
thereafter the undersigned shall make principal payments to Bank within 45 days
after the end of each calendar quarter in an amount equal to the cumulative
Positive Cash Flow (if any) for the most recently ended calendar quarter (the
"Positive Cash Flow Payments") until the aggregate amount of Positive Cash Flow
Payments made by the undersigned to Bank equals or exceeds Four Million Dollars
($4,000,000.00); provided, however, that if the HomeMax Cash Flow for any
quarter after the first two consecutive quarters of Positive Cash Flow is less
than zero (the "Negative Quarter"), no Positive Cash Flow Payments shall be
required until the end of the next succeeding quarter during which the
cumulative HomeMax Cash Flow since the beginning of the Negative Quarter is
greater than zero. In addition to the payments required by the first two
sentences of this paragraph, the undersigned shall make further payments to Bank
of the proceeds realized from the exercise of the Put or the Call pursuant to
the Securityholders Agreement to the extent necessary to result in the payment
in full of the principal and all remaining accrued interest on this Note and all
other charges payable pursuant to the Loan Agreement.
If any payment of principal or interest is not paid on the date due, or
if the undersigned shall otherwise be in default in the performance of any
obligations hereunder, under the Loan Agreement or under any of the other Loan
Documents, the Bank, at its option, may charge and collect, or add to the unpaid
principal balance hereof, a late charge of up to $250.00 for each such
delinquency to cover the extra expense incident to handling delinquent accounts,
and/or increase the interest rate on the unpaid principal and interest hereof to
the Default Rate.
If any payment of principal or interest is not paid on the date due, or
if any other Event of Default as described in the Loan Agreement shall occur,
this Note shall, at the option of the Bank, become immediately due and payable,
without demand or notice, and the Bank may exercise all rights and remedies
provided herein, in the Loan Agreement or in the other Loan Documents or
otherwise available at law or in equity; provided, however, that upon the
occurrence of an Event of Default as described in Section 9.1(j) of the Loan
Agreement, this Note shall, without demand or notice, become automatically and
immediately due and payable in full.
This Note is secured by all of the Borrower Collateral. The undersigned
also hereby authorizes Bank, at Bank's option to charge any account or charge or
increase any Loan balance of the undersigned at Bank for the payment or
repayment of any interest or principal of the Loan, or any fees, charges or
other amounts due to Bank hereunder or under the other Loan Documents, as and
when the same become due and payable hereunder, or under the other Loan
Documents.
The undersigned hereby agrees that all of its obligations hereunder
(including, without limitation, its obligations to pay principal and interest
hereunder, collectively hereinafter referred to as the "Note Obligations") shall
be unconditional, irrespective of (i) the validity or enforceability against the
undersigned or any Collateral Party of the Note Obligations or of this
<PAGE> 70
Note or any other promissory note or other Loan Document evidencing or securing
all or any part of the Note Obligations, (ii) the absence of any attempt to
collect the Note Obligations from the undersigned or any Collateral Party or
other action to enforce the same, (iii) the waiver or consent by Bank with
respect to any provision of this Note or any other Loan Document evidencing the
Note Obligations, or any part thereof, or any other agreement now or hereafter
executed by the undersigned or any Collateral Party and delivered to Bank, (iv)
failure by Bank to take any steps to perfect and maintain its security interest
in, or to preserve its rights to, any security or Collateral for the Note
Obligations, (v) Bank's election, in any proceeding instituted under the
Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy
Code, (vi) any borrowing or grant of a security interest by the undersigned or
any Collateral Party as
<PAGE> 71
debtor-in-possession, under Section 364 of the Bankruptcy Code, (vii) the
disallowance of all or any portion of Bank's claim(s) for repayment of the Note
Obligations under Section 502 of the Bankruptcy Code, or (viii) any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense.
The undersigned hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of receivership or
bankruptcy of the other undersigned, protest or notice with respect to the Note
Obligations and all demands whatsoever, and covenants that the undersigned will
not be discharged, except by complete performance and payment of the Note
Obligations. Upon any Event of Default, Bank may, at its sole election, proceed
directly and at once, without notice, against the undersigned to collect and
recover the full amount or any portion of the Note Obligations, without first
proceeding against any security or Collateral for the Note Obligations. Bank
shall have the exclusive right to determine the application of payments and
credits, if any, from the undersigned, or from any other Person on account of
the Note Obligations or of any other liability of the undersigned to Bank.
At any time after maturity of the Note Obligations, Bank may, in its
sole discretion, without notice to the undersigned and regardless of the
acceptance of any security or collateral for the payment hereof, appropriate and
apply toward the payment of the Note Obligations (i) any indebtedness due or to
become due from Bank to the undersigned, and (ii) any moneys, credits, deposits,
account balances or other property belonging to the undersigned, now existing or
at any time held by or coming into the possession of Bank or any affiliate of
Bank.
No delay on the part of Bank in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Bank of
any right or remedy shall preclude any further exercise thereof, nor shall any
modification or waiver of any of the provisions hereof be binding upon Bank,
except as expressly set forth in a writing duly signed and delivered on Bank's
behalf by an authorized officer or agent of Bank. Bank's failure at any time or
times hereafter to require strict performance by the undersigned of any of the
provisions, warranties, terms and conditions contained in this Note or any other
Loan Document shall not waive, affect or diminish any right of Bank at any time
or times hereafter to demand strict performance thereof and such right shall not
be deemed to have been waived by any act or knowledge of Bank, its agents,
officers or employees, unless such waiver is contained in an instrument in
writing signed by an officer or agent of Bank and directed to the undersigned
specifying such waiver. No waiver by Bank of any Event of Default shall operate
as a waiver of any other Event of Default or the same Event of Default on a
future occasion, and no action by Bank permitted hereunder shall in any way
affect or impair Bank's rights or the obligations of the undersigned hereunder.
Any determination by a court of competent jurisdiction of the amount of any
principal and/or interest owing by the undersigned to Bank on the Note
Obligations shall be conclusive and binding on the undersigned irrespective of
whether the undersigned was not a party to the suit or action in which such
determination was made. The undersigned agrees, consents to and confirms that
any extension of any statute of limitations resulting from any payment of the
obligations by the undersigned, any guarantor or any other Person and affecting
enforcement or collection of the obligations of the undersigned, or of the
liabilities of the undersigned hereunder shall to the same degree also extend
any statute of limitations affecting enforcement and collection of the Note
Obligations hereunder.
The undersigned hereby represents that the purpose of the loan
evidenced by this Note is to refinance outstanding indebtedness, and that no
portion of the proceeds of this Note will constitute "purpose credit" as such
term is defined in Regulation U, 12 CFR 221.1 et. seq.
<PAGE> 72
The provisions of this Note shall be governed by and interpreted in
accordance with the laws of the State of Ohio.
AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE BANK TO EXTEND CREDIT TO
THE UNDERSIGNED, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL, THE
UNDERSIGNED AND ALL INDORSERS HEREBY EXPRESSLY WAIVE THE RIGHT TO TRIAL BY JURY
IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY FROM ANY
INDEBTEDNESS OR OTHER TRANSACTIONS INVOLVING THE BANK AND THE UNDERSIGNED.
The undersigned hereby designates all courts of record sitting in
Cincinnati, Ohio and having jurisdiction over the subject matter, state and
federal, as the exclusive forums where any action, suit or proceeding in respect
of or arising from or out of this Note, its making, validity or performance,
shall be prosecuted as to all parties, their successors and assigns, and by the
foregoing designation the undersigned consents to the jurisdiction and venue of
such courts.
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer,
has executed this Note in the City of Cincinnati, County of Hamilton, State of
Ohio, as of the date and year first above written.
ZARING NATIONAL CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
<PAGE> 1
Exhibit 10.21
TERM PROMISSORY NOTE
Cincinnati, Ohio
$15,000,000.00 March 31, 1999
The undersigned, for value received, hereby promises to pay to the
order of THE PROVIDENT BANK, its successors or assigns (the "Bank"), the sum of
FIFTEEN MILLION DOLLARS ($15,000,000.00), which amount was loaned to the
undersigned pursuant to the provisions of the Loan and Security Agreement
between the undersigned and the Bank dated March 31, 1999 (as the same may
hereafter be amended and modified from time to time, the "Loan Agreement"),
together with interest thereon at the Prime TL Rate (as hereinafter defined) per
annum until maturity. Upon the occurrence of any Event of Default (as defined in
the Loan Agreement) and for so long thereafter as such Event of Default
continues, this Note shall bear interest at a rate 4% per annum greater than the
Prime TL Rate (the "Default Rate"). Interest on this Note will be calculated on
the basis of the actual number of days elapsed over an assumed year consisting
of 360 days.
For purposes of this Note, the following capitalized terms, when used
herein, shall have the indicated meanings:
Prime TL Rate shall mean, as of any date, the Prime Rate (as
in effect from time to time), plus one percent (1%). The Prime TL Rate
shall change each time and as of the date of change of the Prime Rate.
Prime Rate shall mean that annual percentage rate of interest
which is established by Bank from time to time as its prime rate,
whether or not such rate is publicly announced, which provides a base
to which loan rates may be referenced. The Prime Rate is not
necessarily the lowest lending rate of Bank.
Capitalized terms used in this Note and not otherwise defined shall
have the meanings ascribed thereto in the Loan Agreement.
Interest on this Note shall be due and payable monthly in arrears
commencing on May 1, 1999 and on or before the first day of each calendar month
thereafter, and on the date this Note is due (whether by maturity, acceleration
or otherwise).
The entire outstanding principal and all remaining accrued interest on
this Note and all other charges payable pursuant to the Loan Agreement shall be
due and payable in full on or before the earlier of (as the case may be, the
"Maturity Date") (a) the thirty nine (39) month anniversary of the Closing Date
or (b) ninety (90) days following the exercise of the Put or the Call pursuant
to the Securityholders Agreement, or the earlier date upon which the proceeds of
the Put or Call transaction are received by Borrower.
Except as set forth in the proviso to this sentence, the principal
amount of this Note may be prepaid in whole or in part, at any time and from
time to time, provided, however, that there shall be a three percent (3%)
prepayment fee for any prepayment in whole or in part from funds generated
outside of the terms of the Securities Purchase Agreement.
In addition to the payments required by the next two sentences of this
paragraph, the undersigned shall make three mandatory annual payments of the
principal amount of this Note, each of which
<PAGE> 2
payments shall be in the amount of $1,470,392 and shall be due and payable on or
before each of March 15, 2000, March 15, 2001 and March 15, 2002. In addition to
the payments required by the immediately preceding sentence or by the last
sentence of this paragraph, in the event there is Positive Cash Flow for any two
consecutive full calendar quarters, within 45 days after the end of the second
of such two calendar quarters the undersigned shall make a principal payment to
Bank in an amount equal to the aggregate Positive Cash Flow for such two
calendar quarters, and thereafter the undersigned shall make principal payments
to Bank within 45 days after the end of each calendar quarter in an amount equal
to the cumulative Positive Cash Flow (if any) for the most recently ended
calendar quarter (the "Positive Cash Flow Payments") until the aggregate amount
of Positive Cash Flow Payments made by the undersigned to Bank equals or exceeds
Four Million Dollars ($4,000,000.00); provided, however, that if the HomeMax
Cash Flow for any quarter after the first two consecutive quarters of Positive
Cash Flow is less than zero (the "Negative Quarter"), no Positive Cash Flow
Payments shall be required until the end of the next succeeding quarter during
which the cumulative HomeMax Cash Flow since the beginning of the Negative
Quarter is greater than zero. In addition to the payments required by the first
two sentences of this paragraph, the undersigned shall make further payments to
Bank of the proceeds realized from the exercise of the Put or the Call pursuant
to the Securityholders Agreement to the extent necessary to result in the
payment in full of the principal and all remaining accrued interest on this Note
and all other charges payable pursuant to the Loan Agreement.
If any payment of principal or interest is not paid on the date due, or
if the undersigned shall otherwise be in default in the performance of any
obligations hereunder, under the Loan Agreement or under any of the other Loan
Documents, the Bank, at its option, may charge and collect, or add to the unpaid
principal balance hereof, a late charge of up to $250.00 for each such
delinquency to cover the extra expense incident to handling delinquent accounts,
and/or increase the interest rate on the unpaid principal and interest hereof to
the Default Rate.
If any payment of principal or interest is not paid on the date due, or
if any other Event of Default as described in the Loan Agreement shall occur,
this Note shall, at the option of the Bank, become immediately due and payable,
without demand or notice, and the Bank may exercise all rights and remedies
provided herein, in the Loan Agreement or in the other Loan Documents or
otherwise available at law or in equity; provided, however, that upon the
occurrence of an Event of Default as described in Section 9.1(j) of the Loan
Agreement, this Note shall, without demand or notice, become automatically and
immediately due and payable in full.
This Note is secured by all of the Borrower Collateral. The undersigned
also hereby authorizes Bank, at Bank's option to charge any account or charge or
increase any Loan balance of the undersigned at Bank for the payment or
repayment of any interest or principal of the Loan, or any fees, charges or
other amounts due to Bank hereunder or under the other Loan Documents, as and
when the same become due and payable hereunder, or under the other Loan
Documents.
The undersigned hereby agrees that all of its obligations hereunder
(including, without limitation, its obligations to pay principal and interest
hereunder, collectively hereinafter referred to as the "Note Obligations") shall
be unconditional, irrespective of (i) the validity or enforceability against the
undersigned or any Collateral Party of the Note Obligations or of this Note or
any other promissory note or other Loan Document evidencing or securing all or
any part of the Note Obligations, (ii) the absence of any attempt to collect the
Note Obligations from the undersigned or any Collateral Party or other action to
enforce the same, (iii) the waiver or consent by Bank with respect to any
provision of this Note or any other Loan Document evidencing the Note
Obligations, or any part thereof, or any other agreement now or hereafter
executed by the undersigned or any Collateral Party and delivered to Bank, (iv)
failure by Bank to take any steps to perfect and maintain its security interest
in, or to preserve its rights to, any security or Collateral for the Note
Obligations, (v) Bank's election, in any proceeding
<PAGE> 3
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
the undersigned or any Collateral Party as
<PAGE> 4
debtor-in-possession, under Section 364 of the Bankruptcy Code, (vii) the
disallowance of all or any portion of Bank's claim(s) for repayment of the Note
Obligations under Section 502 of the Bankruptcy Code, or (viii) any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense.
The undersigned hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of receivership or
bankruptcy of the other undersigned, protest or notice with respect to the Note
Obligations and all demands whatsoever, and covenants that the undersigned will
not be discharged, except by complete performance and payment of the Note
Obligations. Upon any Event of Default, Bank may, at its sole election, proceed
directly and at once, without notice, against the undersigned to collect and
recover the full amount or any portion of the Note Obligations, without first
proceeding against any security or Collateral for the Note Obligations. Bank
shall have the exclusive right to determine the application of payments and
credits, if any, from the undersigned, or from any other Person on account of
the Note Obligations or of any other liability of the undersigned to Bank.
At any time after maturity of the Note Obligations, Bank may, in its
sole discretion, without notice to the undersigned and regardless of the
acceptance of any security or collateral for the payment hereof, appropriate and
apply toward the payment of the Note Obligations (i) any indebtedness due or to
become due from Bank to the undersigned, and (ii) any moneys, credits, deposits,
account balances or other property belonging to the undersigned, now existing or
at any time held by or coming into the possession of Bank or any affiliate of
Bank.
No delay on the part of Bank in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by Bank of
any right or remedy shall preclude any further exercise thereof, nor shall any
modification or waiver of any of the provisions hereof be binding upon Bank,
except as expressly set forth in a writing duly signed and delivered on Bank's
behalf by an authorized officer or agent of Bank. Bank's failure at any time or
times hereafter to require strict performance by the undersigned of any of the
provisions, warranties, terms and conditions contained in this Note or any other
Loan Document shall not waive, affect or diminish any right of Bank at any time
or times hereafter to demand strict performance thereof and such right shall not
be deemed to have been waived by any act or knowledge of Bank, its agents,
officers or employees, unless such waiver is contained in an instrument in
writing signed by an officer or agent of Bank and directed to the undersigned
specifying such waiver. No waiver by Bank of any Event of Default shall operate
as a waiver of any other Event of Default or the same Event of Default on a
future occasion, and no action by Bank permitted hereunder shall in any way
affect or impair Bank's rights or the obligations of the undersigned hereunder.
Any determination by a court of competent jurisdiction of the amount of any
principal and/or interest owing by the undersigned to Bank on the Note
Obligations shall be conclusive and binding on the undersigned irrespective of
whether the undersigned was not a party to the suit or action in which such
determination was made. The undersigned agrees, consents to and confirms that
any extension of any statute of limitations resulting from any payment of the
obligations by the undersigned, any guarantor or any other Person and affecting
enforcement or collection of the obligations of the undersigned, or of the
liabilities of the undersigned hereunder shall to the same degree also extend
any statute of limitations affecting enforcement and collection of the Note
Obligations hereunder.
The undersigned hereby represents that the purpose of the loan
evidenced by this Note is to refinance outstanding indebtedness, and that no
portion of the proceeds of this Note will constitute "purpose credit" as such
term is defined in Regulation U, 12 CFR 221.1 et. seq.
The provisions of this Note shall be governed by and interpreted in
accordance with the laws of the State of Ohio.
<PAGE> 5
AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE BANK TO EXTEND CREDIT TO
THE UNDERSIGNED, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL, THE
UNDERSIGNED AND ALL INDORSERS HEREBY EXPRESSLY WAIVE THE RIGHT TO TRIAL BY JURY
IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY FROM ANY
INDEBTEDNESS OR OTHER TRANSACTIONS INVOLVING THE BANK AND THE UNDERSIGNED.
The undersigned hereby designates all courts of record sitting in
Cincinnati, Ohio and having jurisdiction over the subject matter, state and
federal, as the exclusive forums where any action, suit or proceeding in respect
of or arising from or out of this Note, its making, validity or performance,
shall be prosecuted as to all parties, their successors and assigns, and by the
foregoing designation the undersigned consents to the jurisdiction and venue of
such courts.
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer,
has executed this Note in the City of Cincinnati, County of Hamilton, State of
Ohio, as of the date and year first above written.
ZARING NATIONAL CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
<PAGE> 1
Exhibit 10.22
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (the "Agreement") is entered into this
24 day of March, 1999 at Cincinnati, Hamilton County, Ohio, by and between THE
HUNTINGTON NATIONAL BANK, a national banking association (the "Huntington") and
FIRST CINCINNATI LEASING 99 LLC, an Ohio limited liability company (the
"Borrower").
WITNESSETH:
WHEREAS, Borrower desires to borrow certain funds from Huntington for
the purpose of acquiring certain real estate and improvements located in various
jurisdictions (collectively referred to as the "Property" and individually as
"Model Home"); and
WHEREAS, subject to the provisions hereof, Huntington has agreed to
make a loan to Borrower for such purposes in an amount not to exceed Three
Million Dollars ($3,000,000.00) in the lawful currency of the United States of
America.
NOW, THEREFORE, in consideration of the foregoing premises, the
covenants and conditions contained herein and other good and valuable
consideration, the receipt, sufficiency and adequacy of which is hereby
acknowledged, the parties agree as follows:
1. LOAN DOCUMENTS. The Loan is evidenced by Borrower's Promissory Note
of even date herewith (the "Note") in the amount of up to Three Million Dollars
($3,000,000.00), payable to the Huntington, bearing interest and as provided
therein. The Note is secured by a first lien Open-End Mortgage, Assignment of
Rents and Leases and Security Agreement on each Model Home as executed from time
to time (collectively the "Mortgage") encumbering the Property. In addition,
Borrower has executed and delivered UCC Financing Statements (the "UCC Financing
Statements") evidencing Huntington's first and best lien security interest in
all of Borrower's assets, including, without limitation, the Leases and all
personal property located in, or about the Property, whether existing now or
after acquired. Allen G. Zaring, III ("Zaring") and First Cincinnati Leasing LLC
("FCL") (collectively the "Guarantors") have executed an Unconditional Guaranty
of Payment and Performance of even date herewith (the "Guarantees") wherein
Guarantors have guaranteed repayment of the indebtedness evidenced by the Note
and the performance of any and all obligations of the Borrower to Huntington.
The Note, Mortgage, UCC Financing Statements, Guarantees and this Agreement are
sometimes hereinafter collectively referred to as the "Loan Documents".
2. DRAW LOAN. Subject to the terms and conditions contained in this
Agreement, Huntington shall make loans and advances to the Borrower, upon a draw
basis, up to a maximum of Three Million Dollars ($3,000,000.00) (the "Draw
Loan"). The principal balance of the Draw Loan shall not exceed an amount equal
to ninety percent (90%) of the actual documented cost of each Model Home
provided to and accepted by Huntington as collateral. The Huntington shall have
no obligation to advance any sums pursuant to the Draw Loan at any time after
September 30, 1999 or if at any time and or prior to said date, a set of facts
or circumstances exists, which, by themselves, upon the giving of notice, the
lapse of time, or any one or more of the foregoing, would constitute an "Event
of Default" under this Agreement.
3. ELIGIBLE HOMES. Borrower shall apply proceeds of the Draw Loan for
the purchase of Model Homes only from Zaring Homes, Inc. "Model Home" means a
home designated as a Model Home in the inventory records of Zaring Homes, Inc.
Homes designated as "Contracted Homes" or Marker Homes" (Speculative Homes) in
the inventory records by Zaring Homes, Inc. arc ineligible for purchase by
Borrower with Draw Loan proceeds.
<PAGE> 2
4. TERMS OF DRAW LOAN.
4.1 REPAYMENT. The Borrower agrees to pay Huntington monthly, the
interest on the unpaid balance of the Draw Loan at a rate of interest set forth
in the Note evidencing the Draw Loan, the terms and conditions of which are
incorporated by reference herein. Each advance or draw request shall be
accompanied by such other documents or communications as may be acceptable to
Huntington in its sole and absolute discretion. Repayment of the Draw Loan shall
be made in accordance with the terms of the Note. The Borrower agrees to pay all
of Huntington's out of pocket expenses and all costs and expenses incidental to
or in connection with (a) the Draw Loan, (b) the enforcement of Huntington's
rights in connection therewith, (c) any amendment or modification of this
Agreement, the Loan Documents or any other documents related thereto, (d) any
litigation, contest, dispute, proceeding or action in any way relating to the
Property or to this Agreement or the Loan Documents, whether any of the
foregoing are incurred prior to or after maturity, the occurrence of any Event
of Default or the rendering of a judgment. Such costs shall include, but not be
limited to, reasonable fees and out of pocket expenses of Huntington's counsel,
recording fees, inspection fees, revenue stamps and note and mortgage taxes.
4.2 DISBURSEMENTS REQUIREMENTS.
4.2.1 The Huntington will disburse the loan proceeds to the Borrower
commencing on the date hereof and terminating at 11:59 p.m., Cincinnati, Ohio
time on September 30, 1999, upon satisfaction of the following conditions:
1) The Borrower and/or Borrower's counsel will provide the
Huntington with a mortgage and assignment of the lease
between Zaring Homes Inc., Zaring Homes Kentucky LLC or
Zaring Homes of Indiana L.L.C. for each Model Home;
2) Within (30) days of disbursement for each Model Home, a
title exam or an opinion letter from the Borrower's
counsel indicating that the Huntington has a first and
best lien on each Model Home;
3) The Borrower provides the Huntington with a certificate
of fair market value or appraisal in form and substance
satisfactory to the Huntington: and
4) Draft opinion from the Borrower's Counsel that each
mortgage for each Model Home is enforceable in
accordance with the laws of the state in which the Model
Home is situated, and secures the full amount of the
Draw Loan.
4.2.2 If it is determined at any time after a disbursement is made by
the Huntington pursuant to Subsection 4.2.1 above, that the Huntington does not
have a first and best lien on any Model Home or that any Model Home is not
titled in the name of the Borrower, the Borrower with regards to such Model
Home, shall within thirty (30) days of such determination perform the following:
1) Take such steps deemed necessary by the Huntington in
its absolute discretion to insure the Huntington that it
has a first and best lien as to such Model Home; or
2) Substitute such Model Home with a like Model Home on
which the Huntington has a first and best lien; or
3) Pay down the amount of the Note by the amount advanced
Against such Model Home.
5.1 GRANT OF SECURITY INTEREST. The Borrower hereby grants, pledges and
assigns to Huntington a security interest in the following property, whether the
Borrower's interest therein as owner, co-owner, lessor, lessee, consignee,
secured party or otherwise, be now owned or existing or hereafter arising or
acquired, and wherever located, together with all substitutions, replacements,
additions and accessions therefor or thereto, all documents, negotiable
documents, documents of title, warehouse receipts, storage receipts, dock
warrants, express bills, freight bills, airbills, bills of
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lading, and other documents relating thereto, all products thereof and all cash
and non-cash proceeds thereof including, but not limited to, notes, drafts,
checks, instruments, insurance proceeds, indemnity proceeds, warranty and
guaranty proceeds: (a) all of Borrower's inventory including, but not limited
to, all improved real property, all goods, merchandise and other personal
property furnished under any contract of service or intended for sale or lease,
all parties, supplies, raw materials, work in process, finished goods, homes,
materials used or consumed in Borrower's business, and repossessed and returned
goods or homes (herein the "Inventory"); (b) all of the Borrower's accounts,
accounts receivable, contract rights, chattel paper, general intangibles, income
tax refunds, preference recoveries or other claims in respect of any transfers
of any kind, instruments, negotiable documents, notes, drafts, acceptances and
other forms of obligations, all books, records, ledger cards, computer programs,
and other documents or property at any time evidencing or relating to the
Borrower's accounts, including, but not limited to, those arising from or in
connection with the Borrower's sale, lease or other disposition of Inventory
(herein the "Accounts"); (c) all of the Borrower's machinery, equipment, tools,
furniture, furnishings and fixtures including, but not limited to, all
manufacturing, fabricating, processing, transporting and packaging equipment,
power systems, heating, cooling and ventilating systems, lighting and
communications systems, electric, gas and water distribution systems, food
service systems, fire prevention, alarm and security systems, laundry systems
and computing and data processing systems (herein the "Equipment"); (d) all of
the Borrower's trade names, trademarks, trade secrets, service marks, data
bases, software and software systems, information systems, discs, tapes,
goodwill, patents, patent applications, copyrights, licenses and franchises
(herein the "Intellectual Property"); and (e) all deposit accounts, whether
general, special, time, demand, provisional, final, all cash or monies wherever
located, any and all deposits or other sums at any time credited by or due from
Huntington to the Borrower, any and all policies, certificates of insurance,
securities, goods, chooses in action, cash and property owned by the Borrower or
in which the Borrower has an interest, which now or hereafter are at any time in
the possession or control of Huntington or in transit by mail or carrier to or
from Huntington, or in the possession of any third party acting in Huntington's
behalf, without regard to whether Huntington received the same in pledge for
safekeeping, as agent for collection or transmission or otherwise, or whether
Huntington has conditionally released the same (herein the "Deposits") (all of
the Accounts, the Inventory, the Equipment, the Intellectual Property and the
Deposits herein are collectively termed the "Collateral").
The security interest hereby granted is to secure the prompt and full
payment whether at stated or accelerated maturity or otherwise, of any and all
principal, interest, damages, losses, costs, charges, expenses and liabilities,
whether fixed or contingent (collectively the "Indebtedness") and the complete,
faithful and punctual performance of any and all Obligations of the Borrower to
Huntington. The word "Obligations" is used in its most comprehensive sense and
includes, without limitation, all Indebtedness, debts and liabilities (including
principal, interest, late charges, collection costs, attorneys' fees and the
like) of the Borrower to Huntington, including, without limitation, the
$3,000,000.00 of even date herewith Promissory Note, whether now existing or
hereafter arising, either created by the Borrower alone or together with another
or others, primary or secondary, secured or unsecured, absolute or contingent,
liquidated or unliquidated, direct or indirect, whether evidenced by note,
draft, application for letter of credit or otherwise, and any and all renewals
of or substitutes therefor, including all Indebtedness owed by the Borrower to
Huntington in connection with the Draw Loan.
It is the Borrower's express intention that the continuing security
interest granted hereby, shall extend to all present and future Obligations of
the Borrower to Huntington, whether or not such Obligations are reduced or
extinguished and thereafter increased or reincurred, whether or not such
Obligations are related to the Indebtedness identified above by class, type or
kind and whether or not such Obligations are specifically contemplated as of the
date hereof. The absence of any reference to this Agreement in any documents,
instruments or agreements evidencing or relating to any Obligation secured
hereby shall not limit or be construed to limit the scope or applicability of
this Agreement,
Upon receipt of payment from the Borrower in the amount of the original
amount advanced on any Model Homes, said Model Home shall be released from the
Mortgage and the security interest provided herein to the Huntington.
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5.2 REPRESENTATIONS AND COVENANTS REGARDING THE PROPERTY AND THE
COLLATERAL. The Borrower represents, warrants and covenants as follows: (a)
Except for the security interest granted hereby and any liens set forth in
EXHIBIT A, the Borrower is, or as to Property or Collateral arising or to be
acquired after the date hereof, shall be, the sole and exclusive owner of the
Property and the Collateral, and the Property and the Collateral is and shall
remain free from any and all liens, security interests, encumbrances claims and
interests, and no security agreement, mortgage or deed of trust or similar
instrument, financing statement, equivalent security or lien instrument or
continuation statement covering any of the Property or the Collateral is on file
or of record in any public office; (b) the Borrower shall not create, permit or
suffer to exist, and shall take such action as is necessary to remove, any claim
to or interest in or lien or encumbrance upon the Property or the Collateral
except the security interest granted hereby and any liens or encumbrances set
forth in EXHIBIT A, and shall defend the right, title and interest of Huntington
in and to the Property and the Collateral against all claims and demands of all
persons and entities at any time claiming the same or any interest therein; (c)
the Borrower's principal place of business and chief executive office is located
at the address set forth in paragraph 10.1 of this Agreement; the records
concerning the Property and the Collateral shall be kept at that address unless
Huntington shall give its prior written consent otherwise; and the Borrower has
no other place of business or place where Property or the Collateral is located,
except as shown in EXHIBIT B attached hereto; (d) at least thirty (30) days
prior to the occurrence of any of the following events, the Borrower shall
deliver to the loan officer who is handling the Borrower's Obligations on behalf
of Huntington written notice of such impending events: (i) a change in the
Borrower's principal place of business or chief executive office; (ii) the
opening or closing of any place of business; or (iii) a change in the Borrower's
name, identity or corporate structure; (e) each Model Home is based on an actual
bona fide, and genuine rendering or performance of services in the ordinary
course of the Borrower's business, documents to be given to Huntington by the
Borrower with respect to the Property will be genuine and accurate; and (f) any
and all taxes and fees relating to the Borrower's business shall be the
Borrower's sole responsibility, and none of said taxes and fees represent a lien
on or claim against any of the Property except for the lien of real estate taxes
accrued but not yet due and payable.
5.3 APPLICATION OF PROCEEDS; SETOFF; GOVERNMENT ACCOUNTS; PERFECTION;
LIEN NOTATION. All amounts received by the Huntington representing payment of
Accounts or proceeds from the sale of the Property, Inventory or of the
Collateral may be applied by the Huntington to the payment of the Obligations in
such order of preference as the Huntington may determine. The Borrower also
authorizes the Huntington at any time, after default by Borrower or any of the
Guarantors, upon simultaneous notice to Borrower, to appropriate and apply any
balances, credits, deposits, accounts or money of the Borrower in the
Huntington's possession, custody or control to the payment of any of the
Obligations whether or not the Obligations are due or matured. If any of the
Borrower's Accounts arise out of contracts with or orders from the United States
or any department, agency or instrumentality thereof, the Borrower shall
immediately (a) notify the Huntington thereof in writing and (b) execute any
instrument and take any steps which the Huntington deems necessary pursuant to
the Federal Assignment of Claims Act of 1940, as amended (41 USC Section 15) in
order that all money due and to become due under such contract or order shall be
assigned to the Huntington. The Borrower agrees to execute, deliver, file and
record all such notices, affidavits, assignments, financing statements and other
instruments as shall in the judgment of the Huntington be necessary or desirable
to evidence, validate and perfect the security interest of the Huntington in the
Accounts. If certificates of title are issued or outstanding with respect to any
Inventory or Equipment, the Borrower will cause the interest of the Huntington
to be properly noted thereon at the Borrower's expense.
5.4 COLLATERAL INSURANCE. The Borrower shall have and maintain
insurance at all times with respect to all Property, Inventory and Equipment
insuring against risks of fire (including so-called extended coverage),
explosion, theft, sprinkler leakage and such other casualties as the Huntington
may designate, containing such terms, in such form, for such amounts, for such
periods and written by such companies as may be satisfactory to the Huntington,
and each such policy shall contain a clause or endorsement satisfactory to the
Huntington that names the Huntington as additional insured and loss payee, as
its interests may appear, and that provides that no act, default or breach of
warranty or condition of the Borrower or any other person shall affect
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the right of the Huntington to recover under such policy or policies of
insurance or to pay any premium in whole or in part relating thereto. All
policies of insurance shall provide for thirty (30) days' written minimum notice
of cancellation or alteration to the Huntington. The Borrower shall deliver to
the Huntington certified copies of all policies of insurance and evidence of the
payment of all premiums therefor. The Borrower hereby irrevocably appoints the
Huntington (and any of the Huntington's officers, employees or agents designated
by the Huntington) as attorney for the Borrower in obtaining and cancelling such
insurance and in making, settling and adjusting all claims under such policies
of insurance, endorsing the name of the Borrower on any check, draft, instrument
or other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance; provided however, the Borrower shall have the right to settle claims
of less than $5,000.00 in total. In the event of failure to provide insurance as
herein provided, the Huntington may, at its option, provide such insurance, and
the Borrower shall pay to the Huntington, upon demand, the cost thereof. Should
the Borrower fail to pay said sum to the Huntington upon demand, interest shall
accrue thereon from the date of demand until paid in full at the highest rate
set forth in any document or instrument evidencing any of the Obligations.
5.5 BOOKS AND RECORDS. The Borrower shall at all times keep accurate
and complete records of the Property and the Collateral, including without
limitation an inventory and complete and accurate records, and at all reasonable
times and from time to time, shall allow the Huntington, by or through any of
its officers, agents, attorneys or accountants, to examine, inspect and make
extracts from the Borrower's books and records and to arrange for verification
of the Property and the Collateral and to examine and inspect the Property and
the Collateral wherever located. In addition, upon request of the Huntington,
the Borrower shall provide the Huntington with copies of agreements with, from,
and invoices to, the Borrower's customers, and supplier's and copies of all
documents, delivery receipts, and such other documentation and information
relating to the Property and the Collateral as the Huntington may require. The
Borrower shall also place a notation on its books of account to disclose the
Huntington's lien therein.
5.6 COLLATERAL ADMINISTRATION. (a) The Borrower shall promptly perform,
on request of the Huntington, such acts as the Huntington may determine to be
necessary or advisable to create, perfect, maintain, preserve, protect and
continue the perfection of any mortgage, lien and security interest provided for
in this Agreement or otherwise to carry out the intent of this Agreement,
including, without limitation, obtaining waivers or other similar documents
reasonably necessary to permit the enforcement of the remedies of the Huntington
hereunder, (b) further, the Borrower shall not (i) extend, amend or otherwise
modify the terms of any Account, (ii) amend, modify or waive any term or
condition of any contractual obligation related thereto or (iii) redate any
invoice or sale or make sales on extended dating beyond that customary in the
Borrower's industry.
5.7 PRESERVATION AND DISPOSITION OF COLLATERAL. (a) Prior to the
placement of any Collateral in or upon any real property which the Borrower has
leased or mortgaged, the Borrower shall have obtained a waiver from the lessee,
with respect to the rights (whether present or future) of the lessee or
mortgagee with respect to that Collateral. The Borrower shall advise the
Huntington promptly, in writing and in reasonable detail, (i) of any material
encumbrance or claim asserted against any of the Collateral; (ii) of any
material change in the composition of the Collateral; and (iii) of the
occurrence of any other event that would have a material adverse effect upon the
aggregate value of the Collateral or upon the security interest of the
Huntington; (b) the Borrower shall not sell or otherwise dispose of the
Collateral, except that the Borrower may sell or otherwise dispose of the
Inventory in the ordinary course of its business; (c) the Borrower shall keep
the Collateral in good condition and shall not misuse, abuse, secrete, waste or
destroy any of the same; (d) the Borrower shall not use the Collateral in
violation of any statute, ordinance, regulation, rule, decree or order; (e) the
Borrower shall not permit to become liens or encumbrances any taxes,
assessments, charges or levies upon the Collateral or in respect to the income
or profits therefrom; and (f) at its option, the Huntington may discharge taxes,
liens, security interests or other encumbrances at any time levied or placed on
the Collateral and may pay for the maintenance and preservation of the
Collateral. The Borrower agrees to reimburse the Huntington upon demand for any
payment made or any expense incurred (including reasonable attorneys' fees) by
the Huntington pursuant to the foregoing authorization. Should the Borrower fail
to pay said sum to the Huntington
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upon demand, interest shall accrue thereon, from the date of demand until paid
in full, at the highest rate set forth in any document or instrument evidencing
any of the Obligations.
5.8 EXTENSIONS AND COMPROMISES. With respect to any Property or
Collateral, the Borrower assents to all extensions or postponements of the time
of payment thereof or any other indulgence in connection therewith, to each
substitution, exchange or release of Property or Collateral, to the addition or
release of any party primarily or secondarily liable, to the acceptance of
partial payments thereon and to the settlement, compromise or adjustment
thereof, all in such manner and at such time or times as the Huntington may deem
advisable. The Huntington shall have no duty as to the collection or protection
of Property or Collateral or any income therefrom, nor as to the preservation of
rights against prior parties, nor as to the preservation of any right pertaining
thereto, beyond the safe custody of Property or Collateral in the possession of
the Huntington.
5.9 FINANCING STATEMENTS. At the request of the Huntington, the
Borrower shall join with the Huntington in executing, delivering and filing one
or more financing statements in a form and content satisfactory to the
Huntington and shall pay the cost of filing the same in all public offices
wherever filing is deemed by the Huntington to be necessary or desirable. A
carbon, photographic or other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement.
5.10 HUNTINGTON'S APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby
irrevocably constitutes and appoints the Huntington and any officer or agent
thereof, with full power of substitution, as the Borrower's true and lawful
attorney-in-fact with full irrevocable power and authority in its place and
stead and in its name or in the Huntington's own name, from time to time in the
Huntington's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby grants to the Huntington the power and right, on behalf of the
Borrower, without notice to or assent: (a) to execute, file and record all such
financing statements, deeds, closing statements, certifications, affidavits,
certificates of title and other certificates of registration and operation and
similar documents and instruments as the Huntington may deem necessary or
desirable to protect, perfect and validate the Huntington's security interest in
the Property or the Collateral; (b) to receive, collect, take, indorse, sign,
compromise, assign and deliver in the Borrower's or the Huntington's name, any
and all checks, notes, drafts, or other documents or instruments relating to the
Property or the Collateral; and (c) upon the occurrence of an Event of Default,
(i) to notify postal authorities to change the address for delivery of the
Borrower's mail to an address designated by the Huntington, (ii) to open such
mail delivered to the designated address, (iii) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with accounts and other documents relating to the Property or the
Collateral; (iv) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the Property
and the Collateral or any part thereof and to enforce any other right in respect
of any Property or the Collateral; (v) to defend any suit, action or proceeding
brought with respect to any Property or the Collateral; (vi) to negotiate,
settle, compromise or adjust any account, suit, action or proceeding described
above and, in connection therewith, to give such discharges or releases as the
Huntington may deem appropriate; and (vii) generally, to sell, transfer, convey,
pledge, make any agreement with respect to or otherwise deal with any of the
Property or the Collateral as fully and completely as though the Huntington were
the absolute owner thereof for all purposes, and to do, at the Huntington's
option and the Borrower's expense, at any time or from time to time, all acts
and things which the Huntington deems necessary to protect, preserve or realize
upon the Property or the Collateral and the Huntington's security interest
therein, in order to effect the intent of this Agreement.
The Borrower hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon the
Huntington hereunder are solely to protect its interests in the Property and the
Collateral and shall not impose any duty upon the Huntington to exercise any
such powers. The Huntington shall be accountable only for amounts that the
Huntington actually
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receives as a result of the exercise of such powers and neither the Huntington
nor any of its officers, directors, employees or agents shall be responsible to
the Borrower for any act or failure to act, except for the Huntington's own
gross negligence or willful misconduct.
5.11 NO CONSEQUENTIAL DAMAGES. No claim may be made by the Borrower,
any of its officers, directors, or agents against the Huntington or its
affiliates, directors, officers, employees, attorneys or agents for any special,
direct, indirect, or consequential damages in respect of any breach or wrongful
conduct (whether the claim therefor is based on contract, tort or duty imposed
by law) in connection with, arising out of or in any way related to the
transactions contemplated and relationship established by this Agreement, or any
act, omission or event occurring in connection therewith, and the Borrower
hereby waives, releases and agrees not to sue upon any such claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
5.12 REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default;
(i) the Huntington shall have the rights and remedies of a secured party under
this Agreement, under any other instrument or agreement securing, evidencing or
relating to the Obligations and under the law of the State of Ohio or any other
applicable state law; and (ii) the Huntington shall have the right to foreclose
Mortgages on the Property in accordance with the terms of each Mortgage. Without
limiting the generality of the foregoing, the Huntington shall have the right to
take possession of the Collateral and all books and records relating to the
Collateral and for that purpose the Huntington may enter upon any premises on
which the Collateral or books and records relating to the Collateral or any part
thereof may be situated and remove the same therefrom. The Borrower expressly
agrees that the Huntington, without demand of performance or other demand,
advertisement or notice of any kind (except the notices specified below of time
and place of public sale or disposition or time after which a private sale or
disposition is to occur) to or upon the Borrower or any other person or entity
(all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase or sell or otherwise dispose of and deliver
the Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any of the Huntington's offices
or elsewhere at such prices as the Huntington may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Huntington shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption. The Borrower further agrees, at the Huntington's request, to
assemble the Collateral and to make it available to the Huntington at such
places as the Huntington may reasonably select. The Borrower further agrees to
allow the Huntington to use or occupy the Borrower's premises, without charge,
for the purpose of effecting the Huntington's remedies in respect of the
Collateral. The Huntington shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any or all of the Collateral or in any
way relating to the rights of the Huntington hereunder, including reasonable
attorneys' fees and legal expenses, to the payment in whole or in part of the
Obligations, in such order as the Huntington may elect, and only after so paying
over such net proceeds and after the payment by the Huntington of any other
amount required by any provision of law, need the Huntington account for the
surplus, if any. To the extent permitted by applicable law, the Borrower waives
all claims, damages and demands against the Huntington arising out of the
repossession, retention, sale or disposition of the Collateral. The Borrower
agrees that the Huntington need not give more than seven days' notice (which
notification shall be deemed given when mailed, postage prepaid, addressed to
the Borrower at its address set forth in this Agreement, or when telecopied or
telegraphed to that address or when telephoned or otherwise communicated orally
to the Borrower or any of its agents at that address) of the time and place of
any public sale or of the time after which a private sale may take place and
that such notice is reasonable notification of such matters. The Borrower shall
remain liable for any deficiency if the proceeds of any sale or disposition of
the Collateral are insufficient to pay all amounts to which the Huntington is
entitled. The Borrower shall also be liable for the costs of collecting any of
the Obligations or otherwise enforcing the terms thereof or of this Agreement,
including reasonable attorneys' fees.
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6. WARRANTIES AND REPRESENTATIONS. The Borrower warrants and represents
to the Huntington:
6.1 ORGANIZATION AND AUTHORITY. The Borrower (a) is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Ohio; (b) has all requisite power and authority and all
necessary licenses and permits to own and operate and to carry on its business
as now conducted and as presently proposed to be conducted; and (c) is not doing
business or conducting any activity in any jurisdiction in which it has not duly
qualified and become authorized to do business.
6.2 BORROWING IS LEGAL AND AUTHORIZED. (a) The Manager of the
Borrower has duly authorized the execution and delivery of this Agreement and of
the Loan Documents and other related documents contemplated herein; this
Agreement, the Loan Documents and other documents executed in connection with
this Agreement will constitute valid and binding obligations of the Borrower
enforceable in accordance with their respective terms; (b) the execution of
this Agreement and Loan Documents and documents and the compliance by the
Borrower with all the provisions of this Agreement (i) are within the powers of
the Borrower; and (ii) are legal and will not conflict with, result in any
breach in any of the provisions of, constitute a default under, or result in the
creation of any lien or encumbrance upon any property of the Borrower under the
provisions of any agreement, charter instrument, article of organization,
operating agreement, bylaw, or other instrument to which the Borrower is a party
or by which it may be bound; (c) there are no limitations in any indenture,
contract, agreement, mortgage, deed of trust or other agreement or instrument to
which the Borrower is now a party or by which the Borrower may be bound with
respect to the payment of principal or interest on any indebtedness, or the
Borrower's ability to incur indebtedness including the Loan Documents and other
documents to be executed in connection with this Agreement.
6.3 TAXES. All tax returns required to be filed by the Borrower in
any jurisdiction have in fact been filed, and all taxes, assessments, fees and
other governmental charges upon the Borrower, or upon any of its properties,
which are due and payable have been paid. The Borrower does not know of any
proposed additional tax assessment against it. The accruals for taxes on the
books of the Borrower for its current fiscal period are adequate.
6.4 COMPLIANCE WITH LAW. The Borrower (a) is not in violation of any
laws, ordinances, governmental rules or regulations to which it is subject,
including without limitation any laws, rulings or regulations relating to the
Employee Retirement Income Security Act of 1974 or Section 4975 of the Internal
Revenue Code and (b) has not failed to obtain any licenses, permits, franchises
or other governmental or environmental authorizations necessary to the ownership
of its properties or to the conduct of its business, which violation or failure
might adversely affect the business, prospects, profits, properties or condition
(financial or otherwise) of the Borrower.
6.5 FULL DISCLOSURE. The Borrower has disclosed to the Huntington in
writing all facts, including, without limitation, all threatened or pending
litigation, administrative proceedings, and arbitration proceedings which
materially affect the properties, business, prospects, profits or condition
(financial or otherwise) of the Borrower or the ability of the Borrower to
perform this Agreement.
6.6 NO INSOLVENCY. On the date of the Borrower's entering into the
Draw Loan and after giving effect to all indebtedness of the Borrower (including
the Draw Loan), (a) the Borrower will be able to pay its obligations as they
become due and payable; (b) the present fair saleable value of the Borrower's
assets exceeds the amount that will be required to pay its probable liability on
its obligations as the same become absolute and matured; (c) the sum of the
Borrower's property at a fair valuation exceeds the Borrower's indebtedness; and
(d) the Borrower will have sufficient capital to engage in the Borrower's
business. The Borrower's grant of collateral for the Draw Loan constitutes fair
consideration and reasonably equivalent value because of the receipt of the
proceeds of the Draw Loan.
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6.7 GOVERNMENT CONSENT. Neither the nature of the Borrower or of its
business or properties, nor any relationship between the Borrower and any other
entity or person, nor any circumstance in connection with the execution of this
Agreement, is such as to require a consent, approval or authorization of, or
filing, registration or qualification with, any governmental or other authority
on the part of the Borrower as a condition to the execution and delivery of this
Agreement and the Loan Documents and the other documents contemplated herein.
6.8 TITLE TO PROPERTIES. The Borrower has good and marketable title
to all the Property and other assets in which it has a property interest, free
from any liens and encumbrances, except as set forth on EXHIBIT A attached to
this Agreement and incorporated by reference herein. The Borrower has not agreed
or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of the Property or its other assets whether now
owned or hereafter acquired to be subject to a lien or encumbrance.
6.9 NO DEFAULTS. No event has occurred and no condition exists which
would constitute an Event of Default pursuant to this Agreement. The Borrower is
not in violation in any material respect of any term of any agreement, articles
of organization, operating agreement, charter instrument, bylaw or other
instrument to which it is a party or by which it may be bound.
6.10 ENVIRONMENTAL PROTECTION. The Borrower (a) has no actual
knowledge of the permanent placement, burial or disposal of any Hazardous
Substances (as hereinafter defined) on any real property owned, leased, or used
by the Borrower, of any spills, releases, discharges, leaks, or disposal of
Hazardous Substances that have occurred or are presently occurring on, under, or
onto any Model Home, or of any spills, releases, discharges, leaks or disposal
of Hazardous Substances that have occurred or are occurring off the location of
any Model Home as a result of the Borrower's improvement, operation, or use of
the Property which would result in non-compliance with any of the Environmental
Laws (as hereinafter defined): (b) is and has been in compliance with all
applicable Environmental Laws; (c) knows of no pending or threatened
environmental civil, criminal or administrative proceedings against the Borrower
relating to Hazardous Substances; (d) knows of no facts or circumstances that
would give rise to any future civil, criminal or administrative proceeding
against the Borrower relating to Hazardous Substances; and (e) will not permit
any of its employees, agents, contractors, subcontractors, or any other person
occupying or present on the Property to generate, manufacture, store, dispose or
release on, about or under the Property any Hazardous Substances which would
result in the Property or any other of its assets not complying with the
Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all
hazardous and toxic substances, wastes, materials, compounds, pollutants and
contaminants (including, without limitation, asbestos, polychlorinated
biphenyls, and petroleum products) which are included under or regulated by the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, ET SEQ., the Toxic Substances Control Act, 15
U.S.C. Section 2601, ET SEQ., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, ET SEQ., the Water Quality Act of 1987, 33 U.S.C. Section
1251, ET SEQ., and the Clean Air Act, 42 U.S.C. Section 7401, ET SEQ., and any
state or local statute ordinance, law, code, rule, regulation or order
regulating or imposing liability (including strict liability) or standards of
conduct regarding Hazardous Substances (hereinafter the "Environmental Laws"),
but does not include such substances as are permanently incorporated into a
structure or any part thereof in such a way as to preclude their subsequent
release into the environment, or the permanent or temporary storage or disposal
of household hazardous substances by tenants, and which are thereby exempt from
or do not give rise to any violation of the forementioned Environmental Laws.
6.11 CAPITAL STRUCTURE. The certified member list of the Borrower
set forth in EXHIBIT C attached hereto and incorporated by reference herein
accurately represents to the Huntington the following: (a) the classes of
membership of the Borrower and value of each such class, all as authorized by
the Borrower's Articles of Organization and the number of units of each such
class of membership issued and outstanding, the registered owner or holder
(legally or beneficially) thereof, and the certificate numbers, if any,
evidencing the foregoing. The Borrower does not have outstanding any other
member, debt or other equity security, or any other instrument
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<PAGE> 10
convertible to an equity security of the Borrower, or any commitment,
understanding, agreement or arrangement to issue, sell or have outstanding any
of the foregoing.
6.12 WARRANTIES AND REPRESENTATIONS. On the date of each draw or
advance pursuant to the Loan, the warranties and representations set forth in
Section 6 hereof shall be true and correct on and as of such date with the same
effect as though such warranties and representations had been made on and as of
such date, except to the extent that such warranties and representations
expressly relate to an earlier date.
7. BORROWER BUSINESS COVENANTS. The Borrower covenants that on and
after the date of this Agreement until terminated pursuant to the terms of this
Agreement, or so long as any of the Indebtedness provided for herein remains
unpaid:
7.1 PAYMENT OF TAXES AND CLAIMS. The Borrower will pay before they
become delinquent (a) all taxes, assessments and governmental charges or levies
imposed upon it, the Property or any other of its property; and (b) all claims
or demands of materialmen, laborers, supplies, mechanics, carriers,
warehousemen, landlords, bailees and other like persons, any of the foregoing
which, if unpaid, might result in the creation of a lien or encumbrance upon its
property.
7.2 MAINTENANCE OF PROPERTIES AND EXISTENCE. The Borrower shall (a)
maintain its Property and all other assets in good condition and make all
renewals, replacements, additions, betterments and improvements thereto which
are deemed necessary by the Borrower; (b) maintain, with financially sound and
reputable insurers, insurance with respect to the Property and all other assets
and business against such casualties and contingencies, of such types (including
but not limited to fire and casualty, public liability, products liability,
larceny, embezzlement or other criminal misappropriation insurance) and in such
amounts as is customary in the case of entities of established reputations
engaged in the same or a similar business and similarly situated, with each such
policy of insurance containing a clause or endorsement satisfactory to the
Huntington that names the Huntington as additional insured and loss payee, as
its interests may appear, and that provides that no act, default or breach of
warranty or condition of the Borrower or any other person shall affect the right
of the Huntington to recover under such policy or policies of insurance or to
pay any premium in whole or in part relating thereto, (c) keep true books of
records and accounts in which full and correct entries will be made of all its
business transactions, and reflect in its financial statements adequate accruals
and appropriations to reserves; (d) do or cause to be done all things necessary
(i) to preserve and keep in full force and effect its existence, rights and
franchises, and (ii) to maintain its status as a limited liability company duly
organized and existing and in good standing under the laws of the State of Ohio;
and (e) not be in violation of any laws, ordinances, or governmental rules and
regulations or fail to obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of the Property, its
other assets or to the conduct of its business, which violation or failure to
obtain might materially and adversely affect the business, prospects, profits,
properties or condition (financial or otherwise) of the Borrower.
7.3 SALE OF ASSETS; MERGER; SUBSIDIARIES; TRADENAMES. The Borrower
will not, except in the ordinary course of business, sell, lease, transfer or
otherwise dispose of, any of its assets. The Borrower will not without the prior
written consent of the Huntington, consolidate with, merge into, or make
investments in any other entity, or permit any other entity to consolidate with
or merge into it. The Borrower shall not acquire all or substantially all of the
assets or business of any other Borrower, person or entity. The Borrower has no
subsidiaries and conducts business only in the name of the Borrower. The
Borrower will not create or acquire any subsidiaries or conduct business under
any other tradenames without the prior written consent of the Huntington.
7.4 NEGATIVE PLEDGE. The Borrower will not cause or permit or agree
or consent to cause or permit in the future (upon the happening of a contingency
or otherwise), any of the Property or any of its real or personal property,
whether now owned or hereafter acquired, to become subject to a mortgage, deed
of trust, lien or encumbrance, of any type except: liens for real estate taxes
accrued but not yet due and payable. Zaring will not cause or permit or agree or
consent to cause or permit in the future upon the happening of any contingency
or otherwise, any of his personal assets, except for mortgages on his personal
residence, whether now owned or hereafter
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<PAGE> 11
acquired, to become subject to a mortgage, deed of trust, lien, encumbrance or
negative pledge of any type.
7.5 OTHER BORROWINGS AND CONTINGENT LIABILITIES. Except for the Draw
Loan, the Borrower will not without the written consent of the Huntington (a)
create or incur any indebtedness for borrowed money or advances, including
through the execution of capitalized lease agreements, or (b) guarantee, indorse
or otherwise become surety for or upon the obligations of others, except by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business. Zaring, except for his personal guarantee to the Provident
Bank, will not (a) create or incur any indebtedness for borrowed money, direct
or indirect; or (b) guarantee, endorse or otherwise became surety for or upon
obligations of others in excess of $5,000,000.00.
7.6 SALE OF ACCOUNTS; NO CONSIGNMENT. The Borrower shall not sell,
assign, or encumber, except to the Huntington, any of its Accounts or notes
receivable. The Borrower shall not acquire or possess any of its Property or
Inventory on consignment.
7.7 OWNERSHIP AND MANAGEMENT. The Borrower shall not permit any
change in its ownership or management.
7.8 TANGIBLE NET WORTH. The Borrower shall maintain at all times a
tangible net worth, as determined on the initial draw or advance date, and
quarterly thereafter of not less than the lessor of 10% of the amount drawn or
$300,000.00. FCL also shall maintain at all times a tangible networth, as
determined on March 24, 1999, and quarterly thereafter, of not less than
$1,000,000.00.
7.9 TRANSACTIONS WITH AFFILIATES. The Borrower shall not directly or
indirectly enter into or permit to exist any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any of its affiliates, relatives of members,
members, or any affiliates of either of the foregoing, on terms that are less
favorable to the Borrower than those which might be obtained at the time from
persons or entities who are not affiliated with the Borrower or its
shareholders, except for the transactions outlined in the lease documents and
purchase agreement between the Borrower and Zaring Homes, Inc., Zaring Homes
Kentucky LLC or Zaring Homes of Indiana L.L.C. "Affiliate" shall mean any
individual, partnership, corporation, or other entity which, directly or
indirectly, is in control of, is controlled by, or is under common control with
Borrower. For the purposes of this definition, control of such entity shall mean
the power, direct or indirect, to vote five percent or more of the securities,
units or other measures having ordinary voting power for the election of
directors, management committees, or similar committees of such entity, or the
power to direct or cause the direction of the management and policies of such
entity, whether by contract or otherwise.
7.10 INTEREST COVERAGE RATIO. The Borrower and FCL, each
individually shall maintain an Interest Coverage Ratio of not less than 1.1 to
1.0. "Interest Coverage Ratio" shall mean for any quarter, determined on a year
to date basis, a ratio of EBIT for that period to "Cash Interest Expense".
"EBIT" of the Borrower shall mean (i) the net income (or deficit) of the
Borrower for such period, which, in accordance with GAAP (as defined in Section
10.6) would be included as net income on the statements of income of the
Borrower plus (ii) the aggregate amounts deducted in determining such net income
in respect of (a) all amounts paid (without duplication) as interest on all
indebtedness and obligations of the Borrower for such period, all as determined
in conformity with GAAP and (b) income taxes for such period, each determined in
accordance with GAAP. "Cash Interest Expense" shall mean all amounts paid
(without duplication) as interest on all obligations and indebtedness of the
Borrower for the preceding, quarter, determined on a year to date basis, less
(i) interest paid other than in cash and (ii) amortization of financing fees and
debt discount directly related to this Agreement.
7.11 COMPLIANCE CERTIFICATE. Borrower shall deliver to the
Huntington within 15 days after the end of each quarter a Compliance Certificate
(as hereinafter defined) stating that Zaring Homes, Inc. is in full compliance
with the terms, covenants, and conditions of its Amended and Restated Credit
Agreement dated as of February 28, 1998. For purposes of this Agreement
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<PAGE> 12
"Compliance Certificate" shall mean an agreement in the form and content
satisfactory to the Huntington,
7.12 LOANS AND ADVANCES. The Borrower will not make any loans or
advances to any person, corporation or entity.
7.13 ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION. The Borrower
hereby agrees to indemnify the Huntington and hold the Huntington harmless from
and against any and all loss, damage, cost, expense or liability (including
strict liability) directly or indirectly arising from or attributable to the
generation, storage, release, threatened release, discharge, disposal or
presence (whether prior to or during the term of the Loans) of Hazardous
Substances on, under or about the Property or any other asset of the Borrower
(whether by the Borrower or any employees, agents, contractor or subcontractors
of the Borrower or any predecessor in title or any third persons occupying or
present on the Property or any other asset of the Borrower), or the breach of
any of the representations and warranties regarding the Property or any other
asset of the Borrower, including, without limitation: (a) those damages or
expenses arising under the Environmental Laws; (b) the costs of any repair,
cleanup or detoxification of the Property or any other asset of the Borrower,
including the soil and ground water thereof, and the preparation and
implementation of any closure, remedial or other required plans; (c) damage to
any natural resources; and (d) all reasonable costs and expenses incurred by the
Huntington in connection with clauses (a), (b) and (c) including, but not
limited to reasonable attorneys', experts and consultant's fees.
7.14 MAINTENANCE OF ACCOUNTS. The Borrower shall maintain its sole
and exclusive banking relationship with the Huntington, including, without
limitation, all of its operating, daily deposit and cash management accounts at
the Huntington. All profits and excess cash shall be invested with the
Huntington.
7.15 YEAR 2000 COMPLIANCE. Borrower warrants and represents to and
covenants with Lender that Borrower reasonably anticipates that Borrower and any
material subsidiaries of Borrower (hereinafter referred to as the
"Organization") will be Year 2000 Compliant on a timely basis. As used herein,
"Year 2000 Complaint" shall mean that all software, embedded microchips and
other processing capabilities utilized by the Organization or the Organization's
key suppliers, vendors and customers will correctly process, sequence, and
calculate, without interruption, all date and date related data for all dates
to, through and after January 1, 2000, including leap year calculations, and
shall recognize, store and transmit date data in a format which clearly
indicates the correct century.
7.16 OTHER COVENANTS. The Borrower will perform, observe and comply
with such other covenants as the Huntington may from time to time reasonably
require of the Borrower to assure the repayment in full of all of the
Obligations and the complete and timely performance by the Borrower of all the
covenants of the Borrower hereunder.
8. Financial Information and Reporting.
8.1 BORROWER. The Borrower shall deliver the following to the
Huntington: (a) monthly reports as to model inventory covered under this
Agreement; (b) within 30 days after the end of each fiscal quarter, financial
statements, including a balance sheet and statements of income and expenses
comparing the information for the current period with the information for the
same period of the preceding year, certified by the sole member or sole manager
of the Borrower as fairly representing the Borrower's financial condition as of
the end of such period; (c) within 90 days of the end of each fiscal year,
reviewed financial statements prepared in accordance with GAAP (as defined in
Section 10.6) consistently applied and certified by independent public
accountants satisfactory to the Huntington, containing a balance sheet,
statements of income and surplus, statements of cash flows and reconciliation of
capital accounts, along with any management letters written by such accountants;
(d) immediately upon becoming aware of the existence of any set of facts or
circumstances which, by themselves, upon the giving of notice, the lapse of
time, or any one or more of the foregoing, would constitute a breach of any of
the terms or conditions of this Agreement or an Event of Default under this
Agreement, a written notice specifying the nature and
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<PAGE> 13
period of existence thereof and what action the Borrower is taking or proposes
to take with respect thereto; and (e) at the request of the Huntington, such
other information as the Huntington may from time to time reasonably require.
8.2 ZARING NATIONAL CORPORATION. Zaring National Corporation, an
Ohio corporation, shall deliver to the Huntington within forty-five (45) days
after the end of each fiscal quarter, financial statements, including a balance
sheet and statements of income and expenses comparing the information for the
current period with the information for the same period of the preceding year or
a form 10q quarterly report, except for the fiscal year end in which case Zaring
National Corporation shall provide annual audited financial statements. All
financial statements shall be certified by the president of Zaring National
Corporation as fairly representing Zaring National Corporation's financial
condition as of the end of such period, and prepared in accordance with
generally accepted accounting principles or otherwise in form acceptable to
Huntington.
8.3 ZARING. Zaring shall deliver to the Huntington within ninety
(90) days of the end of each fiscal year, his current personal financial
statement, including a balance sheet and statements of income and expenses and
such other financial information as Huntington may require, within ninety (90)
days after the end of each fiscal year of Zaring and annual tax returns, within
thirty (30) days after the last date that the same can be filed without
imposition of a penalty for late filing. All financial statements shall be
prepared in accordance with generally accepted accounting principles or
otherwise in form acceptable to Huntington.
9. Default.
9.1 EVENTS OF DEFAULT. An "Event of Default" shall exist if any of
the following occurs and is continuing: (a) the Borrower fails to make any
payment of principal or interest on the Note executed in connection with this
Agreement on or before the date such payment is due or within ten (10) days of
when it is due; (b) the Borrower fails to perform or observe any covenant
contained in Sections 3, 4, 5, 6, 7 or 8 of this Agreement and such failure
remains uncured for a period of thirty (30) days from the date of such failure
to perform; (e) the Borrower fails to comply with any other provision of this
Agreement, and such failure continues for more than ten (10) days after such
failure shall first become known to the sole Manager or the sole Member of the
Borrower; (d) any warranty, representation, or other statement by or on behalf
of the Borrower contained in this Agreement or in any instrument furnished in
compliance with or in reference to this Agreement is false or misleading in any
material respect, or the Borrower or any of the Guarantors fails to perform or
observe any covenant contained in the Note, Loan Documents or other agreement in
favor of the Huntington; (e) the Borrower becomes insolvent or makes an
assignment for the benefit of creditors, or consents to the appointment of a
trustee, receiver or liquidator; (f) bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings are instituted by or against the Borrower;
(g) a final judgment or judgments for the payment of money aggregating in excess
of $100,000.00 is or are outstanding against the Borrower and any such judgment
or judgments have not been discharged in full or stayed; (h) the occurrence of
any event which allows the acceleration of the maturity of any indebtedness of
the Borrower to the Huntington, any of the Huntington's affiliates, or any other
person, corporation or entity under any indenture, agreement or undertaking; (i)
the default by, dissolution of, or death of any of the Guarantors, any insurer
or other surety for the Borrower with respect to any obligation or liability to
the Huntington; (j) the occurrence of any event which allows the acceleration of
the maturity of any personal indebtedness of the Zaring in excess of $50,000.00;
(k) the aggregate value of the Property furnished as security declines in value,
and the Borrower does not immediately, upon demand, furnish additional security
satisfactory to the Huntington.
9.2 ADDITIONAL EVENT OF DEFAULT. In the event the Borrower fails to
provide the Huntington with evidence satisfactory to the Huntington in its sole
and absolute discretion that a mortgage or deed of trust on any particular Model
Home(s) is not a first and best lien, subject only to (i) covenants, conditions
and restrictions and easements that do not impair the intended use of the Model
Home(s) in question, and (ii) real estate taxes and assessments, if any, that
are accrued, but not yet due and payable, then the Borrower may (a) repay the
principal of the Note lent against the Model Home(s) in question, with accrued
interest, or (b) propose to substitute other property in lieu of the Model
Home(s) in question, said other property being property that is acceptable to
the
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Huntington in its sole and absolute discretion, or (c) have the existence of
said defect(s) constitute an Event of Default if not cured to the sole and
absolute discretion of the Huntington within thirty (30) days of the sending of
notice of the defect.
9.3 DEFAULT REMEDIES. If an Event of Default exists, the Huntington
may immediately exercise any right, power or remedy permitted to the Huntington
by law or any provision of this Agreement, and shall have, in particular,
without limiting the generality of the foregoing, the right to declare the
entire principal and all interest accrued on the Note then outstanding pursuant
to this Agreement to be forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrower.
10. Miscellaneous.
10.1 NOTICES. (a) All communications under this Agreement, the Note,
the Loan Documents or any other document executed in conjunction herewith shall
be in writing and shall be mailed by certified, return receipt requested mail,
postage prepaid, (1) if to the Huntington, at the following address, or at such
other address as may have been furnished in writing to the Borrower by the
Huntington:
The Huntington National Bank
105 W, Fourth Street, Suite 400
Cincinnati, Ohio 45202-5800
Attn: Martha Riedmatter
(2) if to the Borrower, at the following address, or at such other address as
may have been furnished in writing to the Huntington by the Borrower:
First Cincinnati Leasing 99 LLC
C/O 11300 Cornell Park Drive
Cincinnati, Ohio 45242
Attn: Allen G. Zaring. III
(b) any notice so addressed and mailed by certified mail shall be deemed to be
given when so mailed.
10.2 ACCESS TO ACCOUNTANTS. The Borrower hereby irrevocably
authorizes its certified public accountants to provide to the Huntington any and
all information that the Huntington requests from time to time with regard to
the Borrower, and to discuss with the Huntington from time to time any and all
matters relating to the Borrower. In furtherance of the foregoing, the Borrower
hereby waives any privilege or claim of confidentiality to the extent such might
otherwise prevent the Borrower's accountants from providing such information to
the Huntington or discussing such matters with the Huntington.
10.3 REPRODUCTION OF DOCUMENTS. This Agreement, the Loan Documents
and all documents relating hereto, including, without limitation, (a) consents,
waivers and modifications which may hereafter be executed, (b) documents
received by the Huntington at the closing or otherwise, and (c) financial
statements, certificates and other information previously or hereafter furnished
to the Huntington, may be reproduced by the Huntington by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process and the Huntington may destroy any original document so reproduced. The
Borrower agrees and stipulates that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by the Huntington in the regular course of business) and
that any enlargement, facsimile or further reproduction of such reproduction
shall likewise be admissible in evidence.
10.4 SURVIVAL, SUCCESSORS AND ASSIGNS. All warranties,
representations, and covenants made by the Borrower herein or on any certificate
or other instrument delivered by it or on its behalf under this Agreement shall
be considered to have been relied upon by the Huntington and shall survive the
closing of the Draw Loan and disbursement of funds regardless of any
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<PAGE> 15
investigation made by the Huntington on its behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Borrower. This Agreement shall inure to the benefit of and be binding
upon the heirs, successors and assigns of each of the parties.
10.5 AMENDMENT AND WAIVER, DUPLICATE ORIGINALS. This Agreement may
be amended, and the observance of any term of this Agreement may be waived, with
(and only with) the written consent of the Borrower and the Huntington;
provided however that nothing herein shall change the Huntington's sole
discretion (as set forth elsewhere in this Agreement) to make draws, advances,
determinations, decisions or to take or refrain from taking other actions. No
delay or failure or other course of conduct by the Huntington in the exercise of
any power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right. Two or more duplicate originals of
this Agreement may be signed by the parties, each of which shall be an original
but all of which together shall constitute one and the same instrument.
10.6 UNIFORM COMMERCIAL CODE AND GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES. Unless the context otherwise requires, all terms used herein which
are defined in the Uniform Commercial Code as enacted in the State of Ohio
shall have the meaning stated therein. All accounting terms not defined herein
shall be determined in accordance with generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements and pronouncements of the Financial Accounting
Standards Board ("GAAP"). The Borrower's fiscal year begins on January 1, and
ends on December 31, and the Borrower will not change its fiscal year without
the prior written consent of the Huntington.
10.7 ENFORCEABILITY AND GOVERNING LAW. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction, as to such
jurisdiction, shall 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. No delay or
omission on the part of the Huntington in exercising any right shall operate as
a waiver of such right or any other right. All of the Huntington's rights and
remedies, whether evidenced hereby or by any other agreement or instrument,
shall be cumulative and may be exercised singularly or concurrently. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio. The Borrower agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement may be instituted in a state or
federal court of appropriate subject matter jurisdiction in the State of Ohio;
waives any objection which it may have now or hereafter to the venue of any
suit, action or proceeding; and irrevocably submits to the jurisdiction of any
such court in any such suit, action or proceeding.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to
be duly executed by their respective duly authorized officers as of the day and
year first above written.
Signed and acknowledged FIRST CINCINNATI LEASING 99 LLC,
in the presence of: an Ohio limited liability company
- ------------------------------------ By: /s/ Allen G. Zaring III
Printed Name: ? -------------------------
----------------------- Allen G. Zaring III
Its: Sole Member and Manager
- ------------------------------------
Printed Name:
-----------------------
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THE HUNTINGTON NATIONAL BANK
/s/ Nancy L. McMullen By: /s/ Martha Riedmatter
Printed Name: /s/ Nancy L. McMullen -----------------------
----------------------- Martha Riedmatter
/s/ Gene Fugate Its: Assistant Vice President
- ------------------------------------
Printed Name: Gene Fugate
-----------------------
STATE OF OHIO
HAMILTON COUNTY SS:
On this 24th day of March. 1999, before me, a Notary Public in and
for said County and State, personally appeared Allen G. Zaring, III, sole Member
and Manager of First Cincinnati Leasing 99 LLC, a limited liability company, in
his capacity as the duly authorized Member and Manager of First Cincinnati
Leasing 99 LLC, the company which executed the foregoing instrument, and
acknowledged that he did so sign the foregoing instrument as such Member and
Manager and that such signing is his free act and deed as such Member and
Manager, and the free act and deed of said company for the uses and purposes
therein mentioned.
In Witness Whereof, I have hereunto set my hand and official seal.
[SEAL] /s/ Gene Fugate
-------------------------
Notary Public
My Commission Expires: 3-25-2003
Gene Fugate
Notary Public, State of Ohio,
My Commission Expires: 3-25-2003
STATE OF OHIO
HAMILTON COUNTY SS:
On this 24th day of March, 1999, before me, a Notary Public in and
for said County and State, personally appeared Martha Riedmatter, Assistant Vice
President of The Huntington National Bank, a national banking association which
executed the foregoing instrument, signed the same, and acknowledged to me that
he/she did so sign said instrument in the name and upon behalf of said
association as such officer, and by authority of a resolution of its Board of
Directors; and that such signing is his/her free act and deed as such officer,
and the free act and deed of said association.
IN WITNESS WHEREOF, I have hereunto set my name and official seal.
[SEAL] /s/ Gene Fugate
-------------------------
Notary Public
My Commission Expires: 3-25-2003
Gene Fugate
Notary Public, State of Ohio,
My Commission Expires: 3-25-2003
<PAGE> 1
Exhibit 10.23
PROMISSORY NOTE
$3,000,000.00 Cincinnati, Ohio
March 24, 1999
FOR VALUE RECEIVED, the undersigned, promises to pay to the order of
The Huntington National Bank (hereinafter called the "Bank"), which term shall
include any holder hereof), at such place as the Bank may designate or, in the
absence of such designation, at any of the Bank's offices, the sum of THREE
MILLION and NO/100 Dollars ($3,000,000.00), or so much thereof as shall have
been advanced by the Bank by September 30, 1999 and not hereafter repaid
(hereinafter called the "Principal Sum") together with interest as hereinafter
provided. The undersigned promise to pay the Principal Sum and the interest
thereon at the times and in the manner hereinafter provided. The proceeds of the
loan evidenced hereby may be advanced in partial amounts during the term hereof
and prior to maturity, provided, that no partial advance of the Principal Sum
shall be for less than $500,000.00, and no partial advance shall be made after
September 30, 1999. Each such advance shall be made to the undersigned upon
receipt by the Bank of disbursement instructions and upon receipt, review and
approval by the Bank of the undersigned's application for an advance, which
shall be in such form and contain such information as the Bank shall from time
to time prescribe.
The Bank shall be entitled to rely on any oral or telephonic
communication requesting an advance and/or providing disbursement instructions
hereunder, which shall be received by it in good faith from anyone reasonably
believed by the Bank to be the undersigned, or the undersigned's authorized
agent. The undersigned agrees that all partial advances made and payments
received by the Bank will be evidenced by entries made by the Bank into its
electronic data processing system and/or internal memoranda maintained by the
Bank. The undersigned further agrees that the sum or sums shown on the most
recent printout from the Bank's electronic data processing system and/or such
memoranda shall be rebuttably presumptive evidence of the amount of Principal
Sum and of the amount of any accrued interest. Each request for an advance shall
constitute a warranty and representation by the undersigned that no event of
default hereunder or under any related loan documents has occurred and is
continuing and that no event or circumstance which would constitute such an
event of default, but for the requirement that notice be given or time elapse or
both, has occurred and is continuing.
This Note is executed and any advances contemplated hereunder are to
be made pursuant to a Loan and Security Agreement dated March 24, 1999 and all
the covenants, representations, agreements, terms and conditions contained
therein, including, but not limited to, additional conditions of default and
conditions to any partial advances, are incorporated herein as if fully
rewritten.
INTEREST
- --------
Prior to maturity, interest will accrue on the unpaid balance of the
Principal Sum at a variable rate of interest per annum, which shall change in
the manner set forth below, equal to one and three fourths of one percentage
point (1.75%) in excess of the LIBO Rate, as hereafter defined (the "Contract
Rate").
As used herein, LIBO Rate shall mean the rate obtained by dividing
(a) actual or estimated per annum rates of interest offered to U.S. banks for
deposits in U.S. dollars in the London interbank market for one month periods
and in an aggregate amount comparable to the Principal Sum, as offered and
determined by the Bank in its sole discretion based upon information which
appears on page 3750, captioned "British Bankers Assoc. Interest Settlement
Rates", of Telerate, a Service of Telerate Systems Incorporated (or such other
page that may replace that page on that service for the purpose of displaying
LIBO rates; or, if such service ceases to be available, such other reasonable
comparable money rate service as the Bank may select) or upon information
obtained from any other reasonable procedure, on each Banking Day; by (b) an
amount equal to one (1) minus the stated maximum rate (expressed as a decimal),
if any, of all reserve requirements (including, without limitation any marginal,
emergency, supplemental, special or other reserves) that is specified on each
<PAGE> 2
date the Contract Rate is determined by the Board of Governors on each date the
Contract Rate is determined by the Board of Governors of the Federal Reserve
System (or any successor agency thereto) for determining the maximum reserve
requirement with respect to eurocurrency funding (currently referred to as
("Eurocurrency liabilities" in Regulation D of such Board) maintained by a
member bank of such System, or any other regulations of any governmental
authority having jurisdiction with respect thereto, all as conclusively
determined by Bank, absent manifest error, such sum to be rounded up, if
necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16
of 1.0%) per annum.
As used herein, Banking Day shall mean any day other than a Saturday
or Sunday on which banks are open for business in Cincinnati, Ohio and on which
banks in London, England are open for settlement of payments.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect, or any interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive of such authority (whether or not having the force of law),
including without limitation exchange controls, shall make it unlawful or
impossible for the Bank to offer the Contract Rate under this Note, then and in
any such event, the bank shall promptly give notice thereof to the undersigned.
In such case, the interest shall immediately begin to accrue, without selection
by the undersigned, at the Prime Commercial Rate. As used herein, Prime
Commercial Rate shall mean the rate established by the Bank from time to time
based on its consideration of economic, money market, business and competitive
factors. The Prime Commercial Rate is not necessarily the lowest lending rate of
the Bank.
Subject to any maximum or minimum interest rate limitation by
applicable law, the Contract Rate shall change automatically, without notice to
the undersigned immediately on each Banking Day with each change in the LIBO
Rate, as applicable, with any change thereto effective as of the opening of
business on the day of the change.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect, or any interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive of any such authority (whether or not having the force of
law), shall (a) affect the basis of taxation of payments to the Bank of any
amounts payable by the undersigned for under this Note while interest is
accruing at the Contract Rate (other than taxes imposed on the overall net
income of the Bank by the jurisdiction, or by any political subdivision or
taxing authority of any such jurisdiction, in which the Bank has its principal
office), or (b) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by the Bank, or (c) shall impose any other
condition, requirement or charge with respect to this Note (including, without
limitation, any capital adequacy requirement, any requirement which affects the
manner in which the Bank allocates capital resources to its commitments or any
similar requirement), and the result of any of the foregoing is to increase the
cost to the Bank of making or maintaining the loan evidenced hereby, to reduce
the amount of any sum receivable by the Bank thereon, or to reduce the rate of
return on the Bank's capital, then the undersigned shall pay to the Bank, from
time to time, upon request of the Bank, additional amounts sufficient to
compensate the Bank for such increased cost, reduced sum receivable or reduced
rate of return to the extent the Bank is not compensated therefor in the
computation of the interest rates applicable to the Principal Sum. A detailed
statement as to the amount of such increased cost, reduced sum receivable or
reduced rate of return, prepared in good faith and submitted by the Bank to the
undersigned, shall be conclusive and binding for all purposes relative to the
Bank, absent manifest error in computation. This provision shall survive the
payment in full of this Note.
If the undersigned makes any payment of principal on any other date
than as agreed under this Note, or fails to make any payment of principal or
interest when due or at the maturity, the undersigned shall reimburse the Bank
on demand for any resulting loss or expense incurred by the Bank, determined in
the Bank's reasonable opinion, including without limitation any loss incurred in
obtaining, liquidating or employing deposits from third parties. A detailed
statement as to the
2
<PAGE> 3
amount of such loss or expense, prepared in good faith and submitted by the Bank
to the undersigned shall be conclusive and binding for all purposes absent
manifest error in computation.
MANNER OF PAYMENT
- -----------------
Payment of the Principal Sum and interest thereon shall be paid as
follows:
(1) All accrued interest, shall be due and payable on the 30th day
of each month, except for the month of February when payment shall be due and
payable on the last day of February, commencing on May 30, 1999, and continuing
each month thereafter until maturity; and
(2) The Principal Sum shall be due and payable: (i) 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 payments beginning on March 30, 2000. Each installment payment of
the Principal Sum, shall be in an aggregate amount equal to not less than one
fifth of the Principal Sum 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 Sum.
LATE CHARGE
- -----------
Any installment payment or other payment not made within 10 days of
the date such payment is due shall be subject to a late charge equal to 5% of
the amount of the payment.
DEFAULT RATE
- ------------
Upon the occurrence of any default by the undersigned, whether by
acceleration or otherwise, interest shall accrue on the unpaid balance of the
Principal Sum and unpaid interest, if any, until paid at a rate equal to two
percent (2%) per annum in excess of the Contract Rate.
MATURITY
- --------
Unless sooner paid in full by prepayment, acceleration or otherwise,
this Note shall mature and the Principal Sum shall be due and payable on March
30, 2002, with all accrued interests and costs as provided herein.
SECURITY
- --------
As security for the payment of the obligations evidenced hereby, and
of all other obligations and liabilities of the undersigned to the Bank, whether
now existing or hereafter arising, the undersigned hereby grants the Bank a
first and best security interest in all of the undersigned's assets, including,
without limitation, all equipment, inventory, receivables, furniture, general
intangibles, real property, improvements, fixtures, cash and leases, and all
substitutions and additions thereto, whether existing now or in the future and
the proceeds thereof (all, together with any other property in which the Bank
shall at any time be given a security interest, hereinafter referred to as the
"Collateral") and an Unconditional Guaranty of Payment and Performance executed
by Allen G. Zaring, III and an Unconditional Guaranty of Payment and Performance
executed by First Cincinnati Leasing LLC, an Ohio limited liability company. The
obligations evidenced hereby may from time to time be evidenced by another note
or notes given in substitution, renewal or extension hereof, and the Bank's
security interest in or any mortgage on the Collateral shall remain in force and
effect notwithstanding any such substitution, renewal, or extension. All
remedies provided for herein upon any default by the undersigned shall be
cumulative and not exclusive.
If, at the time of payment and discharge hereof, any of the
undersigned shall be then directly or contingently liable to the Bank as maker,
indorser, surety or guarantor of any other Note, bill of exchange, or other
instrument, then the Bank may continue to hold any of the collateral as security
therefor, even though this Note shall have been surrendered to the undersigned.
The Bank shall not be bound to take any steps necessary to preserve any rights
in the Collateral against prior parties. If any obligation evidenced by this
Note is not paid when due, the Bank may, at its option, demand,
3
<PAGE> 4
sue for, collect or make any compromise or settlement it deems desirable with
reference to the Collateral, and shall have the rights of a secured party under
the law of the State of Ohio, and the undersigned shall be liable for any
deficiency.
Upon receipt of payment from the Borrower in the amount of the
original amount advance on any Model Homes, said Model Home shall be released
from the Mortgage and the security interest provided in the Loan and Security
Agreement to the Huntington.
DEFAULT
- -------
Upon the occurrence of any of the following events:
(1) the undersigned fails to make any payment within ten (10) days
of when due hereunder or to perform any obligation of the undersigned to the
Bank;
(2) the undersigned fails to do all things necessary to preserve and
maintain the value and collectibility of the Collateral;
(3) any event occurs and continues which constitutes a default by
any of the undersigned under any other obligation to or agreement with the Bank;
(4) the aggregate value of the Collateral material declines in value
or becomes unsatisfactory to the Bank and the undersigned fails to furnish
immediately upon request additional Collateral satisfactory to Bank;
(5) any guarantor revokes its guaranty, or any event occurs and
continues which constitutes a default by any guarantor under its guaranty;
(6) the undersigned fails to furnish true and complete financial
statements from time to time on request of the Bank as provided in Section 8 of
the Loan and Security Agreement;
(7) the death or dissolution of any of the undersigned, or any
endorser, surety, accommodation party or guarantor; or
(8) any representation, warranty or other information given to the
Bank by any of the undersigned, or by any indorser, surety, accommodation party
or guarantor proves to be false, untrue or misleading;
then the Bank may, at its option, without notice or demand, accelerate the
maturity of the obligations evidenced hereby, which obligations shall become
immediately due and payable. In the event the Bank shall institute any action
for the enforcement or collection of the obligations evidenced hereby, the
undersigned agree to pay all costs and expenses of such action, including
reasonable attorneys' fees, to the extent permitted by law.
GENERAL PROVISIONS
- ------------------
All of the parties hereto, including the undersigned, and any
indorser, surety, accommodation party or guarantor, hereby: (1) severally waive
presentment, notice of dishonor, protest, notice of protest, and diligence in
bringing suit against any party hereto; (2) consent that, without discharging or
modifying the duties of any of them and without notice, the Bank may (A) extend
the time of payment an unlimited number of times before or after maturity, (B)
grant any other indulgence at any time and from time to time to any party
hereto, (C) delay in exercising or omit to exercise any right against, or delay
in taking or omit to take any action to collect from or pursue the Bank's
remedies against, any party hereto, (D) release or modify any collateral,
security or guaranties; and (3) severally waive any claim, right or remedy which
such party may now have or hereafter acquire against any other party or parties
hereto that arises hereunder and/or from the performance by such party hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification or participation in
any claim, right or
4
<PAGE> 5
remedy of the Bank against the other party or parties, or any security which the
Bank now has or hereafter acquires, whether such claim, right or remedy arises
in equity, under contract, by statute, under common law or otherwise. The Bank
shall not be required to pursue any party hereto, including any guarantor, or to
exercise any rights against any Collateral provided herein before exercising any
other such rights.
No waiver of any term or condition of this Note shall be effective
unless in writing and signed by the party giving or granting the waiver. No
amendment of any term or condition of this Note shall be effective unless in
writing and signed by the undersigned and the Bank. No failure or delay on the
part of the Bank in exercising any right, power or privilege under this Note,
related loan documents or law nor any course of dealing, shall operate as a
waiver of such right, power or privilege or preclude any other or further
exercise thereof or of any other right, power or privilege.
The captions used herein are for reference only and shall not be
deemed a part of this Note. If any of the terms or provisions of this Note shall
be deemed unenforceable, the enforceability of the remaining terms and
provisions shall not be affected. This Note shall be governed by and construed
in accordance with the law of the State of Ohio.
The undersigned agrees that, to the extent that any of the
undersigned make a payment or payments to the Bank, or the Bank receives any
proceeds of Collateral, which payment or payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to any of the undersigned, its estate,
trustee, receiver or any other party, including without limitation any
guarantor, under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such payment or repayment, the
obligations under this Note or the part thereof which has been paid, reduced or
satisfied by such amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred.
BORROWER:
FIRST CINCINNATI LEASING 99 LLC,
an Ohio limited liability company
By: /s/ Allen G. Zaring III
-------------------------------------
Allen G. Zaring III
Its: Sole Member and Manager
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZARING
NATIONAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 14,362
<SECURITIES> 0
<RECEIVABLES> 6,474
<ALLOWANCES> 0
<INVENTORY> 151,479
<CURRENT-ASSETS> 0
<PP&E> 27,723
<DEPRECIATION> (8,048)
<TOTAL-ASSETS> 205,063
<CURRENT-LIABILITIES> 0
<BONDS> 60,750
0
0
<COMMON> 24,957
<OTHER-SE> 15,396
<TOTAL-LIABILITY-AND-EQUITY> 205,063
<SALES> 128,674
<TOTAL-REVENUES> 128,674
<CGS> 105,118
<TOTAL-COSTS> 131,984
<OTHER-EXPENSES> 26,866
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,404
<INCOME-PRETAX> (3,310)
<INCOME-TAX> (880)
<INCOME-CONTINUING> (2,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,430)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
