<PAGE>
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 April 26, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23027
Compass Plastics & Technologies, Inc.
-------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4611994
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
15730 South Figueroa Street
Gardena, CA 90248
-----------------
(Address of principal executive offices)
(Zip Code)
(213) 770-8771
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At June 1, 1998, the Registrant had 4,883,750 shares of common stock, par value
$.0001 per share, outstanding.
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<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
FORM 10-Q
INDEX
Page
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
April 26, 1998 and October 26, 1997 ................... 3
Condensed Consolidated Statements of Operations for
the Thirteen Weeks and Twenty Six Weeks ended
April 26, 1998 and April 27, 1997 ..................... 5
Condensed Consolidated Statements of Cash
Flows for the Twenty Six Weeks Ended
April 26, 1998 and April 27, 1997 ..................... 6
Notes to Condensed Consolidated
Financial Statements .................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 11
PART II -- OTHER INFORMATION.....................................
Legal Proceedings .................................... 15
Changes in Securities ................................ 15
Defaults upon Senior Securities ...................... 15
Submissions of matters to a vote of securities holders 15
Other Information .................................... 15
Exhibits and Reports on Form 8-K ..................... 15
SIGNATURES ...................................................... 16
-2-
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
COMPASS PLASTICS & TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 26, October 26,
1998 1997
----------- -----------
ASSETS (unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash & cash equivalents $ 740,040 $ 411,930
Accounts receivable, net 8,281,055 5,750,205
Accounts receivable, other 146,863 339,139
Inventories 6,902,720 3,898,600
Other current assets, net 725,649 755,573
----------- -----------
Total current assets 16,796,327 11,155,447
Property, Plant and equipment, net 24,266,158 18,111,455
Other Assets
Goodwill, net 18,106,883 1,807,409
Other assets, net 1,425,278 316,578
----------- -----------
Total other assets 19,532,161 2,123,987
----------- -----------
Total Assets $60,594,646 $31,390,889
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilites:
Accounts payable and accrued expenses $ 6,986,886 $ 7,802,412
Accrued wages and related expenses 1,392,932 924,535
Current portion of capitalized lease 1,242,275 122,846
Income tax payable 25,374 54,597
Current portion of long-term debt 3,241,179 400,303
----------- -----------
Total current liabilities 12,888,646 9,304,693
Other Liabilities:
Long term portion of capital lease 490,040 573,089
Long term portion of long-term debt 31,452,268 6,026,435
Deferred income taxes payable 1,858,208 1,838,648
----------- -----------
Total other liabilities 33,800,516 8,438,172
Total Liabilities 46,689,162 17,742,865
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
April 26, October 26,
1998 1997
------------ ------------
(unaudited) (audited)
<S> <C> <C>
Stockholders' Equity:
Preferred stock, par value $.0001; 5,000,000 shares
authorized; none issued and outstanding -- --
Common stock, par value $.0001; 20,000,000 shares
authorized, 4,883,750 issued and outstanding at
April 26, 1998 and October 26, 1997, respectively 488 488
Additional paid-in capital 12,578,134 12,083,397
Notes receivable from sale of stock (706,448) (733,224)
Retained earnings 2,033,310 2,297,363
------------ ------------
Total Stockholder's Equity 13,905,484 13,648,024
------------ ------------
Total Liabilities and Stockholders' Equity $ 60,594,646 $ 31,390,889
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
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<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
April 26, April 27, April 26, April 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales $13,119,280 $9,853,369 $23,907,004 $20,244,365
Cost of Goods Sold 11,771,708 8,011,663 21,206,162 16,393,249
------------ ------------ ------------ ------------
Gross Profit 1,347,572 1,841,706 2,700,842 3,851,116
------------ ------------ ------------ ------------
Selling, General and Administrative:
Selling Expenses 219,970 180,438 390,057 294,133
General Administrative 1,053,724 653,435 1,645,704 1,127,511
Amortization of Goodwill 153,858 26,587 179,907 34,555
------------ ------------ ------------ ------------
Total Selling, General and Administrative 1,427,552 860,460 2,215,668 1,456,199
------------ ------------ ------------ ------------
Operating Income (Loss) (79,980) 981,246 485,174 2,394,917
Interest Expense 624,634 182,753 828,132 451,243
------------ ------------ ------------ ------------
Income (loss) before Income Tax (704,614) 798,493 (342,958) 1,943,674
Provision (benefit) for income taxes (282,343) 316,770 (137,182) 763,770
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ($422,271) $481,723 ($205,776) $1,179,904
Extraordinary loss from extinguishment
of indebtedness, net of tax (58,277) -- (58,277) --
------------ ------------ ------------ ------------
Net income (loss) ($480,548) $481,723 ($264,053) $1,179,904
============ ============ ============ ============
Net income (loss) per comon share:
Basic:
Income (loss) before extraordinary loss ($0.09) $0.24 ($0.04) $0.59
Extraordinary loss (0.01) -- (0.01) --
------------ ------------ ------------ ------------
Net income (loss) ($0.10) $0.24 ($0.05) $0.59
============ ============ ============ ============
Diluted:
Income (loss) before extraordinary loss ($0.09) $0.13 ($0.04) $0.33
Extraordinary loss (0.01) -- (0.01) --
------------ ------------ ------------ ------------
Net income (loss) ($0.10) $0.13 ($0.05) $0.33
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
COMPASS PLASTICS & TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks Ended
April 26, 1998 April 27, 1997
-------------- --------------
<S> <C> <C>
Operating Activities:
Net Income (loss) ($264,053) $1,179,904
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 1,194,862 635,963
Deferred income taxes 23,511 146,997
Change in operating assets and liabilities,
net of effects from purchase of MOS:
Accounts receivable, net (259,457) 2,346,239
Accounts receivable, other 199,891 (57,976)
Inventories (11,879) (1,097,669)
Prepaid expenses (507,591) 62,072
Prepaid income taxes 0 18,515
Income tax refund receivable (15,716) (42,942)
Deposits (189,875) (221,646)
Accounts payable and accrued expenses (2,565,163) 254,756
Accrued wages and payroll taxes payable (396,326) 386,248
Income tax payable (597,330) (76,300)
------------ ------------
Net cash provided by (used in) operating activities ($3,389,126) $3,534,161
------------ ------------
Investing Activities:
Purchase of equipment and improvements ($3,813,329) ($399,068)
Collection on notes receivable, other 26,776 (50,000)
Acquisition of M.O.S., net of cash acquired (17,598,419) --
------------ ------------
Net cash used in investing activities ($21,384,972) ($449,068)
------------ ------------
Financing Activities:
Proceeds from long-term debt $26,101,341 $0
Proceeds from line of credit 11,100,000 --
Repayment of long-term debt (458,620) --
Repayment of line of credit (11,508,964) (2,850,000)
Repayment of capitalized lease obligations (131,548) (162,189)
------------ ------------
Net cash provided by financing activities $25,102,208 ($3,012,189)
------------ ------------
Net increase (decrease) in cash and cash equivalents 328,110 72,904
Cash and cash equivalents at beginning of period 411,930 729,730
------------ ------------
Cash and cash equivalents at end of period $740,040 $802,634
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $684,725 $451,470
============ ============
Income taxes $451,553 $717,500
============ ============
</TABLE>
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<PAGE>
Compass Plastics & Technologies, Inc.
Notes to Condensed Financial Statements
1. Basis of Presentation
Compass Plastics & Technologies, Inc., together with its wholly owned
subsidiaries, AB Plastics Corporation, based in Gardena, California, AB Plastics
de Mexico, S.A . de C.V., based in Tijuana, Mexico, and M.O.S. Plastics, Inc.,
based in San Jose, California, is referred to as "Compass" or the "Company".
The accompanying consolidated financial statements are unaudited, except for the
October 26, 1997 balance sheet, and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally required in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate for a fair presentation.
These condensed consolidated financial statements reflect all adjustments which,
in the opinion of management, are necessary to fairly present the results of
operations for the interim periods. All of the adjustments which have been made
are of a normal and recurring nature. The results of interim reporting are not
necessarily an indication of the results to be expected for the full year.
For information concerning the Company's significant accounting policies,
reference is made to the Company's filing with the Securities and Exchange
Commission on Form 10-K for the fiscal year ended October 26, 1997.
2. Inventories
As of As of
April 26, 1998 October 26, 1997
-------------- ----------------
Raw Materials $3,584,749 $2,127,034
Finished Goods and WIP 3,317,971 1,771,566
---------- ----------
Total $6,902,720 $3,898,600
========== ==========
3. Net Earnings (Loss) per Share
During the 26 weeks ended April 26, 1998, the Company adopted the provision of
statement of accounting standards No. 128 earnings per share ("SFAS 128"). SFAS
128 eliminates the presentation of primary and fully diluted earnings per share
("EPS") and requires presentation of basic and diluted EPS. Basic EPS is
computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
is based on the weighed average of common stock and common stock equivalents
outstanding at the end of the period. Common stock equivalents have been
excluded for the weighted average shares for the 13 weeks and 26 weeks ended
April 26, 1998 as inclusion is anti-dilutive. All prior period EPS data has been
restated to conform to the new pronouncement. The impact of adopting SFAS 128
was not material. The following table sets forth the computation of basic and
diluted earnings per share.
-7-
<PAGE>
<TABLE>
<CAPTION>
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended
April 26, 1998 April 27, 1997 April 26, 1998 April 27, 1997
(Consolidated) (Consolidated) (Consolidated) (Consolidated)
<S> <C> <C> <C> <C>
Numerator
Net Earnings for Basic EPS ($480,548) $481,723 ($264,053) $1,179,904
Net Earnings for Diluted EPS ($480,548) $481,723 ($264,053) $1,179,904
Denominator
Shares for Basic EPS
Avg. Shares Outstanding 4,883,750 2,000,000 4,883,750 2,000,000
Stock Options N/A (1) 1,600,000 N/A (2) 1,600,000
Shares for Diluted EPS 4,883,750 3,600,000 4,883,750 3,600,000
Basic EPS ($0.10) $0.24 ($0.05) $0.59
Diluted EPS ($0.10) $0.13 ($0.05) $0.33
</TABLE>
(1) Shares from options to purchase 370,159 shares of common stock at prices
ranging from $1.00 to $12.40 per share are excluded from the diluted
earnings per share calculations because they are anti-dilutive.
(2) Shares from options to purchase 376,508 shares of common stock at prices
ranging from $1.00 to $12.40 per share are excluded from the diluted
earnings per share calculations because they are anti-dilutive.
4. Acquisition of M.O.S. Plastics, Inc.
On February 27, 1998, Compass Plastics & Technologies, Inc. ("Compass")
completed the acquisition from Werner H. Schulz and Carolyn Schulz, co-trustees
of the Schulz Family Living Trust, of all of the outstanding shares of capital
stock of M.O.S. Plastics, Inc. ("MOS"), a San Jose, California-based
injection-molding company that specializes in producing turn-key plastics parts
and subassemblies. The purchase price for the stock was approximately $17.4
million in cash, subject to adjustment based on a percentage of any step-up in
basis of any of the tangible assets of MOS. Compass also issued to Werner H.
Schulz and Carolyn Schulz, co-trustees of the Schulz Family Living Trust,
five-year warrants to purchase 50,000 shares of the common stock of Compass at
an exercise price of $10.80 per share, and entered into a one-year employment
agreement with Mr. Schulz, followed by a one-year consulting agreement, for him
to continue in the areas of sales, engineering and tooling for MOS. Mr. Schulz
was elected to the Board of Directors of Compass on May 14, 1998. The
information set forth above is qualified in its entirety by reference to the
Stock Purchase Agreement, dated as of January 28, 1998, between Compass and
Werner H. Schulz and Carolyn Schulz, co-trustees of the Schulz Family Living
Trust, a copy of which was filed on March 6, 1998 with the Securities and
Exchange Commission as an exhibit to the Company's Current Report on Form 8-K.
The acquisition has been accounted for using the purchase method of accounting.
The excess of the purchase price over the fair values of the net assets acquired
was approximately $16.5 million and has been recorded as goodwill which is being
amortized on a straight line basis over a 20 year period.
-8-
<PAGE>
In connection with the acquisition, Compass, its wholly-owned
subsidiary AB Plastics Corporation ("AB"), and MOS entered into a Commercial
Loan Agreement with The Sumitomo Bank of California ("Sumitomo") and
Manufacturers Bank ("Manufacturers") (collectively, the "Lenders"), pursuant to
which Compass and such subsidiaries (collectively, the "Borrowers") obtained a
$6,000,000 revolving credit commitment (with borrowings thereunder limited to
specified percentages of the Borrowers' eligible accounts receivable and
eligible inventory) maturing on January 2, 2003, and an amortizing $14,000,000
term loan with final maturity on January 2, 2003. Interest payable in respect of
such loans will vary depending on the Company's relative degree of leverage from
time to time, and such loans are secured by substantially all of the non-real
estate assets of the Borrowers. In addition to scheduled amortization payments,
the term loan is subject to mandatory prepayment under certain circumstances,
including out of any new net debt proceeds, and specified portions of future net
equity proceeds and/or excess cash flow until such time as the principal balance
of the term loan is reduced to $7,000,000. The proceeds of the term loan and
initial revolving credit borrowings were utilized to retire the outstanding
revolving credit borrowings under the Company's and AB's previous loan facility
with Sumitomo, to pay a portion of the purchase price for the shares of capital
stock of MOS, to retire certain secured indebtedness of MOS, and to pay
transaction expenses relating to the acquisition.
As a result of the Company's losses for the 26-week period, as of April
26, 1998, Compass was in violation of certain financial covenants under its
Commercial Loan Agreement. The lenders have since amended the loan agreement
retroactive to April 26, 1998 to levels where Compass is in compliance.
Also in connection with the acquisition, Compass and AB issued a
$7,000,000 debenture to Sirrom Capital Corporation d/b/a Tandem Capital
("Sirrom") and a $2,000,000 debenture to Pinecreek Capital Partners, L.P.
("Pinecreek"), each of which debentures bears interest at 12.25% per annum
payable quarterly in arrears, and matures as to all principal on February 27,
2003. Compass' and AB's obligations under such debentures are secured by second
liens on substantially all of Compass' and AB's non-real estate assets, and such
obligations and liens are subordinated to the liens securing the obligations
under the Commercial Loan Agreement described above. The net proceeds of such
debentures were used to pay a portion of the purchase price for the shares of
capital stock of MOS.
In conjunction with the issuance of such debentures, the Company issued
to Sirrom and Pinecreek five-year warrants to purchase 420,000 shares and
120,000 shares of common stock of Compass, respectively, at an exercise price of
$6.75 per share. In addition, in the event that any portion of their respective
debentures remain outstanding on February 27, 2000 and/or each anniversary
thereof, Compass has agreed to issue, on each such date, to Sirrom an additional
warrant for 140,000 shares of common stock of the Company, and/or to Pinecreek
an additional warrant for 40,000 shares of common stock of Compass, in each case
at an exercise price equal to the greater of $7.00 per share or 75% of the
average closing bid price of Compass' common stock for the 20 trading days
preceding the required date of issuance of such additional warrant. Compass has
granted to Sirrom and Pinecreek demand and piggyback registration rights in
respect of the shares underlying such warrants, and has granted, so long as the
debentures remain outstanding, observer rights for a representative of each of
Sirrom and Pinecreek to attend all meetings of Compass' Board of Directors.
-9-
<PAGE>
As a consequence of the acquisition, the consolidated balance sheet of the
Company at April 26,1998 includes the balance sheet of MOS along with
preliminary purchase accounting adjustments. The results of operations of MOS
have been included in the consolidated results of operations and the
consolidated statements of cash flow of the Company since February 27, 1998, the
date of acquisition.
The following proforma financial information presents the results of operations
of the Company with MOS as though the acquisition was consummated as of October
27,1997. Proforma adjustments have been made to give effect to the amortization
of goodwill and other intangibles, interest expense related to acquisition debt,
the related tax effects, and the effect upon basic and diluted earnings per
share of the stock options and stock warrants issued in conjunction with the
acquisitions.
13 Weeks Ended 26 Weeks Ended
April 26, 1998 April 26, 1998
-------------- ---------------
Sales $14,655,105 $29,681,150
Net Income ($515,953) ($613,451)
Net Income (loss) per Share
Basic ($0.11) ($0.13)
Diluted ($0.11) ($0.13)
Such proforma results are not necessarily indicative of what the actual
consolidated results of operations would have been if the acquisition had been
effected at the beginning of the periods presented or the results which may be
achieved in the future.
5. Extraordinary Loss from Extinguishment of Indebtedness
As a consequence of the new senior loan agreement with Sumitomo and the
repayment of outstanding revolving credit borrowings under AB's previous loan
facility, approximately $97,000 of deferred loan fees was retired, and it was
recorded as an extraordinary loss from extinguishment of indebtedness during the
13 weeks ended April 26, 1998.
-10-
<PAGE>
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The Company is a leading manufacturer and assembler of custom injection molded
plastic components for computer, medical and consumer electronics OEM's located
in California and Mexico. The Company manufactures complex components based on
customer specifications and orders. The Company's most significant customers are
the television and computer display divisions of Sony, Matsushita's Panasonic
and Quasar television units, Samsung's computer monitor unit, Casio's electronic
keyboard unit, Hitachi and Sanyo television units. The Company supplies its
customer requirements from its manufacturing facilities in Gardena and San Jose,
California, and Tijuana, Mexico.
The Company's purchase of Silicon Valley-based MOS Plastics, Inc. was completed
on February 27, 1998. MOS' current customers include many divisions of Hewlett
Packard, Apple Computer, Lifescan, Nellcor, Origin, and Silicon Graphics. The
addition of MOS is one major step towards achieving the Company's goals of
customer diversification and expansion of its engineering, tooling and
manufacturing capability. The Company believes the acquisition solidifies
Compass' position as a total outsourcing partner from design to production.
The Company has been affected by the economic instability of Asian countries
which is reflected in the Company's reported losses in the quarter and for the
year. Some companies have taken a nationalistic view, including one of Compass'
customers so far, and are relocating some production back home to offset
unemployment and enjoy favorable export prices due to currency devaluation. The
Company believes, however, that this situation is temporary and that the
decisions to transfer production from Asia to the Baja California, Mexico, area
will be driven by the NAFTA requirements for international electronic
manufacturers to have significant production facilities in North America by
2001. The Company knows of ten, mostly Taiwanese, computer monitor manufacturers
that have opened or announced plans to open plants in the Baja area this year.
However, there can be no guarantee the Company will be awarded any new business
from these companies. The Company's earnings have been reduced due to the added
overhead expenses of the Company's new plant in Tijuana which was built in
anticipation of this future business.
-11-
<PAGE>
Comparative Results of Operations;
The following table sets forth, for the periods indicated, certain information
relating to the Company's operations expressed as a percentage of the Company's
net sales.
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
April 26, April 27, April 26, April 27,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 89.7% 81.3% 88.7% 81.0%
------------ ------------ ------------ ------------
Gross Profit 10.3% 18.7% 11.3% 19.0%
------------ ------------ ------------ ------------
Selling, General and Administrative:
Selling Expenses 1.7% 1.8% 1.6% 1.5%
General Administrative 8.0% 6.6% 6.9% 5.6%
Amortization of Goodwill 1.2% 0.3% 0.8% 0.2%
------------ ------------ ------------ ------------
Total Selling, General and Administrative 10.9% 8.7% 9.3% 7.2%
------------ ------------ ------------ ------------
Operating Income (Loss) (0.6%) 10.0% 2.0% 11.8%
Interest Expense 4.8% 1.9% 3.5% 2.2%
------------ ------------ ------------ ------------
Income (loss) before Income Tax (5.4%) 8.1% (1.4%) 9.6%
Provision (benefit) for income taxes (2.2%) 3.2% (0.6%) 3.8%
------------ ------------ ------------ ------------
Income (loss) before extraordinary item (3.2%) 4.9% (0.9%) 5.8%
Extraordinary loss from extinguishment
of indebtedness 0.4% 0.0% 0.2% 0.0%
------------ ------------ ------------ ------------
Net income (loss) (3.7%) 4.9% (1.1%) 5.8%
============ ============ ============ ============
</TABLE>
The Company's sales for the 13 weeks ended April 26, 1998 increased $3.3 million
or 33.1% over the comparable 1997 period, due primarily to the inclusion of the
sales of MOS from February 27,1998, the date of acquisition. Sales from existing
businesses increased 6.2% over the comparable 1997 period. The Company shipped
over $4.4 million of product to several customers from its new Tijuana plant, a
56% increase over shipments in the first quarter of 1998. Sales to Sony
increased 4.3% over the comparable 1997 period, and represented 55.6% of total
sales in the 1998 period, compared to 71.0% of total sales for the comparable
1997 period.
The Company's sales for the 26 weeks ended April 26,1998 increased $3.6 million
or 18.1% due primarily to the inclusion of the sales of MOS from February
27,1998, the date of acquisition. Sales from existing businesses increased 4.6%
over the comparable 1997 period.
-12-
<PAGE>
The Company's gross profit declined 26.8% for the 13 weeks, and 29.9% for the 26
weeks, over the comparable 1997 periods respectively. AB's revenue was up
slightly in the quarter and for the year, however the start-up of its Tijuana
plant, which added significant overhead expenses, is principally responsible for
the gross profit decline. AB has cut overhead expenses at its Gardena plant and
completed construction of its new warehouse in May, eliminating off-site
warehousing costs. However, the Company's reduced gross profits, as a percentage
of sales, will continue until such time as revenue increases to offset the
additional overhead expenses of the new plant.
The Company's selling, general and administrative expenses increased 65.9% for
the 13-week period and 52.2% for the 26-week period, over the comparable 1997
periods, respectively. SG&A expenses were 10.9% of sales for the 13 weeks, and
9.3% for the 26 weeks, compared to 8.7% and 7.2% for the comparable 1997
periods, respectively. The increase is primarily due to the inclusion of MOS
from February 27,1998, the date of acquisition, which added $270,000 in expenses
and $130,000 of goodwill amortization, administrative expenses of AB Plastics de
Mexico which started operations in November 1997, personnel additions in sales
and finance at AB added during the 1997 fiscal year, and incremental costs
associated with being a publicly-held company beginning in September 1997.
The Company's interest expense increased $442,000, or 242%, for the 13 weeks,
and $377,000, or 83.6%, for the 26 weeks, over the comparable 1997 periods,
respectively. Approximately $400,000 of the increase was attributable to new
debt issued to purchase the stock of MOS. Additionally, interest expense
increased from the inclusion of existing MOS debt from February 27,1998, the
addition of debt associated with the purchase of new equipment for Tijuana in
November 1997, and the purchase of the Gardena property and construction of the
warehouse addition starting in August 1997.
Liquidity and Capital Resources
The Company has historically generated sufficient cash flows from operations to
fund its general working capital needs. As of April 26, 1998, the Company had
working capital of $3.9 million compared to $1.9 million at October 26,1997. The
increase was attributable to the inclusion of MOS, which added $900,000, and a
reduction in accounts payable and accrued employee benefits of $3.4 million
offset by an increase in the current portion of debt of $2.3 million.
Net cash used by operations for the 26 weeks ended April 26,1998 was $3.4
million, compared to $3.5 million provided by operations for the comparable 1997
period. The principle use of cash was a reduction in accrued payables and
compensation of $3.6 million.
Net cash used for non-acquisition investing activities for the 26 weeks ended
April 26, 1998 was $3.8 million, compared to $449,000 for the comparable 1997
period. The 1998 amount reflects the Company's expenditures related to the
expansion of the Gardena property and the final construction and installation of
equipment at its Tijuana plant.
The Company's financing activities included a new $3.0 million loan from General
Electric Capital Corporation to pay for equipment at its Tijuana plant. The loan
is secured by that equipment. The Company also borrowed an additional $731,000
under its construction loan agreement to complete its warehouse addition.
-13-
<PAGE>
In connection with the acquisition of MOS, Borrowers entered into a new $20
million Commercial Loan Agreement with Sumitomo and Manufacturers. The loan
consists of a $6 million revolving credit facility and a $14 million term loan.
At April 26, 1998, total borrowings under the loan agreement were $18.1 million.
The interest rate is variable based on the Company's leverage ratios from time
to time. Interest is payable monthly, with scheduled principal payments on the
term loan to be made quarterly starting July 1, 1998. At April 26, 1998, the
Company's effective interest rate was 8.55%. Also in connection with the
acquisition, Compass and AB borrowed $9 million in subordinated debentures. The
interest rate is 12.25% and interest is payable quarterly beginning June 1,
1998. The information set forth above is qualified in its entirety by reference
to the respective loan agreements, dated as of February 27, 1998, copies of
which are attached hereto as Exhibits 10.19, 10.20 and 10.21.
As a result of the Company's losses for the 26-week period, as of April 26,
1998, Compass was in violation of certain financial covenants under its senior
loan agreement. The lenders have since amended the loan agreement retroactive to
April 26, 1998 to levels where Compass is in compliance.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. These forward-looking statements are
based largely on the Company's expectations and are subject to a number of risks
and uncertainties, certain of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of, among other factors, risks related to the Company's dependence on the
computer and consumer electronics industries, its concentration of customers,
fluctuations in operating results, potential significant indebtedness and
leverage, competition, variability of customer requirements and nature of
customer commitments on orders, the integration of the Company's new Mexican
manufacturing facility and other risks described in the Company's Registration
Statement on Form S-1. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this report will
in fact occur.
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Part II - Other Information
Item 1. Legal Proceedings
The Company is not a party to any legal proceedings other than routine
litigation incidental to its business, none of which is material.
Item 2. Change in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
As of April 26, 1998, Compass was in violation of certain financial
covenants under its senior loan agreement. The lenders have since
amended the loan agreement retroactive to April 26, 1998 to levels
where Compass is in compliance.
Item 4. Submission of Matters to a vote of Securities Holders
None.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits :
10.19 Commercial Loan Agreement, dated as of February 27,1998, between
Compass, AB, and MOS ("Borrowers") and Sumitomo Bank of
California and Manufacturers Bank.
10.20 Debenture Purchase Agreement dated February 27,1998, between
Compass, AB, and Sirrom Capital Corporation d/b/a Tandem Capital.
10.21 Debenture Purchase Agreement dated February 27,1998, between
Compass, AB, and Pinecreek Capital Partners, L.P.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed the following reports during the quarterly period ending
April 26,1998:
1. Current Report on Form 8-K, dated January 28, 1998, reporting the
execution of an agreement to acquire MOS Plastics.
2. Current Report on Form 8-K, dated February 27, 1998, as amended,
reporting the closing of the acquisition of MOS Plastics.
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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.
COMPASS PLASTICS & TECHNOLOGIES, INC.
Date: June 12, 1998 By: /s/ Paul J. Iacono
-------------------------------------
Paul J. Iacono, Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT 10.19
COMMERCIAL LOAN AGREEMENT
This Commercial Loan Agreement ("Agreement") is made as of
February 27, 1998 by and among THE SUMITOMO BANK OF CALIFORNIA, a California
banking corporation ("Sumitomo"), MANUFACTURERS BANK, a California banking
corporation ("Manufacturers"), AB PLASTICS CORPORATION, a California corporation
("AB Plastics"), M.O.S. PLASTICS, INC., a California corporation ("MOS
Plastics"), COMPASS PLASTICS & TECHNOLOGIES, INC., a Delaware corporation
("Guarantor"), and Sumitomo in its capacity as agent for Sumitomo and
Manufacturers (the "Agent"). Manufacturers and Sumitomo are sometimes
collectively referred to herein as the "Banks." AB Plastics and MOS Plastics are
each sometimes referred to herein as a "Borrower" and collectively and severally
as "Borrowers."
RECITALS
A. AB Plastics and Sumitomo entered into that certain
Commercial Loan Agreement dated September 27, 1996 (the "Existing Agreement").
B. Borrowers, Guarantor, Banks and Agent are entering into
this Agreement in order to replace and supersede the Existing Agreement in its
entirety, and to set forth the terms and conditions of the new credit
arrangements between the Banks and the Borrowers.
NOW, THEREFORE, in consideration of the foregoing Recitals,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
1. CREDIT FACILITIES, AMOUNT AND TERMS.
Banks agree to make available to Borrowers the following line(s) of
credit and/or credit accommodations on the following terms, covenants and
conditions:
1.1 Revolving Line of Credit
(a) Revolving Line of Credit. During the Availability
Period, Banks will provide a line of credit (the "Revolving Line of
Credit") to Borrowers. The maximum amount of the Revolving Line of
Credit including the subline facility for letters of credit (the "Total
Revolver Commitment") is Six Million Dollars ($6,000,000). Of the Total
Revolver Commitment, Sumitomo's Commitment is Three Million Dollars
($3,000,000) and Manufacturer's Commitment is Three Million Dollars
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($3,000,000). Upon execution of this Agreement, the respective
Commitments of the Banks shall be as set forth above. Under no
circumstances shall any Bank be obligated to advance more than its
particular Commitment. Each advance will be credited to the Banks'
respective Commitments in proportion to their respective Pro Rata
Shares. As used in this Agreement, "Pro Rata Share" means, as to any
Bank at any time, the percentage equivalent (expressed as a decimal,
rounded to the ninth decimal place) at such time of such Bank's
Commitment divided by the Total Revolver Commitment of all Banks.
Sumitomo's Pro Rata Share is 0.50 and Manufacturers' Pro Rata Share is
0.50. Borrowers' obligations to repay the Revolving Line of Credit are
evidenced by two promissory notes (one in favor of Sumitomo and one in
favor of Manufacturers) substantially in the forms of Exhibits A-1 and
A-2 attached hereto (collectively, the "Revolving Line Notes"). Banks'
obligations to make advances under the Revolving Line of Credit are
subject to the additional borrowing base limitations set forth in
subparagraph (b) below, as well as the other applicable terms and
conditions of this Agreement.
(b) Borrowing Base Limitations on Revolving Line of
Credit. During the Availability Period, the Banks will, on a revolving
basis, make advances to Borrowers, which may not at any time exceed, in
the aggregate outstanding, the lesser of the Total Revolver Commitment
or the Borrowing Base. As a further limitation on the Banks'
obligations, in no event shall the Banks be obligated (i) to make
advances to AB Plastics under the Revolving Line of Credit which would
cause the amounts outstanding to AB Plastics thereunder to exceed the
AB Plastics Borrowing Base, or (ii) to make advances to MOS Plastics
under the Revolving Line of Credit which would cause the amounts
outstanding to MOS Plastics thereunder to exceed the MOS Plastics
Borrowing Base.
(i) "Borrowing Base" means, collectively,
the AB Plastics Borrowing Base and the MOS Plastics Borrowing
Base.
(ii) "AB Plastics Borrowing Base" shall mean
the sum of eighty-five percent (85%) of the net face amount of
Eligible Accounts generated and owned by AB Plastics, after
deduction of such reserves as Banks deem necessary and proper
in their reasonable judgment, plus fifty percent (50%) of
Eligible Inventory owned by AB Plastics, after deduction of
such reserves as Agent deems necessary and proper in its
reasonable judgment (provided, however, that the amount which
may be borrowed against such Eligible Inventory may never
exceed the amount which may be borrowed against such Eligible
Accounts, based on the foregoing formulas).
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(iii) "MOS Plastics Borrowing Base" shall
mean the sum of eighty-five percent (85%) of the net face
amount of Eligible Accounts owned and generated by MOS
Plastics, after deduction of such reserves as Banks deem
necessary and proper in their reasonable judgment, plus, fifty
percent (50%) of the Eligible Inventory owned by MOS Plastics,
after deduction of such reserves as Agent deems necessary and
proper in its reasonable judgment (provided, however, that the
amount which may be borrowed against such Eligible Inventory
may never exceed the amount which may be borrowed against such
Eligible Accounts, based on the foregoing formulas),
(iv) "Accounts Receivable" shall mean open
accounts arising in the ordinary course of Borrowers' business
from services performed or goods sold by Borrowers.
(v) "Account Debtor" shall mean the obligor
on any Accounts Receivable.
(vi) "Eligible Accounts" shall mean Accounts
Receivable, excluding the following (which exclusions shall be
calculated without duplication, to the greatest extent
possible):
(A) Accounts Receivable which remain
uncollected more than 90 days from the date they are
first invoiced.
(B) Accounts Receivable due from an
Account Debtor which suspends business, suffers a
business failure or the termination of its existence,
or makes an assignment for the benefit of creditors,
or as to which a dissolution, insolvency or
bankruptcy proceeding has been commenced, or as to
whose property a trustee, receiver or conservator has
been appointed.
(C) Accounts Receivable due from an
Account Debtor affiliated with Borrowers, such as a
stockholder, owner, parent, subsidiary, officer,
director, agent or employee of Borrowers, or due from
Account Debtors having common officers or directors
with Borrowers or Guarantor.
(D) Accounts Receivable with respect
to which payment is or may be contingent or
conditional.
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(E) Accounts Receivable due from an
Account Debtor who is not a resident or citizen of,
located in, or subject to service of process in the
United States of America.
(F) Accounts Receivable against
which is asserted a defense, counterclaim, discount
or setoff.
(G) Accounts Receivable due from an
Account Debtor which is any national, federal, state,
county or municipal government, including, without
limitation, any instrumentality, division, agency,
body or department thereof.
(H) Accounts Receivable commonly
known as "bill and hold" or subject to any repurchase
or return agreement, or which relate to goods on
consignment or on approval or any similar
arrangement.
(I) Accounts Receivable relating to
an Account Debtor with respect to which twenty-five
percent (25%) or more of the total Accounts
Receivable owing by such Account Debtor are over 90
days delinquent.
(J) Accounts Receivable due from an
Account Debtor of either Borrower which, in the
aggregate, exceed twenty-five percent (25%) of the
aggregate amount of all Eligible Accounts for such
Borrower (with the exception of Accounts Receivable
from Sony Corporation, which may be Eligible Accounts
to the extent that they do not exceed sixty percent
(60%), in the aggregate, of all Eligible Accounts for
such Borrower; and with the exception of Accounts
Receivable from Hewlett-Packard, which may be
Eligible Accounts to the extent that they do not
exceed thirty percent (30%), in the aggregate, of all
Eligible Accounts for such Borrower).
(K) Accounts Receivable as to which
Borrowers are or may become liable to an Account
Debtor for services rendered or sales made or for any
other reason, except to the extent that such Accounts
Receivable exceed the amount of such liability.
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(L) Accounts Receivable which are
not owned by Borrowers or are not free of all liens,
encumbrances, charges, rights or interests of any
kind, except in favor of Agent or as otherwise
permitted under this Agreement.
(M) Accounts Receivable which are
evidenced by chattel paper or an instrument of any
kind.
(N) Accounts Receivable which are
not evidenced by an invoice or other documentation in
form acceptable to Agent.
(O) Accounts Receivables arising as
a result of progress billings.
(P) "COD" Accounts Receivable and
accounts paid by post-dated check.
(Q) Accounts Receivable relating to
inventory not yet shipped or services not yet
rendered.
(R) Accounts Receivable which are
otherwise unacceptable to Agent in its reasonable
judgment.
(vii) "Eligible Inventory" shall mean those
items of Inventory located in the United States of America
consisting of raw materials, and finished goods which are in
good condition and currently saleable in the ordinary course
of Borrowers' business and are not otherwise unacceptable to
Agent in its reasonable judgment. Such Inventory shall not be
subject to any other lien or claim (except as otherwise
permitted under this Agreement), shall not have been consigned
or sold to any person (nor have been purchased by Borrowers)
as part of any bulk sale unless there was compliance with all
applicable bulk sale or transfer laws. Such Inventory shall be
located at such locations as are acceptable to Agent and
shall, at all times, be subject to and covered by, Agent's
perfected security interest.
(viii) "Inventory" shall mean all inventory
(as that term is defined in the Commercial Code of the State
of California) wherever located, which is or may at any time
be held for sale or lease, furnished under any contract of
service or held as raw materials, work in process, supplies or
materials used or consumed in Borrowers' business or which are
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<PAGE>
or might be used in connection with the manufacturing,
shipping, advertising or selling or finishing of such goods,
merchandise and other personal property and all documents of
title or documents representing the same, and all such
property, the sale or other disposition of which has given
rise to Accounts Receivable and which has been returned to or
repossessed or stopped in transit by Borrowers.
(c) Collection of Accounts Receivable. Borrowers
shall have the privilege, subject to revocation at the sole discretion
of Agent during the continuance of an Event of Default, to collect, at
Borrowers' expense, the payments due on Accounts Receivable upon the
express condition that all such collections shall be received by
Borrowers in trust for Banks. Upon demand by Agent, whether before or
after an Event of Default, Borrowers shall promptly deliver to Agent,
at the location specified in this Agreement, in kind, all remittances
received by Borrowers on Accounts Receivable, or if sales are made for
cash, the identical checks, cash, or other form of payment. The receipt
of any check or other item of payment by Agent shall not be considered
a payment in reduction of the sums owing to Banks until such check or
other item of payment is honored and finally paid. At any time during
the continuance of an Event of Default, Agent in its sole discretion
may, but is not obligated to, notify any Account Debtor to make payment
directly to Agent, and exercise any and all of Borrowers' rights
regarding the Account Receivable or the Account Debtor.
(d) Revolving Nature of Line of Credit. During the
Availability Period, Borrowers may repay principal amounts and reborrow
them under the Revolving Line of Credit.
(e) Subline Facility for Letters of Credit. The
Revolving Line of Credit includes a subline facility for letters of
credit. The subline facility for letters of credit is not to exceed
Five Hundred Thousand Dollars ($500,000).
(f) Maximum Revolving Line Balance. Borrowers agree
not to permit the outstanding principal balance of the Revolving Line
of Credit plus the amounts of any outstanding letters of credit under
the subline facility, including amounts drawn on letters of credit and
not yet reimbursed (such sum being referred to herein as the "Revolving
Line Balance"), to at any time exceed the lesser of the Total Revolver
Commitment or the Borrowing Base. Furthermore, Borrowers agree not to
permit the outstanding principal balance of the amounts advanced under
the Revolving Credit Line (i) to AB Plastics to at any time exceed the
AB Plastics Borrowing Base, and (ii) to MOS Plastics to at any time
exceed the MOS Plastics Borrowing Base. Borrowers agree to immediately
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pay down all amounts outstanding under the Revolving Line of Credit
which exceed any of the limitations specified herein, or in any other
applicable provisions of this Agreement.
(g) Minimum Advance. Each advance must be for at
least fifty thousand dollars ($50,000.00), or for the amount of the
remaining available Revolving Line of Credit, if less.
(h) Availability Period. The period during which
Borrowers may draw on the Revolving Line of Credit ("Availability
Period") is between the date of this Agreement and January 2, 2003 (the
"Maturity Date"), unless there exists an Event of Default, or event
which with the giving of notice or passage of time would constitute an
Event of Default, in which event Banks need not make any advances.
1.2 Repayment Terms of Revolving Line of Credit.
(a) Except as otherwise provided in Section 1.6(c)
hereof, Borrowers will pay in arrears on the first day of each calendar
month all interest accrued on amounts outstanding under the Revolving
Line of Credit (including, without limitation, all unreimbursed amounts
drawn under letters of credit).
(b) Except as otherwise provided in Section 1.3(f)
hereof with respect to letters of credit having terms extending beyond
the Maturity Date, Borrowers will repay in full all principal, interest
and other charges outstanding under the Revolving Line of Credit no
later than the Maturity Date.
(c) Any amount bearing interest at an Optional
Interest Rate may be repaid at the end of the applicable interest
period.
(d) Subject to provisions contained elsewhere herein,
Borrowers may prepay the Revolving Line of Credit in full or in part at
any time. The prepayment will be applied first to interest and charges
and then to the principal outstanding under the Revolving Line of
Credit.
(e) All payments of principal, interest, fees or
other amounts to be made by Borrowers under this Agreement shall be
made to Agent at its office located at 611 West Sixth Street, Los
Angeles, California, or at such other place as Agent may designate by
written notice to Borrowers and Banks (herein, the "Agent's Office").
1.3 Letter of Credit Subline Facility. The Revolving Line of
Credit may be used for financing: (i) commercial letters of credit (which will
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require drafts payable at sight), or (ii) standby letters of credit, in either
case with maturities not to extend beyond the earlier of (A) 365 days from
issuance, or (b) the Maturity Date. Each letter of credit will be issued by
Sumitomo pursuant to a completed request for letter of credit in the form of
Exhibit D hereto (each a "Request for Letter of Credit") delivered by Borrowers
to the Agent.
(a) Each Request for Letter of Credit shall be
submitted to the Agent not later than 11:00 a.m., Los Angeles time, at
least two (2) Banking Days prior to the date upon which the requested
letter of credit is to be issued. Upon issuance of a letter of credit,
the Agent promptly shall notify the Banks of the amount and terms
thereof.
(b) Upon the issuance of a letter of credit, each
Bank shall be deemed to have purchased a participation therein from
Sumitomo in an amount equal to that Bank's Pro Rata Share of the face
amount of the letter of credit. Without limiting the scope and nature
of each Bank's participation in any letter of credit, to the extent
that Sumitomo has not been reimbursed by Borrowers for any payment
required to be made by Sumitomo under any letter of credit, each Bank
shall, according to its Pro Rata Share, reimburse Sumitomo immediately
upon demand for the amount of such payment. The obligation of each Bank
to so reimburse Sumitomo shall be absolute and unconditional and shall
not be affected by the occurrence of any Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of Borrowers to reimburse Sumitomo for
the amount of any payment made by Sumitomo under any letter of credit
together with interest in accordance with this Agreement.
(c) The amount of outstanding letters of credit,
including amounts drawn on letters of credit and not yet reimbursed,
may not exceed at any one time Five Hundred Thousand Dollars ($500,000)
in the aggregate.
(d) Standby letters of credit issued in favor of
governmental agencies in lieu of worker's compensation insurance
premiums shall not exceed Two Hundred Thousand Dollars ($200,000) in
the aggregate outstanding at any one time.
(e) Any sum drawn under a letter of credit shall be
added to the principal amount outstanding under the Revolving Line of
Credit. The amount will bear interest and be due and payable by
Borrowers in the same manner as other advances under the Revolving Line
of Credit, except as provided in Section 1.3(f), below.
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(f) In the event any subline facility letters of
credit are outstanding on the Maturity Date, or if an Event of Default
occurs, Borrowers shall immediately deposit with Agent, as cash
collateral for the reimbursement obligations of Borrowers with respect
to such letters of credit and the Borrowers' repayment obligations
under the Notes (and Borrowers hereby grant to Agent, for the ratable
benefit of Banks, a security interest in such cash collateral to secure
such obligations), an amount equal to the entire face amount of all
outstanding letters of credit, to be applied to repay draws under
letters of credit as and when made.
(g) The issuance of any letter of credit or any
amendment to a letter of credit is subject to Agent's written approval
and must be in form and content reasonably satisfactory to Agent.
(h) Borrowers will sign Sumitomo's form Application
and Security Agreement for Commercial Letter of Credit or Application
and Agreement for Standby Letter of Credit, as applicable.
(i) Borrowers agree that Agent may automatically
charge their checking account for applicable fees, discounts, and other
customary charges relating to any letters of credit.
(j) Borrowers will pay to Agent, for the ratable
benefit of Banks, a non-refundable fee equal to the Applicable Spread
(for Offshore Rate advances) per annum times the undrawn face amount of
each standby letter of credit issued hereunder, payable quarterly in
arrears beginning on the first day of the month which is three (3)
months following the date of issuance of the Letter of Credit.
Borrowers will pay to Agent, for the ratable benefit of Banks,
Sumitomo's standard fees in effect from time to time, as determined by
Sumitomo, for commercial letters of credit issued under this Agreement.
(k) Borrowers will pay to Agent, for the benefit of
Sumitomo, any issuance and/or other fees that Agent notifies Borrowers
will be charged for issuing and processing letters of credit for
Borrowers (other than for the fees specified in (j) above, which shall
be for the ratable benefit of the Banks).
1.4 Term Loan Facility. The Banks will, on the Closing Date
and the satisfaction of all conditions to disbursement specified herein, make a
term loan (the "Term Loan") to Borrowers in the original principal amount of
$14,000,000; provided, however, that each Bank shall not be obligated to advance
more than its Pro-Rata Share ($7,000,000) of such amount. Borrowers' obligation
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to repay the Term Loan is evidenced by two Promissory Notes (one in favor of
Sumitomo and one in favor of Manufacturers) substantially in the forms of
Exhibits A-3 and A-4 attached hereto (collectively, the "Term Loan Notes"; and,
together with the Revolving Line Notes, the "Notes"). Any portion of the Term
Loan that is repaid may not be reborrowed.
1.5 Repayment Terms of Term Loan.
(a) Except as otherwise provided in Section 1.6(c)
hereof, Borrowers will pay in arrears on the first day of each calendar
month all interest accrued on amounts outstanding under the Term Loan.
(b) Borrowers shall pay to the Agent for application
to the outstanding principal amount of the Term Loan the following
amounts on the following dates:
(i) $600,000 on each of July 1, 1998 and
October 1, 1998;
(ii) $750,000 on each of January 1, 1999,
April 1, 1999, July 1, 1999 and October 1, 1999;
(iii) $800,000 per calendar quarter
commencing January 1, 2000 and continuing on the first day of
each calendar quarter thereafter (i.e., on the first day of
each April, July, October, and January) until the Maturity
Date, at which time any remaining outstanding principal of the
Term Loan (as well as all other indebtedness and obligations
owing under this Agreement and the Notes referenced herein)
shall be due and payable in full.
(c) In addition to the scheduled principal
amortization payments specified in Section 1.5 (b) above, Borrowers
shall promptly pay to Agent, for application to the outstanding
principal balance of the Term Loan, the following amounts:
(i) an amount equal to 100% of the net
proceeds generated from the sale of Borrowers' assets (except
to the extent such proceeds are used within 60 days to replace
the asset sold), other than the sale of inventory in the
ordinary course of business, in excess of $100,000 as to any
individual asset sale or $250,000 in aggregate as to all such
asset sales;
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(ii) an amount equal to 100% of the net
proceeds of all loans and borrowings received by Borrowers
subsequent to the date hereof, other than purchase money
financings of capital assets and other than refinancings of
then existing indebtedness;
(iii) an amount equal to 100% of all net
insurance proceeds received by Borrowers which are not applied
toward the repair, replacement or remediation of the insured
casualty within 60 days of receipt by Borrowers;
(iv) an amount equal to 75% (or 50% from and
after the date the Term Loan is reduced to $7,000,000 or less)
of the net cash proceeds (expressly excluding any cashless
exercise of any options or warrants) received by Borrowers
from any offering of stock or other securities, or other
issuance of equity; and
(v) an amount equal to 60% of the Excess
Cash Flow (as defined below) until such time as (1) the Term
Loan has been reduced to $7,000,000, and (2) the ratio of
Senior Funded Debt (as defined below) to EBITDA (as defined
below) has been maintained at or below 1.5 to 1 for the third
and fourth fiscal quarters of Borrowers. Excess Cash Flow
shall be calculated by Agent annually for the period
coinciding with Borrowers' fiscal year for each year beginning
with the fiscal year ending about October 26, 1998, based upon
audited fiscal year end financial statements. Such prepayment
must be paid to Agent by Borrowers by no later than one
hundred twenty (120) days following Borrowers' fiscal year
end. For purposes of this provision, the ratio of Senior
Funded Debt to EBITDA shall be measured quarterly, as of the
last day of each fiscal quarter, with Senior Funded Debt to be
determined as the amount thereof outstanding as of the day of
measurement (i.e., the last day of each fiscal quarter); and
EBITDA will be computed for the four quarters concluding with
each measuring date.
The payments specified above in this Section 1.5(c) shall be
applied to the principal payments owing under Section 1.5(b) in the inverse
order of maturity.
As used herein the following definitions have the following
meanings:
"Senior Funded Debt" means (without duplication) the
outstanding principal amount of, and all due and payable interest on, all
Indebtedness of Guarantor, Borrowers and their subsidiaries on a consolidated
basis (excluding debt subordinated in a manner acceptable to the Banks), plus
the value of payments that the Guarantor, Borrowers and their subsidiaries are
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obligated to make in the future under any covenant not to compete, "earn up" or
"earn out" agreements and other deferred payment obligations, whether accrued in
accordance with GAAP or based upon the achievement of, or the occurrence of, any
criteria specified in any agreement, determined on a consolidated basis in
accordance with GAAP.
"Indebtedness" of Guarantor, Borrowers and their subsidiaries
means, on a consolidated basis, without duplication, (a) all indebtedness of all
such entities for borrowed money, including overdrafts; (b) all obligations
issued, undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course of
business on terms normal to the industry); (c) all non-contingent reimbursement
or payment obligations with respect to Surety Instruments; (d) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by any such entities
(even though the rights and remedies of the seller or bank under such agreement
in the event of default are limited to repossession or sale of such property);
(f) all obligations with respect to capital leases; (g) all indebtedness
referred to in clauses (a) through (f) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any lien upon or in property (including accounts and contracts
rights) owned by Guarantor, Borrowers or their subsidiaries, even though such
entities have not assumed or become liable for the payment of such Indebtedness;
and (h) all Guaranty Obligations in respect of indebtedness or obligations of
others of the kind referred to in clauses (a) through (g) above.
"Surety Instruments" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Guaranty Obligation" means, with respect to any Indebtedness,
lease, dividend, letter of credit, or other obligation, to assume or hold
harmless the holder of any such obligation against loss in respect thereof.
"EBITDA" means (without duplication), with respect to
Guarantor, Borrowers and their subsidiaries on a consolidated basis, and with
respect to any period, net income (or net loss) for such period, plus income tax
expense for such period, plus gross interest expense for such period, plus
depreciation, amortization, deferred financing costs and other non-cash expense
for such period, plus losses on sales of fixed assets during such period, minus
gains on sales of fixed assets during such period, minus any extraordinary
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income or gain and non-operating income or gain for such period plus any
non-cash extraordinary losses for such period, all determined in accordance with
GAAP. For purposes of this definition, non-cash extraordinary losses means
non-cash extraordinary losses attributable to the write-down in the book value
of any fixed asset and all other non-cash extraordinary losses that the Banks
approve in writing for purposes of adding back to net income.
"Excess Cash Flow" means, for the Borrowers on a consolidated
basis determined in accordance with GAAP and for any fiscal year of the
Borrowers, the sum, without duplication, of net income for such period, plus
current and deferred income tax expense accrued during such period, plus gross
interest expense accrued during such period, plus depreciation and amortization
expense and other non-cash charges accrued during such period, minus non-cash
extraordinary income or gains for such period, plus non-cash extraordinary
expenses or losses for such period, minus gains on sales of fixed assets during
such period, plus losses on sales of fixed assets during such period, plus net
proceeds from the sales of fixed assets during such period (net of the cost of
replacement assets acquired during such period) other than sale of assets that
are subject to the mandatory prepayment requirements of Section 1.5(c) hereof,
minus income taxes paid in cash during such period, minus interest paid in cash
during such period, minus capital expenditures for such period (other than
capital leases and net of the net proceeds of purchase money financings), minus
scheduled principal payments during such period on Indebtedness described in
clauses (a), (b), (c), (d), (e), (f) and (g) of the definition of Indebtedness,
minus cash payments during such period in respect of covenants not to compete,
"earn up" and "earn out" agreements, and minus any voluntary prepayments under
the Term Loan.
1.6 Interest Rates.
(a) Interest Rate Absent Optional Interest Rate
Election. Unless Borrowers elect an Optional Interest Rate as described
below, the "Interest Rate" for sums outstanding under both the
Revolving Line of Credit and the Term Loan (collectively, the "Loans")
shall be Sumitomo's Prime Rate in effect from time to time, plus the
Applicable Spread (defined below).
(b) Definition of Prime Rate. The "Prime Rate" equals
the rate of interest set from time to time by Sumitomo at its head
office in San Francisco, California as its Prime Rate. The Prime Rate
is determined by Sumitomo as a means of pricing credit extensions to
some customers and is neither tied to any external rate of interest or
index nor is it necessarily the lowest rate of interest charged by
Sumitomo at any given time for any particular class of customers or
credit extensions. Any changes in the interest rate resulting from a
change in the Prime Rate shall take effect without notice on the date
specified at the time the Prime Rate is set.
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(c) Optional Interest Rate. Instead of the interest
rate based on Sumitomo's Prime Rate, Borrowers may elect to have all or
portions of the Loans bear interest at the Offshore Rate plus the
Applicable Spread (as defined below) (the "Optional Interest Rate"),
during an interest period agreed to by Agent and Borrowers. Each
interest rate is a rate per annum. Interest will be paid on the last
day of each interest period and, if the interest period is longer than
30 days, then on the first day of each month during the interest
period. At the end of any interest period, the interest rate will
revert to the rate based on the Prime Rate, unless Borrowers have
designated another Optional Interest Rate for that portion. In offering
Optional Interest Rates, neither Bank shall be obligated to match fund.
Designation of an Offshore Rate portion is subject to the
following requirements:
(i) The interest period during which the
Offshore Rate will be in effect will be 30 days, 60 days, 90
days or 180 days as selected by Borrowers. The last day of the
interest period will be determined by Agent using the
practices of the offshore dollar inter-bank market.
(ii) Each Offshore Rate portion will be for
an amount not less than one million dollars ($1,000,000) and
increments of two hundred fifty thousand dollars ($250,000)
above the minimum.
(iii) At any given time, Borrowers may have
no more than three portions of the principal balance of the
Loans bearing interest based on the Offshore Rate.
(iv) The "Offshore Rate" means the interest
rate determined by the following formula, rounded upward to
the nearest 1/100th of one percent. (All amounts in the
calculation will be determined by Agent as of the first day of
the interest period.)
Offshore Rate = Eurodollar Rate
(1.00 - Reserve Percentage)
Where,
(A) "Eurodollar Rate" means the
interest rate (rounded upward to the nearest 1/16th
of one percent) at which Agent's Nassau Branch,
Nassau, Bahamas, would offer U.S. dollar deposits for
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the applicable interest period to other major banks
in the offshore dollar inter-bank market.
(B) "Reserve Percentage" means the
total of the maximum reserve percentages for
determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100th
of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other
reserve percentages.
(v) Borrowers may not elect an Offshore Rate
with respect to any portion of the principal balance of the
Loans which is scheduled to be repaid before the last day of
the applicable interest period.
(vi) No portion of the principal balance of
the Loans already bearing interest at the Offshore Rate may be
converted to a different rate during its interest period.
(vii) Each prepayment of an Offshore Rate
portion, whether voluntary, by reason of acceleration or
otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to
the positive amount (if any) by which:
(A) the additional interest which
would have been payable on the amount prepaid had it
not been paid until the last day of the interest
period, exceeds
(B) the interest which would have
been recoverable by Banks by placing the amount
prepaid on deposit in the offshore dollar market for
a period starting on the date on which it was prepaid
and ending on the last day of the interest period for
such portion.
(viii) Agent will have no obligation to
accept an election of an Offshore Rate portion if any of the
following described events has occurred and is continuing:
(A) Dollar deposits in the principal
amount, and for periods equal to the interest period,
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of an Offshore Rate portion are not available in the
offshore Dollar interbank market; or
(B) the Offshore Rate does not
accurately reflect the cost of an Offshore Rate
portion.
(ix) As used herein, "Applicable Spread"
means the additional component of interest, expressed as a
percentage per annum, to be added to the Prime Rate or the
Offshore Rate, as applicable, in determining the applicable
interest rate for amounts outstanding under the Loans. The
Applicable Spread shall be based on the ratio of the Senior
Funded Debt (on a consolidated basis) to EBITDA (on a
consolidated basis) in accordance with the following pricing
grid:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Ratio of Senior Funded Applicable Spread for Applicable Spread for
Debt to EBITDA Offshore Rate Borrowings Prime Rate Borrowings
-------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 3 to 1 3.00% 0.75%
-------------------------------------------------------------------------------------------
Greater than or equal to 2.75% 0.50%
2.50 to 1 but less than 3 to 1
-------------------------------------------------------------------------------------------
Greater than or equal to 2.50% 0.25%
2 to 1 but less than 2.50 to 1
-------------------------------------------------------------------------------------------
Less than 2 to 1 2.25% 0.00%
-------------------------------------------------------------------------------------------
</TABLE>
The ratio of Senior Funded Debt to EBITDA (as those terms are
defined in Section 1.5(c) above) shall be determined by Agent
as of the last day of each fiscal quarter based on financial
information supplied by the Borrowers and Guarantor hereunder
(with such adjustments thereto as Agent shall reasonably
determine). EBITDA will be computed for the four fiscal
quarters ending with the measuring date. On or prior to April
1, 1998, Agent shall calculate the ratio of Senior Funded Debt
to EBITDA as of the last day of the fiscal quarter ending
about January 26, 1998. Subject to the minimum Applicable
Spreads which shall be in effect through March 31, 1999 as
specified below, the Applicable Spread shall change (if at
all) in accordance with the foregoing pricing grid effective
as of April 1, 1998. Thereafter, the Applicable Spread shall
change (if at all) on the first day of each calendar quarter
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based on Agent's calculation of the ratio of Senior Funded
Debt to EBITDA in existence as of the last day of the prior
fiscal quarter. (For example, and without limitation, if Agent
shall calculate that the ratio of Senior Funded Debt to EBITDA
as of the last day of the fiscal quarter ending about January
26, 1999 was 2.6 to 1, the Applicable Spread for Offshore Rate
borrowings for the calendar quarter beginning April 1, 1999
would be 2.75%; which Applicable Spread would change as of
July 1, 1999 to 2.5%, if the ratio of Senior Funded Debt to
EBITDA as of the last day of the fiscal quarter ending about
April 26, 1999 were determined to be 2.2 to 1.) The ratios
shall be computed based on receipt of financial statements as
specified in Section 6.2. Notwithstanding the foregoing or
anything else contained herein which may be construed to the
contrary, in no event shall the Applicable Spread with respect
to Offshore Rate borrowings be less than 2.75%, or the
Applicable Spread for Prime Rate borrowings be less than
0.50%, through and including March 31, 1999; provided,
however, that the Applicable Spread for Prime Rate borrowings
and Offshore Rate borrowings may be greater than such
indicated spreads during such time period in accordance with
the foregoing pricing grid and terms indicated above.
2. FEES, EXPENSES AND DEPOSITS.
2.1 Fees.
(a) Facility Fee. Borrowers agree to pay a Two
Hundred Thousand Dollar ($200,000) facility fee to Agent, for the
ratable benefit of Banks, upon execution of this Agreement.
(b) Unused Commitment Fee. Borrowers agree to pay to
Agent, for the ratable benefit of Banks, a fee on any difference
between the Total Revolver Commitment and the amount of credit
Borrowers actually use, determined by the weighted daily average
Revolving Line Balance maintained during the specified period. This fee
will be calculated at the "Applicable UCF Spread" per year, and is due
quarterly in arrears within ten (10) days of the last day of each
calendar quarter. For purposes of calculating the foregoing fee, the
entire face amount of all issued and outstanding letters of credit
shall be counted as credit being "actually used." The Applicable UCF
Spread will be based on the ratio of Senior Funded Debt to EBITDA
pursuant to the following pricing grid (which ratio shall be computed
as described in 1.6(c)(ix) above):
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------------------------------------------------------------
Ratio of Senior Funded
Debt/EBITDA Applicable UCF Spread
------------------------------------------------------------
Greater than or equal to 3 to 1 0.75%
------------------------------------------------------------
Greater than or equal to 2.50 to 1 0.50%
but less than 3 to 1
------------------------------------------------------------
Greater than or equal to 2 to 1 0.375%
but less than 2.50 to 1
------------------------------------------------------------
Less than 2 to 1 0.25%
------------------------------------------------------------
Notwithstanding the foregoing, in no event shall the
Applicable UCF Spread from closing through March 31, 1999 be less than 0.50%;
provided, however, that the Applicable UCF Spread may be greater during such
period in accordance with the foregoing provisions.
(c) Agency Fee. Borrowers agree to pay to Agent (for
its own benefit and not for the benefit of the Banks) an agency fee in
the amount specified in a side letter agreement between the parties.
(d) Early Termination Fees. In the event that the
Borrowers refinance with another lender or lenders all or substantially
all of the Loans within two (2) years following the closing of the
Loans, Borrower shall pay to Agent, for the ratable benefit of the
Banks, a fee equal to (i) 0.75%, for the first year following the
closing of the Loans, and (ii) 0.50%, for the second year following the
closing of the Loans, of all principal amounts of the Term Loan which
are so refinanced.
2.2 Expenses.
(a) Borrowers agree to repay Agent and Banks,
immediately upon demand by Agent, for Agent's and Banks' reasonable
expenses incurred in connection with this Agreement, which may include,
without limitation, filing, recording and search fees, documentation
fees, appraisal fees and audit fees.
(b) Borrowers agree to reimburse Agent and Banks,
immediately upon demand by Agent, for any reasonable expenses incurred
by Agent and Banks in the negotiation and preparation of this Agreement
and any agreement or instrument required by this Agreement. Expenses
include, but are not limited to, reasonable attorneys' fees and
disbursements, including the reasonable fees and disbursements of
outside counsel and any allocated costs of Agent's and Banks' in-house
counsel.
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3. DISBURSEMENTS, PAYMENTS AND COSTS.
3.1 Requests for Credit. As used herein, any extension of
credit (whether under the Revolving Line of Credit or the Term Loan) which bears
interest based upon the Prime Rate is referred to as a "Prime Rate Credit" and
any extension of credit which bears interest based upon the Offshore Rate is
referred to as an "Offshore Rate Credit". Borrowers shall make each request for
an extension of credit under the Revolving Line of Credit (other than requests
for issuance of letters of credit under the subline facility) by delivering to
Agent an irrevocable written request in the form of Exhibit B, appropriately
completed (a "Request for Credit"), which specifies, among other things:
(i) The principal amount of the requested
extension of credit;
(ii) Whether the requested extension of
credit will initially be a Prime Rate Credit or an Offshore
Rate Credit;
(iii) If the requested extension of credit
is to initially be an Offshore Rate Credit, the interest
period selected by Borrowers for such extension of credit in
accordance with Section 1.6(d)(i); and
(iv) The date of the requested extension of
credit, which shall be a Banking Day.
Borrowers shall deliver to Agent, at the Agent's Office, a properly completed
Request for Credit (i) at least three (3) Banking Days before the date of the
requested extension of credit in case of an Offshore Rate Credit, and (ii) not
later than 10:00 a.m., Los Angeles time, on the date of the requested extension
of credit in the case of a Prime Rate Credit. The Agent may, in its sole and
absolute discretion, permit any request for extension of credit to be made by
telephone, in which case Borrowers shall confirm the same by mailing or faxing a
written Request for Credit to the Agent within 24 hours following the telephonic
request. If Borrowers fail to deliver to the Agent a written Request for Credit,
Borrowers hereby waive the right to dispute the amount, interest rate or term of
any extension of credit made pursuant to Borrowers' telephonic request. Promptly
following receipt of a Request for Credit, the Agent shall notify each Bank by
telephone, telecopier or Telex of the date and amount of the requested credit,
the applicable interest period (in the case of an Offshore Rate Credit), and
that Bank's Pro Rata Share of the requested credit. Not later than 1:00 p.m.,
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Los Angeles time, on the date specified for any extension of credit, each Bank
shall make its Pro Rata Share of the requested credit in immediately available
funds available to the Agent at the Agent's Office, and Agent shall make such
funds available to Borrowers (subject to the terms and conditions hereof).
3.2 Conversion of Interest Rate on Extensions of Credit.
Borrowers may convert outstanding Prime Rate Credits into Offshore Rate Credits,
or existing Offshore Rate Credits into other Offshore Rate Credits, in
accordance with this Section 3.2. Borrowers shall request any such conversion by
delivering to Agent an irrevocable written request in the form of Exhibit C,
appropriately completed (a "Request for Conversion"). Each Request for
Conversion shall specify, among other things:
(i) The total dollar amount of Prime Rate
Credits which are to be converted to an Offshore Rate Credit;
(ii) The total dollar amount and interest
period expiration dates of any existing Offshore Rate Credits
which are to be converted to other Offshore Rate Credits;
(iii) The interest period selected by
Borrowers for any newly converted Offshore Rate Credits in
accordance with Section 1.6(d)(i); and
(iv) The date of the requested conversion,
which shall be a Banking Day.
Borrowers shall deliver to Agent, at the Agent's office, a properly completed
Request for Conversion not later than 10:00 a.m., Los Angeles time, at least
three (3) Banking Days prior to the first day of the applicable interest period
as set forth in the Request for Conversion. The Agent may, in its sole and
absolute discretion, permit a Request for Conversion to be made by telephone, in
which case Borrowers shall confirm the same by mailing or faxing a written
Request for Conversion to the Agent within 24 hours following the telephonic
request. If Borrowers fail to make a written Request for Conversion, Borrowers
hereby waive the right to dispute the amount, interest rate or term of any such
Offshore Rate Credit. Unless Borrowers have timely delivered to Agent a Request
for Conversion in accordance with this Section 3.2 with respect to any existing
Offshore Rate Credit, such Offshore Rate Credit shall automatically become a
Prime Rate Credit on the day immediately following the last day of the
applicable interest period for such Offshore Rate Credit. With respect to any
conversion pursuant to this Section 3.2, at or about 1:00 p.m., Los Angeles
time, three (3) Banking Days before the first day of the requested interest
period, the Agent shall determine the applicable Offshore Rate (which
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<PAGE>
determination shall be conclusive in the absence of manifest error) and promptly
shall give notice of the same to Borrowers and the Banks by telephone,
telecopier or Telex. Upon fulfillment of the conditions set forth in this
Section 3.2, the conversion shall become effective on the first day of the
requested interest period.
3.3 Agent's Right to Assume Funds Available for Extensions of
Credit. Unless the Agent shall have been notified by any Bank at least two hours
prior to the funding by the Agent of any extension of credit that such Bank does
not intend to make available to the Agent such Bank's Pro Rata Share of the
total amount of such extension of credit, the Agent may assume that such Bank
has made such amount available to the Agent on the date of the extension of
credit and the Agent may, in reliance upon such assumption, make available to
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 corresponding amount on demand from such Bank, which demand shall be made
in a reasonably prompt manner. If such Bank does not pay such corresponding
amount immediately upon the Agent's demand therefor, the Agent promptly shall
notify Borrowers and Borrowers shall pay such corresponding amount to the Agent
within five (5) Banking Days after demand. In the event no Event of Default has
occurred and is continuing and a Bank does not fund its Pro Rata Share of an
extension of credit, the other Banks shall increase the amount of their funding
to cover the Request for Credit, provided that such increased funding does not
cause any Bank's Pro Rata Share of the Total Revolver Commitment to be exceeded.
The Agent also shall be entitled to recover from such Bank or Borrowers, as the
case may be (but without duplication, in the case of Borrowers, of the interest
otherwise payable hereunder), interest on such corresponding amount for each day
from the date such corresponding amount was made available by the Agent to
Borrowers to the date such corresponding amount is recovered by the Agent, at a
rate per annum equal to the Prime Rate plus the Applicable Spread or the
Offshore Rate plus the Applicable Spread, depending upon whether the extension
of credit is a Prime Rate Credit or an Offshore Rate Credit. Nothing herein
shall be deemed to relieve any Bank from its obligation to fulfill its Pro Rata
Share of the Total Revolver Commitment or to prejudice any rights which the
Agent and/or Borrowers may have against any Bank as a result of any default by
such Bank hereunder.
3.4 Payments by Borrowers. Each payment by Borrowers will be:
(a) made at Agent's Office (or such other location as
may be selected by Agent from time to time by written notice to
Borrowers),
(b) made for the account of Agent's Office or such
other office as may be selected by Agent from time to time,
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(c) made in immediately available funds, or such
other type of funds reasonably selected by Agent, and
(d) evidenced by records kept by Agent.
3.5 Telephone Authorization.
(a) Subject to Section 1.3, Section 3.1 or Section
3.2, as applicable, Agent may, in its sole and absolute discretion,
honor telephonic requests for extensions of credit, requests for
conversion and requests for issuance of subline facility letters of
credit made by any officer of Borrowers or by any person or persons so
authorized by any authorized officer of Borrowers, promptly followed up
with a completed Request for Letter of Credit as provided in Section
1.3, a completed Request for Credit as provided in Section 3.1 or a
completed Request for Conversion as provided in Section 3.2, as
applicable.
(b) Proceeds of extensions of credit will be
deposited in, and repayments will be withdrawn from, AB Plastics'
account number 058-15113070 with Agent, and MOS Plastics' account
number 058-15145970 with Agent (each an "Account" and collectively, the
"Accounts") or such other accounts with Agent as may be designated in
writing by Borrowers.
(c) Agent will provide written confirmation to
Borrowers and Banks of transactions made based on telephone
instructions. Borrowers agree to notify Agent promptly of any
discrepancy between the written confirmation and telephone
instructions. If there is a discrepancy and Agent has already acted on
the telephone instructions, the telephone instructions will prevail
over the written confirmation.
(d) Borrowers will indemnify and hold harmless Agent
and Banks (including their officers, employees, and agents) from all
liability, loss, and costs in connection with any act resulting from
telephone instructions it reasonably believes are made by an officer of
Borrowers or a person authorized by an officer of Borrowers. This
indemnity and agreement to hold harmless will survive this Agreement's
termination.
3.6 Direct Debit.
(a) Borrowers agree that interest and principal
payments and any fees will be deducted automatically on the due date
from the Accounts. For administrative purposes only, and without in any
way limiting the liability of each Borrower under this Agreement and
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the other Loan Documents (which liability shall at all times be joint
and several), Agent will maintain a record of the outstanding principal
sums allocable to AB Plastics uses and those allocable to MOS Plastics
uses. On the date any payment of principal, interest or fees is due,
Agent will debit from each Borrower's Account the portion of such
payment allocable to such Borrower (based upon such Borrower's
allocation of the outstanding principal, as reflected on the Agent's
books).
(b) Agent will debit the Accounts on the dates the
payments become due. If a due date does not fall on a Banking Day (as
hereafter defined), Agent will debit the Accounts on the first Banking
Day following the due date.
(c) Borrowers will maintain sufficient funds in the
Accounts on the dates Agent enters debits authorized by this Agreement.
If there are insufficient funds in the Accounts on the date Agent
enters any debit authorized by this Agreement, Borrowers shall
immediately pay such shortfall to Agent. In addition, to the extent
either Borrower's Account contains insufficient funds to pay its
allocation of any payment then due, Agent shall be entitled to deduct
the full amount of any debit authorized by this Agreement (or such
portion thereof which Agent deems necessary) from the Account of the
other Borrower.
3.7 Banking Days. Unless otherwise provided in this Agreement,
a "Banking Day" is a day other than a Saturday or a Sunday on which Agent is
open for business in California. For Offshore Rate Credits (if any), a Banking
Day is a day other than a Saturday or a Sunday on which Agent is open for
business in California and dealing in offshore dollars. All payments and
disbursements which would be due on a day which is not a Banking Day will be due
on the next Banking Day. All payments received on a day which is not a Banking
Day will be applied on the next Banking Day.
3.8 Taxes. Borrowers will not deduct any taxes from any
payments made to Agent or Banks hereunder. If any government authority imposes
any taxes or charges (other than taxes based on Agent's or Banks' income) on any
payments made by Borrowers, Borrowers will pay such taxes or charges. Upon
request by Agent, Borrowers will confirm that they have paid the taxes by giving
Agent official tax receipts (or notarized copies) within 30 days after the due
date.
3.9 Additional Costs. Borrowers will pay Agent, on demand by
Agent, for Banks' costs or losses relating to this Agreement arising from any
statute or regulation adopted or amended after the date hereof, or any request
or requirement of a regulatory agency which is hereafter adopted or amended and
applicable to Banks. The costs include the following:
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(a) any reserve or deposit requirements; and
(b) any capital requirements relating to any Bank's
assets and commitments for credit.
3.10 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
3.11 Interest on Late Payments. At Agent's sole option in each
instance, any amount not paid when due under this Agreement (including
interest), other than amounts which have become due solely by reason of
acceleration hereunder, shall bear interest from the due date at Sumitomo's
Prime Rate plus the Applicable Spread plus two percent (2.0%). This may result
in compounding of interest.
3.12 Default Rate. Upon the occurrence and during the
continuance of any Event of Default, at Agent's sole option, Borrowers shall pay
interest on the outstanding principal of the Loans at the rate of interest
otherwise provided under this Agreement plus two percent (2.0%) (the "Default
Rate"). This will not constitute a waiver of any Event of Default.
3.13 Overdrafts. Subject to the other terms and conditions of
this Agreement, Agent may, in its sole and absolute discretion, make advances
under the Revolving Line of Credit to prevent or cover an overdraft on any
account of Borrowers with Sumitomo. Each such advance will accrue interest from
the date of the advance or the date on which the account is overdrawn, whichever
occurs first, in accordance with this Agreement. Each Bank agrees to fund any
such advance (and Borrowers agree to repay any such advance) at the same times
and in the same manner as required for any other advances under the Revolving
Line of Credit pursuant to this Agreement.
3.14 Use of Advances. Borrowers shall use the proceeds of the
Term Loan solely (a) to repay certain existing debt of MOS Plastics (as approved
by Banks), including notes payable to Comerica Bank - California and a note
payable to Mr. Horst Kaiser, and all indebtedness owing by AB Plastics to
Sumitomo in connection with the Existing Agreement (and Borrowers irrevocably
authorize and direct Agent and the Banks to cause sufficient proceeds of the
Term Loan to be so applied to the sums owing to Sumitomo under the Existing
Agreement concurrently with the disbursement of the Term Loan), and (b) to
upstream funds to Guarantor to finance a portion of the acquisition costs to be
incurred by Guarantor in connection with the purchase of 100% of the common
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stock of MOS Plastics by Guarantor. Borrowers agree to use the proceeds of the
Revolving Line of Credit for working capital and general corporate purposes;
provided that on the Closing Date some amounts may be borrowed under the
Revolving Line Credit to fund a portion of the acquisition costs of the common
stock of MOS by Guarantor and/or to pay off the existing indebtedness owing to
Sumitomo under the Existing Agreement; provided, however, that Borrowers agree
that they shall at all times during the first 30 days following the Closing Date
retain at least $1,500,000 in unused availability under the Revolving Line of
Credit (it being understood that for purposes of this provision "unused
availability" means the lesser of the amounts available under the Revolving Line
of Credit with reference to the Total Revolver Commitment or the Borrowing
Base).
4. CONDITIONS.
4.1 Initial Extension of Credit. Agent must have received the
following items, in form and content acceptable to Agent and Banks, before Banks
are required to extend any credit (with respect to either the Term Loan or the
Revolving Line of Credit) to Borrowers under this Agreement:
(a) Authorizations. Evidence that the execution,
delivery and performance by Borrowers and each guarantor or
subordinating creditor of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
(b) Notes. The fully executed Revolving Line Notes
and Term Loan Notes.
(c) Security Agreements. Signed original AB Plastics
Security Agreement and MOS Plastics Security Agreement (as more fully
described in Section 7 below) and such other security agreements and
financing statements which Agent reasonably requires. Borrowers shall
also have delivered to Agent all such collateral in which Agent
requires a possessory security interest.
(d) Evidence of Priority. Evidence that security
interests and liens in favor of Agent are valid, enforceable and prior
to all other rights and interests, except those Agent consents to in
writing.
(e) Landlord's/Mortgagee Waivers. For any personal
property collateral located on real property which is subject to a
mortgage or deed of trust or which is not owned by the Borrowers, a
Landlord's and/or Mortgagee's Waiver from the owner/lessor of the real
property and the holder of any mortgage or deed of trust.
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(f) Insurance. Evidence of insurance coverage, as
required in the "Covenants" section of this Agreement.
(g) Guaranty, Stock Pledge Agreement and Security
Agreement of Guarantor. The Guaranty, the Stock Pledge Agreement, and
the Guarantor Security Agreement executed by Guarantor (as more fully
described in Section 7 below).
(h) Subordination Agreement. Subordination Agreement
("Subordination Agreement") of even date herewith in favor of Banks
signed by Sirrom Capital Corporation, a Tennessee corporation, d/b/a/
Tandem Capital, and Pinecreek Capital Partners, L.P., a California
limited partnership (collectively "Tandem"). The Subordination
Agreement pertains to the obligations of Borrowers to Tandem (the
"Subordinate Debt Obligations") arising under certain Debenture
Purchase Agreements and the other "Loan Documents" described therein
(collectively, the "Subordinate Debt Documents").
(i) Legal Opinion. A written opinion from Borrowers'
legal counsel, covering such matters as Agent may reasonably require.
The legal counsel and the terms of the opinion must be reasonably
acceptable to Banks.
(j) Good Standing. Certificates of good standing for
Borrowers and Guarantor from their state of incorporation and from any
other state in which Borrowers and Guarantor are required to qualify to
conduct their business.
(k) Accounts. The Accounts shall have been opened,
and Borrowers shall have established with Sumitomo (and Manufacturers,
if so desired) all of Borrowers' primary operating and business
accounts.
(l) Solvency Certificate. Solvency Certificates, in
form and substance satisfactory to Agent, signed by each Borrower's
chief financial officer and chief executive officer, and confirmed by
each of the Borrowers.
(m) Consummation of Acquisition. The final Stock
Purchase Agreement dated as of January 28, 1998 by and between the
prior stockholders of MOS Plastics, as seller, and Guarantor, as buyer,
and all other instruments, documents and agreements to be executed in
connection therewith (collectively, the "Purchase Documents"), shall
have been reviewed and approved by Agent; and all such Purchase
Documents shall have been fully executed and delivered, and all
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conditions to the consummation of the transactions contemplated thereby
necessary to complete such transaction (other than funding under this
Agreement) shall have been satisfied or waived with Agent's consent;
and Agent shall have received such other evidence satisfactory to Agent
that on or prior to the first advance hereunder, Guarantor shall own
100% of the stock of MOS Plastics.
(n) Sources and Uses of Funds Certificate. A
certificate executed by the chief executive officer and chief financial
officer of Borrowers, and confirmed by each of the Borrowers, setting
forth in reasonable detail the sources and uses of funds for the
transactions contemplated herein and in the Subordinate Debt Documents,
including without limitation consummation of the transactions
contemplated by the Purchase Documents.
(o) Pay Proceeds Letter. A letter executed by
Borrowers directing Agent to disburse amounts approved by Agent under
the Loans directly to creditors approved by Agent, to repay certain
existing indebtedness of Borrowers.
(p) Stock Certificates. The stock certificate(s)
evidencing the shares of MOS Plastics' stock and AB Plastics' stock
pledged to Agent pursuant to the Stock Pledge Agreement, together with
a duly endorsed stock power for each such certificate (endorsed in
blank).
(q) Due Diligence Report. A Due Diligence Report
prepared by Marcum & Kleigman, LLP.
(r) Audit and Appraisal. A detailed audit of the
books and records of MOS Plastics and AB Plastics performed by Banks,
and an inventory appraisal of MOS Plastics performed by an appraiser
satisfactory to Banks.
(s) Five-Year Projections. Five year projections,
prepared by quarter for the first year and annually thereafter, for
Borrowers, in accordance with GAAP consistently applied.
(t) Financial Statements and Pro Forma Balance
Sheets. (A) consolidated financial statements for Guarantor, audited by
Marcum & Kleigman LLP, the independent accountants regularly engaged by
Guarantor, for the 12 months ending October 26, 1997; and company
prepared consolidating financial statements for Guarantor and its
subsidiaries for the 12 months ending October 26, 1997; (B) copies of
the monthly financial statements of MOS Plastics for fiscal year 1997
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and fiscal year 1998 through the Closing Date; (C) copies of monthly
consolidating and consolidated financial statements of Guarantor for
fiscal year 1998 through the month ending about January 26, 1998; and
(D) proforma post-closing balance sheets of AB Plastics, MOS Plastics
and Guarantor.
(u) Solvency Opinion. Solvency opinions from a firm
acceptable to Agent opining as to the solvency of each of the
Borrowers, their ability to pay their debts as they mature, and such
other matters as Agent and Banks shall reasonably require. Also, a
reliance letter in form and substance satisfactory to the Agent and the
Banks, from the firm providing the solvency opinions, stating that the
Agent and the Banks may rely on the solvency opinions as if they had
been addressed to them.
(v) Intercreditor Agreement. An Intercreditor
Agreement between Banks and General Electric Capital Corporation.
(w) Subordinated Debt. Evidence that Guarantor has
raised at least $9,000,000 in Subordinated Debt Obligations, on terms
and conditions acceptable to Agent and the Banks.
(x) Payment of Existing Debt. Evidence that all
existing indebtedness of MOS Plastics has been paid in full in
accordance with the terms and conditions thereof; with the exception of
trade debt incurred in the ordinary course of business, indebtedness
incurred for acquiring fixed assets during 1997 in an amount not to
exceed $275,000, and except for certain other existing indebtedness of
MOS Plastics identified on Schedule 4.1(x) attached hereto, which does
not exceed $1,450,000 in the aggregate.
(y) Repayment of All Indebtedness Owing to Sumitomo.
All indebtedness owing by Borrowers and their affiliates to Sumitomo
under the Existing Agreement, and any other agreements (with the
exception of real estate secured construction debt), shall have been
repaid in full, or shall be paid in full concurrently with the first
disbursement under this Agreement.
(z) Interest Rate Protection. Borrowers shall have
obtained interest rate protection in a minimum amount of $8,400,000 for
a minimum tenor of 3 years, in form and substance satisfactory to the
Banks.
(aa) No Adverse Change. No material adverse change
shall have occurred in Borrowers' or Guarantor's operating performance,
financial condition, or business prospects since the date of the last
financial statements analyzed by the Agent and Banks in underwriting
this transaction.
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(bb) Other Required Documentation. Such other
documents, instruments and agreements as Banks may reasonable require,
including the UCC-1 and UCC-2 financing statements.
(cc) Certificate. A Certificate signed on behalf of
Guarantor and its subsidiaries, by the Chief Executive Officer of
Guarantor, stating that:
(i) the representations and warranties
contained in Section 5 are true and correct in all material
respects on and as of such date, and
(ii) no default or Event of Default exists
or will result upon the consummation of the transactions
contemplated herein.
(dd) Capital Structure and Ownership. The capital
structure and ownership of Guarantor and Borrowers, after giving effect
to the transaction contemplated hereby, shall be satisfactory to the
Agent and the Banks.
The date on which all of the foregoing conditions have been
satisfied or waived by Agent in its sole discretion is the "Closing Date." As
used in this Agreement, "Loan Documents" shall mean, collectively, this
Agreement, the Notes, the AB Plastics Security Agreement, the MOS Plastics
Security Agreement, the Guaranty, the Stock Pledge Agreement, the Guarantor
Security Agreement, the Subordination Agreement and any other certificates,
documents or agreements of any type or nature heretofore or hereafter executed
or delivered by Borrowers, Guarantor, and/or any other party to Banks in any way
relating to or in the furtherance of this Agreement, in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.
4.2 Conditions to Each Advance. Before each extension of
credit, including the first:
(a) With respect to advances under the Revolving Line
of Credit, a current Borrowing Base Certificate signed by Borrowers and
delivered to Agent as required under Section 6.2(c).
(b) Agent's most recent audit of Borrowers' records
must be satisfactory to Agent in its reasonable discretion.
(c) The Representations and Warranties hereunder must
be true and correct in all material respects.
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(d) No Event of Default, or event that with the
giving of notice and/or the passage of time would become an Event of
Default, shall have occurred and be continuing.
5. REPRESENTATIONS AND WARRANTIES.
When Borrowers and Guarantor sign this Agreement, and until
Banks are repaid all obligations hereunder in full, Borrowers and Guarantor make
the following representations and warranties. Each Request for Credit, Request
for Conversion and Request for Letter of Credit executed by Borrowers shall
constitute a renewed representation and warranty by Borrowers.
5.1 Organization of Borrowers and Guarantor. Borrowers and
Guarantor are corporations duly formed and validly existing under the laws of
their respective states of incorporation.
5.2 Authorization. This Agreement, those Loan Documents to
which either Borrower or the Guarantor is a party and any other instrument or
agreement required to be executed by either Borrower or the Guarantor hereunder
or thereunder, are within Borrowers' and Guarantor's powers, have been duly
authorized, and do not conflict with any of Borrowers' or Guarantor's
certificate or articles of incorporation or bylaws.
5.3 Enforceable Agreement. The Loan Documents are legal, valid
and binding agreements of Borrowers and Guarantor, enforceable against Borrowers
and Guarantor in accordance with their terms, and any instrument or agreement
required hereunder or thereunder, when executed and delivered, will be similarly
legal, valid, binding and enforceable.
5.4 Good Standing. Each Borrower and Guarantor is properly
licensed, in good standing, and, where required, in compliance with fictitious
name statutes in each state in which such Borrower and Guarantor does business,
except where the failure to comply would not have a material adverse effect on
Guarantor and Borrowers as a consolidated whole.
5.5 No Conflicts. This Agreement does not conflict with any
law, material agreement, or material obligation by which either Borrower or the
Guarantor is bound.
5.6 Financial Information. All financial statements,
information and other data which may have been or which may be hereafter
submitted by either Borrower or the Guarantor to Agent or any Bank have been or
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will be prepared in accordance with generally accepted accounting principles
consistently applied (subject, in the case of unaudited statements, to
non-material audit adjustments and the absence of footnote disclosures) and
accurately represent in all material respects the financial condition, or, as
applicable, the other information disclosed therein.
Since the date of MOS Plastics financial statements dated
December 31, 1997 and Guarantor's and AB Plastics audited financial statements
dated October 26, 1997, there has been no material adverse change in the assets,
operations, business prospects or financial condition of either of the Borrowers
or the Guarantor.
5.7 Lawsuits. Except as set forth in Schedule 5.7 hereto,
there are no actions, suits, or proceedings pending or, to the knowledge of the
Borrowers or Guarantor, threatened against or affecting the Borrowers or the
Guarantor or the Borrowers' or the Guarantor's properties before any court or
administrative agency which, if determined adversely to the Borrowers or
Guarantor, would have a material adverse effect on the Borrowers' or the
Guarantor's financial condition or operations.
5.8 Permits, Franchises. Borrowers possess all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary to
enable them to conduct the business in which they are now engaged and where the
absence of which would cause a material adverse effect on the Borrowers'
financial condition or operations.
5.9 Other Obligations. Neither Borrowers nor Guarantor are in
default on any obligation for borrowed money, any purchase money obligation or
any other material lease, commitment, contract, instrument or obligation, except
as disclosed in Schedule 5.9 hereto.
5.10 Income Tax Returns. Borrowers and Guarantor have filed
all required tax returns and have no knowledge of any material pending
assessments or adjustments of its income tax for any year.
5.11 No Event of Default. No event has occurred which is, or
with notice or lapse of time or both would be, an Event of Default under this
Agreement or any of the Loan Documents.
5.12 ERISA Plans.
(a) Each of Borrowers and Guarantor has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and
the Code with respect to each Plan and is in compliance in all material
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respects with the presently applicable provisions of ERISA and the
Code, and has not incurred any liability with respect to any Plan under
Title IV of ERISA.
(b) No reportable event has occurred in respect of
any Plan under Section 4043(b) of ERISA for which the PBGC requires 30
day notice.
(c) As of the date of this Agreement, no action by
Borrowers or Guarantor to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to
a Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement of
such a proceeding.
(e) The following terms have the meanings indicated
for purposes of this Agreement:
(i) "Code" means the Internal Revenue Code
of 1986, as amended from time to time.
(ii) "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit
Guaranty Corporation established pursuant to Subtitle A of
Title IV of ERISA.
(iv) "Plan" means any employee pension
benefit plan maintained or contributed to by Borrowers and
insured by the Pension Benefit Guaranty Corporation under
Title IV of ERISA.
5.13 Collateral. All collateral required in this Agreement is
owned by the grantor of the security interest, free of any title defects or any
liens or interests of others except as disclosed on Schedule 5.13 attached
hereto (collectively, the "Permitted Encumbrances").
5.14 Environmental Condition. None of Borrowers' properties or
assets have been used by Borrowers or, to the best of Borrowers' knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance, in
violation of applicable law. To Borrowers' knowledge, none of Borrowers'
properties or assets have been designated or identified in any manner pursuant
to any environmental protection statute as a hazardous waste or hazardous
substance disposal site, or a candidate for closure pursuant to any air quality,
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water quality or other environmental protection statue. No lien arising under
any environmental protection statute has attached to any revenues or to any real
or personal property owned by Borrowers. Borrowers have not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrowers resulting in the release or discharge of hazardous waste or hazardous
substances into the environment.
5.15 Location of Inventory. Schedule 5.15 hereto accurately
sets forth all places where all inventory and equipment currently owned by
Borrowers, Guarantor and AB Mexico are located.
6. COVENANTS.
Borrowers and Guarantor agree, so long as credit is available
under this Agreement and until Banks are repaid all obligations hereunder in
full:
6.1 Use of Proceeds. To use the proceeds of the Loans only as
specified in Section 3.14 above.
6.2 Financial Information. To provide the following financial
information and statements and such additional information as reasonably
requested by Agent from time to time, in form and detail reasonably satisfactory
to Agent:
(a) Within 100 days after Guarantor's fiscal year
end, audited consolidated and consolidating financial statements of
Guarantor and its subsidiaries. These financial statements must be
audited (with an unqualified opinion or an opinion acceptable to Agent)
by a Certified Public Accountant ("CPA") reasonably acceptable to
Agent. Guarantor shall also provide to Agent a compliance certificate
(in the form of Exhibit E hereto) within 100 days of Guarantor's fiscal
year end, certified on behalf of Guarantor by the Chief Financial
Officer or Chief Executive Officer of Guarantor.
(b) Within 45 days after the period's end,
consolidated and consolidating monthly financial statements (including
a balance sheet, income statement and statement of cash flows) for
Guarantor, Borrowers and AB Plastics de Mexico S.A. de C.V. ("AB
Mexico") and any other subsidiaries. These financial statements may be
internally prepared. The statements shall be prepared on a consolidated
and consolidating basis, and shall reflect the results for the month
just ended as well as the results from the beginning of the current
fiscal year through the month just ended, along with a comparison to
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budget. Borrowers shall also provide to Agent quarterly compliance
certificates (in the form of Exhibit E hereto) within 45 days of each
quarter end.
(c) Within 15 days after period end, a monthly
detailed aging of each Borrower's accounts receivable and accounts
payable, a detailed analysis of each Borrower's Inventory and a
Borrowing Base Certificate (all of which shall be provided more often
than monthly at Agent's request).
(d) Within 15 days after the end of each fiscal
quarter, a schedule listing the book value of all fixed assets of
Borrowers or any subsidiaries in Mexico.
(e) Within 30 days after each fiscal year end, a
2-year operating plan covering the current fiscal year and the next
fiscal year. Such plan will detail, on a monthly basis for the then
current fiscal year and quarterly for the subsequent fiscal year,
Borrowers' and Guarantor's best estimate of revenues, expenses and
balance sheet categories, and will be presented in the customary form
of balance sheets and income statements, prepared in a manner
consistent with the Borrower's historical financial statements.
(f) Within 100 days after each fiscal year end,
annual CPA management letters for each of the Borrowers.
(g) Within 30 days after the Closing Date, a pro
forma post-closing balance sheet for each of the Borrowers and
Guarantor.
(h) All SEC filings made by Guarantor or Borrowers
within 10 days after filing.
(i) Any other information that Banks may reasonably
require.
6.3 Quick Ratio. To maintain on a consolidated basis as of the
last day of each fiscal quarter of Guarantor, a ratio of Quick Assets to the sum
of current liabilities plus outstandings under the Revolving Line of Credit of
at least 0.45 to 1, provided, however, that the ratio shall increase to 0.50 to
1 effective with the fiscal quarter ending about April 26, 1998. Unless
otherwise specified, (a) as used in this Agreement, "consolidated basis" means
consolidated as to Guarantor, Borrowers, AB Mexico, and any other subsidiaries
of Guarantor; and (b) each of the following covenants apply to Guarantor and its
subsidiaries on a consolidated basis. All the financial covenants are set based
upon the presumption that the purchase method of accounting is employed for the
recording of the acquisition of MOS Plastics.
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"Quick Assets" means cash, short-term cash investments, net
trade receivables and marketable securities not classified as long-term
investments.
6.4 Tangible Net Worth. To maintain on a consolidated basis as
of the last day of each fiscal quarter of Guarantor, Tangible Net Worth equal to
at least the sum of the following:
(a) $5,300,000;
(b) 80% of the cumulative net income after income
taxes determined on a quarterly basis (with no deduction for losses
determined on a quarterly basis) earned after January 25, 1998;
(c) the net proceeds from any equity securities
issued after the date of this Agreement; and
(d) any increase in stockholders' equity resulting
from the conversion of debt securities to equity securities after the
date of this Agreement.
"Tangible Net Worth" means the gross book value of Guarantor's
and Borrowers' assets (excluding goodwill, patents, trademarks, trade names,
organization expense, treasury stock, officer/employee and stockholder
receivables, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles),
plus debt subordinated to Banks in a manner acceptable to Banks, less total
liabilities, including, without limitation, accrued and deferred income taxes,
and any reserves against assets.
6.5 Maximum Senior Funded Debt to EBITDA. To maintain on a
consolidated basis a ratio of Senior Funded Debt to EBITDA (as those terms are
defined in Section 1.5 above) of not to exceed (a) 3.25 to 1 at all times prior
to the fiscal year ending about October 26, 1998; (b) 2.5 to 1 effective with
the fiscal year ending about October 26, 1998 through one day prior to fiscal
year ending about October 26, 1999, and (c) 2.25 to 1 effective with the fiscal
year ending about October 26, 1999 and thereafter. For purposes of this
covenant, EBITDA will be computed for the four quarters ending on the measuring
date, and this covenant shall be tested as of the last day of each fiscal
quarter. Senior Funded Debt will be determined as the amount thereof as of the
date of measurement. The trailing twelve month EBITDA for AB Plastics for the
fiscal month ending January 25, 1998, and for MOS Plastics for the fiscal month
ending January 31, 1998, is as computed on Schedule 6.5. This EBITDA shall be
used for computing the covenant at closing.
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6.6 Fixed Charge Coverage Ratio. To maintain on a consolidated
basis as of the last day of each fiscal quarter of Guarantor a ratio of Cash
Flow to Fixed Charges of at least the amounts indicated for each period
specified below:
From closing through one day
prior to fiscal year ending about
October 26, 1999: 1.15 : 1.00
Effective with the fiscal year
ending about October 26, 1999
and thereafter: 1.20 : 1.00
"Cash Flow" means the sum of trailing twelve month EBITDA for
the Guarantor and its subsidiaries (on a consolidated basis) (plus MOS Plastics
prior to acquisition), less the sum of amounts spent on capital expenditures
(net of purchase money financing) by the Guarantor and its subsidiaries (on a
consolidated basis) (plus MOS Plastics prior to acquisition).
"Fixed Charges" means, for any period, the annualized (from
the beginning of Guarantor's fiscal year through the date of measurement, on a
consolidated basis for Guarantor and its subsidiaries) sum of gross interest
expense (payable in cash for the period), plus scheduled principal payments
under all indebtedness during the period, plus taxes payable for such period,
plus payments made under any seller notes or "earn-out" agreements entered into
in connection with the acquisition of MOS Plastics or any other arrangements,
plus cash dividends/ distributions.
The ratio of Cash Flow to Fixed Charges will be calculated
quarterly beginning with the quarter ending about April 26, 1998.
6.7 Profitability. To maintain, on a consolidated basis for
Guarantor, and, as to each of the Borrowers on an unconsolidated basis, a
positive net income before taxes and extraordinary items and a positive net
income after taxes and extraordinary items as of the end of each Borrower's
fiscal year. In addition, Borrowers shall not experience, on a consolidated
basis, a negative net income (either before or after taxes and extraordinary
items) in each of any two (2) consecutive fiscal quarters.
6.8 Other Debts. Not to have outstanding or incur any direct
or contingent debts or lease obligations (other than those to Banks), or become
liable for the debts of others (other than guarantees by Guarantor or Borrowers
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of obligations of either of Borrowers) without Banks' written consent.
As to Borrowers only, this does not prohibit:
(a) Acquiring goods, supplies, or merchandise, (or
financing insurance premiums) on normal trade credit.
(b) Endorsing negotiable instruments received in the
usual course of business.
(c) Debts in existence on the date of this Agreement
disclosed in writing to Banks prior to the date of this Agreement in
MOS Plastics' financial statements dated December 31, 1997, and audited
consolidated financial statements of Guarantor and its subsidiaries
dated October 26, 1997.
(d) Additional debts and lease obligations for the
acquisition of fixed or capital assets, to the extent permitted
elsewhere in this Agreement.
(e) Subject to the terms of the Subordination
Agreement, the Subordinate Debt Obligations.
6.9 Other Liens. Not to create, assume, or allow any security
interest or lien (including judicial liens) on property Borrowers, Guarantor or
AB Mexico now or later own, except:
(a) Liens or security interests in favor of Agent or
Banks.
(b) Liens for taxes not yet due, or which are being
contested in good faith by appropriate proceedings (so long as
Borrowers and Guarantor have established and maintain adequate reserves
for the payment of the same and by reason of which nonpayment and
contest no material item or portion of Borrowers' or Guarantor's
property is in jeopardy of being seized, levied upon or forfeited).
(c) The Permitted Encumbrances outstanding on the
date of this Agreement.
(d) Additional purchase money security interests in
fixed assets acquired after the date of this Agreement.
(e) Liens or security interests granted to Tandem to
secure the Subordinate Debt Obligations, which liens or security
interests (and the Subordinate Debt Obligations) shall be subordinate
to the liens and security interest in favor of Agent and/or Banks and
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to Borrowers' obligations to Banks, all in accordance with the terms of
the Subordination Agreement.
6.10 Leases. Not to permit the aggregate payments due in any
fiscal year under all leases (including capital and operating leases for real or
personal property) to exceed two million dollars ($2,000,000).
6.11 Dividends/Distributions. Not to (except for payments to
Horst Kaiser out of the initial funding of the Loans) purchase, redeem or
otherwise acquire for value any of its shares, or create any sinking fund in
relation thereto. Guarantor shall not pay any dividends or distributions on any
of its shares.
6.12 Loans to Officers. Not to make any loans, advances or
other extensions of credit to any of Borrowers', Guarantor's or AB Mexico's
executives, officers, directors, shareholders or employees (or any relatives of
any of the foregoing) which, together with all other such loans, advances and
other extensions of credit, exceed $100,000 at any time outstanding (exclusive
of notes receivable related to issuance of common stock so long as there is no
cash outflow).
6.13 Change of Ownership. Not to cause, permit, or suffer any
change, direct or indirect, in Borrowers' or AB Mexico's ownership.
6.14 Notices to Agent. To promptly notify Agent in writing of:
(a) any lawsuit over five hundred thousand dollars
($500,000) against Borrowers, Guarantor or AB Mexico;
(b) any substantial dispute between Borrowers,
Guarantor or AB Mexico and any government authority;
(c) any failure to comply with this Agreement;
(d) any material adverse change in Borrowers',
Guarantor's or AB Mexico's financial condition or operations;
(e) any change in Borrowers', Guarantor's or AB
Mexico's name, address, or legal structure; and
(f) the occurrence of any Event of Default.
6.15 Books and Records. To maintain adequate books and records
which contain information that will be made available from time to time upon
Agent's request.
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6.16 Audits. To allow Agent and its agents to inspect
Borrowers', Guarantor's and AB Mexico's properties and examine, audit and make
copies of books and records at any reasonable time upon reasonable prior notice.
If any of Borrowers', Guarantor's and AB Mexico's properties, books or records
are in the possession of a third party, Borrowers and Guarantor (on behalf of
itself and AB Mexico) authorize that third party to permit Agent or its agents
to have access to perform inspections or audits and to respond to Agent's
requests for information concerning such properties, books and records.
6.17 Compliance with Laws. To comply in all material respects
with the laws, regulations, and orders of any government body with authority
over Borrowers', Guarantor's or AB Mexico's business (including any fictitious
name statute and all statutes regarding the processing, manufacture, storage,
transportation, sale or use of hazardous or toxic materials).
6.18 Preservation of Rights. To maintain and preserve all
rights, privileges, and franchises Borrowers, Guarantor and AB Mexico now have
which are necessary to carry on their business.
6.19 Maintenance of Properties. To make any repairs, renewals,
or replacements to keep Borrowers', Guarantor's and AB Mexico's properties in
good working condition (reasonable wear and tear excepted).
6.20 Perfection of Liens. To help Agent and Banks perfect and
protect their security interests and liens, and reimburse the Agent and Banks
for related costs incurred to protect its security interests and liens.
6.21 Cooperation. To take any action reasonably requested by
Agent and Banks to carry out the intent of this Agreement.
6.22 Insurance.
(a) Insurance Covering Collateral. To maintain all
risk property damage insurance policies covering the tangible property
comprising the Collateral (as defined in Section 7 below) and all other
insurable assets of Borrowers, Guarantor, and AB Mexico. Each insurance
policy must be for the full replacement cost of the Collateral and
other assets and include a replacement cost endorsement. The insurance
must be issued by an insurance company reasonably acceptable to Agent
and must include a lender's loss payable endorsement in favor of Agent
in a form reasonably acceptable to Agent.
(b) General Business Insurance. To maintain insurance
as is usual for the business they are in.
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(c) Evidence of Insurance. Upon the request of Agent,
to deliver to Banks a copy of each insurance policy, or, if permitted
by Agent, a certificate of insurance listing all insurance in force.
6.23 Operating/Business Accounts. Establish and maintain with
Banks all of Borrowers' and Guarantor's operating and business accounts and all
other banking services associated with the operation of Borrowers' and
Guarantor's business, including without limitation any demand deposit accounts.
6.24 Additional Negative Covenants. Not to, without Banks'
prior written consent:
(a) engage in any business activities substantially
different from Borrowers', Guarantor's, or AB Mexico's, respectively,
present businesses.
(b) liquidate or dissolve Borrowers', Guarantor's, or
AB Mexico's, respectively, businesses.
(c) enter into any consolidation, merger, pool, joint
venture, syndicate or other combination, or make any loans (other than
as provided in Section 6.12) or investments (other than intercompany
investments), or make any commitment with respect thereto.
(d) sell, lease or dispose of all or (in Banks'
reasonable opinion) a substantial part of Borrowers', Guarantor's, or
AB Mexico's, respectively, business, or Borrower', Guarantor's, or AB
Mexico's, respectively, assets.
(e) acquire or purchase a business or its assets
(provided that Banks will not unreasonably withhold or delay their
consents to any such transaction).
(f) sell or otherwise dispose of any assets for less
than fair market value, or enter into any sale and leaseback agreement
covering any of their fixed or capital assets in excess of $250,000 in
the aggregate in any twelve (12) month period.
(g) voluntarily suspend any of their respective
businesses for more than five business days in any ten day period,
other than a routine shutdown, not to exceed fourteen (14) consecutive
days, consistent with past practice.
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(h) enter into any transaction with any affiliate of
Borrowers on terms less favorable than those available to Borrowers
from other persons or entities in the ordinary course of such persons'
and entities' business.
(i) transfer any fixed assets, exceeding $50,000 in
aggregate book value in any twelve (12) month period, to outside the
United States of America, without the prior written approval of Agent.
(j) make or incur any capital expenditures, including
capital leases, which in the aggregate exceed $6,500,000 for the
Borrowers' fiscal year 1998, or $2,500,000 for any fiscal year
thereafter.
(k) change the Chairman of the Board, Chief Executive
Officer, or Chief Financial Officer of either of the Borrowers, or
Guarantor or AB Mexico, and fail to secure the services of a successor
satisfactory to the Banks within 90 days.
(l) move any inventory or equipment to, or otherwise
store, hold or possess any inventory or equipment at, any other
locations or premises other than those identified in Schedule 5.15
hereto, except upon 30 days prior written notice to Agent and upon
execution and delivery of any financing statements required by Agent
(and any other documents needed to perfect the Banks' liens in such
jurisdiction).
(m) change in any material respect of their existing
policies or practices with respect to returns and allowances on
inventory sold.
(n) change the name of either of the Borrowers,
Guarantor or AB Mexico, except upon 30 days prior written notice to
Agent and upon execution and delivery of any financing statements
required by Agent (and any other documents needed to perfect the Banks'
liens in such jurisdiction).
(o) prepay any indebtedness (other than trade
payables in the ordinary course of business) owed to any third parties
prior to the scheduled maturity date of such indebtedness (except that
repayment of the Subordinated Debt Obligations will be subject to the
provisions of the Subordination Agreement), provided that the cashless
exercise of options or warrants shall not be deemed a prohibited
prepayment hereunder.
(p) place any inventory on consignment.
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6.25 No Consumer Purpose. Not to use any loans or advances
hereunder for personal, family or household purposes.
6.26 ERISA Plans. To give prompt written notice to Agent of:
(a) The occurrence of any reportable event in respect
of any Plan under Section 4043(b) of ERISA for which the PBGC requires
30 day notice.
(b) Any action by Borrowers, Guarantor or AB Mexico
to terminate or withdraw from a Plan or the filing of any notice of
intent to terminate a Plan under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to
a Plan under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect
to a Plan under Section 4042 of ERISA.
6.27 Limit on AB Mexico and Foreign Assets. Not at any time to
permit the net book value of all assets owned by AB Mexico plus (without
duplication) all assets owned by Guarantor and its subsidiaries which are
located outside of the United States of America, to exceed 30% of the net book
value of the total tangible assets owned by Guarantor and its subsidiaries
(wherever located).
6.28 Payment of Taxes. Pay all taxes owing by Guarantor,
Borrowers (and all other subsidiaries) when due, other than those being
contested in good faith by appropriate proceedings.
6.29 Appointment of Agent as Attorney in Fact. Until all the
obligations of Borrowers to Banks have been paid in full, Borrowers irrevocably
appoint Agent as their attorney in fact and authorize and empower it to:
(a) Endorse and affix Borrowers' name to or upon any
check, draft, note, instrument or other writing relating to the
collection of Accounts Receivable, or relating to any other Collateral,
or upon any check or other instrument given in payment thereof, or upon
any omitted assignment, notification of assignment, demand or auditor's
verification relating to Collateral and upon all other instruments and
writings required to assert and protect Banks' rights in the
Collateral.
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(b) Upon the occurrence and during the continuance of
an Event of Default, receive, open and dispose of all mail addressed to
Borrowers and notify the Post Office authorities to change the address
for the delivery of mail addressed to Borrowers to such address as
Banks may designate. These powers, being coupled with an interest, are
irrevocable while Borrowers' obligations to Banks remain unpaid.
7. SECURITY DOCUMENTS.
7.1 Security Documents Executed by Borrowers. In order to
secure the obligations of Borrowers under this Agreement, the Notes, and other
Loan Documents, (a) AB Plastics will execute a security agreement of even date
herewith in favor of Agent, for the benefit of the Banks, covering all of AB
Plastics' Accounts Receivable, Inventory, equipment, general intangibles, and
all other property described therein (the "AB Plastics Security Agreement"), and
(b) MOS Plastics will execute a security agreement of even date herewith in
favor of Agent, for the benefit of the Banks, covering all of MOS Plastics'
Accounts Receivable, Inventory, equipment, general intangibles, and all other
property described therein (the "MOS Plastics Security Agreement").
7.2 Security Documents Executed by Guarantor. Borrowers'
obligations under the Notes and other Loan Documents shall be guaranteed by
Guarantor, pursuant to the terms of a guaranty (the "Guaranty") of even date
herewith executed by Guarantor in favor Agent, for the benefit of the Banks. In
order to secure the obligations of Guarantor under the Guaranty, Guarantor will
execute in favor of Agent, for the benefit of the Banks, (a) a stock pledge
agreement of even date herewith covering 100% of the capital stock of each of
the Borrowers (the "Stock Pledge Agreement"), and (b) a general security
agreement of even date herewith covering all Accounts Receivable, Inventory,
equipment, general intangibles and all other property of Guarantor described
therein (the "Guarantor Security Agreement").
7.3 Definition of Security Documents and Collateral. As used
in this Agreement, "Security Documents" means and includes (i) the various
documents referenced in Sections 7.1 and 7.2, above, (ii) any other security
agreement which may now or hereafter be executed by either Borrower, Guarantor,
any other entity in favor of Agent, for the benefit of Banks, to secure
performance of Borrowers' or Guarantor's obligations under the Loan Documents or
Guaranty, and (iii) any modifications or amendments to any of the foregoing
documents. Borrowers and Guarantor intend that each Security Document (as the
same may be modified or amended from time to time) shall grant to Agent, for the
ratable benefit of Banks, a security interest in the items of collateral
referenced in such Security Document. As used herein, the term "Collateral"
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means all Accounts Receivable, Inventory, equipment, general intangibles, and
all other property and collateral described in or covered by each and all of the
Security Documents.
8. DEFAULT.
8.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default":
(a) Failure to Pay. Borrowers fail to make any
payment under this Agreement, any Note, or any other Loan Document when
due.
(b) Non-Compliance. Borrowers, Guarantor, or any
other party (other than Banks) fails to meet the conditions of, or
fails to perform any obligation under:
(i) this Agreement,
(ii) any other Loan Document, or
(iii) any other agreement either Borrower or
Guarantor has with (x) Sumitomo or any affiliate of Sumitomo,
or (y) Manufacturers or any affiliate of Manufacturers.
which in any case is not cured within ten (10) days after the
occurrence thereof (or such longer grace period, if any, as may be
provided as to such default in any document or agreement referenced in
subparagraph (ii) or (iii) above), provided that if such failure cannot
be cured within ten days but Borrowers have commenced within such
10-day period to cure such failure and are otherwise diligently
pursuing such cure, then Borrowers shall have such additional time as
is reasonably necessary to effect such cure, but in no event more than
twenty (20) days beyond the initial 10-day cure period. The foregoing
notwithstanding, in the event any other Loan Document specifically sets
forth events which constitute a "Default" or "Event of Default"
thereunder, then the occurrence of any such "Default" or "Event of
Default" shall constitute an Event of Default hereunder and the
foregoing cure period shall not apply thereto. The foregoing cure
period is also not applicable to monetary defaults, as to which there
is no cure period, as specified in subparagraph (a) immediately above.
(c) Other Defaults. Any default occurs under the
Subordinate Debt Documents or any other agreement in connection with
any credit either of the Borrowers or Guarantor has obtained from any
other creditor(s) or which either of the Borrowers or Guarantor has
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guaranteed if the default consists of failing to make a payment when
due or gives the other creditor(s) the right to accelerate any
obligations in an aggregate amount in excess of five hundred thousand
dollars ($500,000).
(d) Lien Priority. Banks fail to have an enforceable
first lien (except for any liens to which Banks have consented in
writing) on or security interest in any Collateral (other than
"Emission Rights," as defined in the AB Plastics Security Agreement).
(e) False Information. Any representation or warranty
under this Agreement or any agreement, instrument or certificate
executed pursuant to this Agreement or in connection with any
transaction contemplated hereby shall prove to have been false or
misleading in any material respect when made or when deemed to have
been made.
(f) Bankruptcy. Either of the Borrowers or Guarantor
files a bankruptcy petition, a bankruptcy petition is filed against
either of the Borrowers or Guarantor or either of the Borrowers or
Guarantor makes a general assignment for the benefit of creditors. The
default will be deemed cured if any bankruptcy petition filed against
Borrowers or Guarantor is dismissed within a period of sixty (60) days
after the filing; provided, however, that Banks will not be obligated
to extend any additional credit to Borrowers during any bankruptcy
period.
(g) Receivers. Either of the Borrowers' or
Guarantor's business is terminated, or a receiver or similar official
is appointed for either of the Borrowers' or Guarantor's business and,
in the event such appointment is the result of an involuntary action or
proceeding, such appointment is not terminated, dismissed or discharged
within sixty (60) days.
(h) Lawsuits. Any lawsuit or lawsuits are filed on
behalf of one or more trade creditors against Borrowers or Guarantor in
an aggregate amount of five hundred thousand dollars ($500,000) or more
in excess of any insurance coverage, and such lawsuit or lawsuits are
not dismissed or fully bonded within ten (10) calendar days after
service of process upon either Borrower or Guarantor (as applicable).
(i) Judgments. Any judgments or arbitration awards in
an aggregate amount in excess of five hundred thousand dollars
($500,000) are entered against Borrowers or Guarantor and, absent
procurement of a stay of execution, such judgment or award remains
unbonded or unsatisfied for ten (10) calendar days after the date of
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entry; or Borrowers or Guarantor enters into any settlement agreement
with respect to any litigation or arbitration, in an aggregate amount
of five hundred thousand dollars ($500,000) or more in excess of any
insurance coverage.
(j) Government Action. Any government authority takes
action that Agent reasonably believes materially adversely affects
either of the Borrowers' or Guarantor's financial condition or ability
to repay.
(k) Revocation. The Guaranty, the Stock Pledge
Agreement, the Guarantor Security Agreement, the Subordination
Agreement, or any other Security Document, deed of trust, or other
document required by this Agreement is revoked or no longer in effect.
(l) Material Adverse Change. A material adverse
change occurs in either of the Borrowers' or Guarantor's financial
condition, properties or prospects, or ability to repay the obligations
hereunder.
(m) ERISA Plans. The occurrence of a reportable event
with respect to a Plan which is, in the reasonable judgment of Agent,
likely to result in the termination of such Plan for purposes of Title
IV of ERISA, or could reasonably be expected, in the reasonable
judgment of Agent, to subject either of the Borrowers or Guarantor to
any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, would exceed $500,000.
8.2 Remedies. Upon the occurrence and during the continuance
of an Event of Default, Banks, acting through Agent, shall have all of the
following rights and remedies:
(a) All obligations and indebtedness hereunder may,
at the option of Agent and without demand, notice, or legal process of
any kind, be declared, and immediately shall become, due and payable;
(b) The Loans shall bear interest at the Default
Rate;
(c) All of the rights and remedies of a secured party
under the California Commercial Code or other applicable law, all of
which rights and remedies shall be cumulative, and not exclusive, to
the extent permitted by law, in addition to any other rights and
remedies contained in this Agreement or in any of the documents or
agreements executed in connection herewith or which Agent and Banks may
otherwise have under any applicable law or in equity;
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(d) The right to (i) peacefully enter upon the
premises of Borrowers or Guarantor or any other place or places where
the Collateral is located, without any obligation to pay rent to
Borrowers, Guarantor or any other person, through self-help and without
judicial process or first obtaining a final judgment or giving
Borrowers or Guarantor notice and opportunity for a hearing on the
validity of Agents' or Banks' claim, and remove the Collateral from
such premises and places to the premises of Agent or any agent of
Agent, for such time as Agent, may require to collect or liquidate the
Collateral, and/or (ii) require Borrowers and Guarantor to assemble and
deliver the Collateral to Agent at a place to be designated by Agent;
(e) The right to (i) open Borrowers' and Guarantor's
mail and collect any and all amounts due from Account Debtors or direct
that Borrowers' and Guarantor's mail be diverted to a post office box
or other location as determined by Agent, (ii) notify Account Debtors
that the Accounts Receivable have been assigned to Agent and that Agent
has a security interest therein and (iii) direct such Account Debtors
to make all payments due from them upon the Accounts Receivable,
directly to Agent or to a lock box designated by Agent. Agent shall
promptly furnish Borrowers with a copy of any such notice sent and
Borrowers hereby agree that any such notice in Agent's sole discretion,
may be sent on Agent's stationery, in which event, Borrowers shall,
upon demand, co-sign such notice with Agent; and
(f) The right to sell, lease or to otherwise dispose
of all or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or
sales, in lots or in bulk, for cash or on credit, all as Agent, in its
sole discretion, may deem advisable. At any such sale or sales of the
Collateral, the Collateral need not be in view of those present and
attending the sale, nor at the same location at which the sale is being
conducted. Agent shall have the right to conduct such sales on
Borrowers' or Guarantor's premises or elsewhere and shall have the
right to use Borrowers' or Guarantor's premises without charge for such
sales for such time or times as Agent may see fit. Agent is hereby
granted a license or other right to use, without charge, Borrowers' and
Guarantor's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrowers' and
Guarantor's rights under all licenses and all franchise agreements
shall inure to Agent's benefit but Agent shall have no obligations
thereunder. Agent may purchase all or any part of the Collateral at
public or, if permitted by law, private sale and, in lieu of actual
payment of such purchase price, may setoff the amount of such price
against amounts due under this Agreement. The proceeds realized from
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the sale of any Collateral shall be applied first to the costs and
expenses, including reasonable attorneys' fees, incurred by Agent and
Banks for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to
interest due upon the Loans; and third to the principal of the Loans.
Agent shall account to Borrowers for any surplus. If any deficiency
shall arise, Borrowers and Guarantor shall remain liable to Agent and
Banks therefor.
8.3 Costs and Expenses. Agent and Banks shall be entitled to
recover all costs, expenses, and reasonable attorneys' fees (including any
allocated costs of in-house counsel) in connection with the administering or
enforcing of this Agreement following the occurrence and during the continuance
of any Event of Default, whether or not an action is filed.
9. PARTICIPATIONS; AGENCY; AMENDMENT, CONSENTS AND WAIVERS; OTHER
EXTENSIONS OF CREDIT.
9.1 Participations.
(a) As used herein, an "Institutional Lender" means
any bank or other financial institution having (or whose parent has)
capital and surplus of not less than $100,000,000 and which makes
commercial loans on an ongoing basis in the ordinary course of its
business. Each Bank may, with the prior written consent of Agent (which
consent shall not be unreasonably withheld), at any time sell to one or
more banks or other entities ("Participants") participating interests
in all or any portion of its Commitments and advances or any other
interest of such Bank hereunder and under the Loan Documents (in
respect of any Bank, its "Credit Exposure"). If the proposed
Participant is not an Institutional Lender, Agent may withhold its
consent in its sole discretion. In the event of any such sale by a Bank
of participating interests to a Participant, such Bank's obligations
under this Agreement shall remain unchanged, such Bank shall remain
solely responsible for the performance thereof, such Bank's Credit
Exposure shall not decrease, and Borrowers and Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's
rights and obligations under this Agreement. Each Bank shall from time
to time upon request of Borrowers notify Borrowers of the identity of
any Participants with respect to its Credit Exposure hereunder;
provided, however, that failure to provide such notice will not affect
the validity of such participation. Borrowers agree that if amounts
outstanding under this Agreement are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an
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Event of Default, each Participant shall be deemed to have the right of
set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement,
provided that such right of set-off shall be subject to the obligation
of such Participant to share with the Banks, and the Banks agree to
share with such Participant, as provided in Section 9.4. Each Bank
agrees that any agreement between such Bank and any Participant in
respect of such participating interest shall not restrict such Bank's
right to approve or agree to any amendment, restatement, supplement or
other modification to, waiver of, or consent under, this Agreement
except to extend the Maturity Date, reduce the rate of interest or
fees, extend the time of payment of interest thereon, reduce the
principal amount thereof, or release all or substantially all of any
Collateral. Notwithstanding the foregoing, or anything else contained
herein which may be construed to the contrary, Sumitomo, so long as it
is Agent, and Manufacturers, if it should ever become agent, shall at
all times retain (and not participate out) the lesser of (i) 25% of the
total indebtedness owing under the Notes, or (ii) the amount retained
by the other Bank that is a party to this Agreement.
(b) Notwithstanding any other provision contained in
this Agreement or any of the Loan Documents to the contrary, any Bank
may, upon written notice to Agent, Borrowers and the other Banks,
pledge all or any portion of its Notes to any Federal Reserve Bank or
the United States Treasury as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System
and any Operating Circular issued by such Federal Reserve Bank,
provided that any payment in respect of such pledged Notes made by
Borrowers to or for the account of the pledging Bank in accordance with
the terms of this Agreement shall satisfy Borrowers' obligations
hereunder in respect to such pledged Notes to the extent of such
payment. No such pledge shall release the pledging Bank from its
obligations hereunder.
(c) Borrowers and Guarantor authorize each Bank to
disclose to any Participant any and all financial information in such
Bank's possession concerning Borrowers and Guarantor and any subsidiary
of Borrowers and Guarantor which has been delivered to such Bank by
Borrowers or Agent pursuant to this Agreement or which has been
delivered to such Bank by Borrowers or Agent in connection with such
Bank's credit evaluation of Borrowers prior to entering into this
Agreement.
9.2 Agent.
(a) Appointment. Each Bank hereby designates and
appoints Sumitomo as its agent under this Agreement and the Loan
Documents, and each Bank hereby irrevocably authorizes Agent to take
such action or to refrain from taking such action on its behalf under
the provisions of this Agreement and the Loan Documents and to exercise
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such powers as are set forth herein or therein, together with such
other powers as are reasonably incidental thereto. Agent agrees to act
as such on the express conditions contained in this Section 9.2. The
provisions of this Section 9.2 are solely for the benefit of Agent and
Banks, and neither Borrowers nor Guarantor shall have any rights as a
third party beneficiary of any of the provisions hereof. In performing
its functions and duties under this Agreement, 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 Borrowers or Guarantor. Agent may perform any of its duties
hereunder, or under the Loan Documents, by or through its agents or
employees.
(b) Nature of Duties as Agent. Agent shall have no
duties or responsibilities except those expressly set forth in this
Agreement. The duties of Agent shall be mechanical and administrative
in nature. Agent shall not have by reason of this Agreement a fiduciary
relationship with any Bank. Nothing in this Agreement, the Loan
Documents or any other agreements, express or implied, is intended to
or shall be construed to impose upon Agent any obligations in respect
of this Agreement, the Loan Documents or any other agreement except as
expressly set forth herein or therein. Each Bank shall make its own
independent investigation of the financial condition and affairs of
Borrowers, Guarantor and their subsidiaries in connection with the
extensions of credit hereunder and shall make its own appraisal of the
creditworthiness of Borrowers, Guarantor and their subsidiaries, and
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 (other than financial information
received by it in accordance herewith), whether coming into its
possession before the date hereof or at any time or times hereafter. If
Agent seeks the consent or approval of any Bank to the taking or
refraining from taking any action hereunder, then Agent shall send
notice thereof to each Bank. Notwithstanding the foregoing, Agent shall
notify the Banks with reasonable promptness of any Event of Default of
which Agent has actual knowledge.
(c) Neither Agent nor any of its officers, directors,
employees or agents shall be liable to any Bank for any action taken or
omitted by it hereunder or under any other agreement, or in connection
herewith or therewith, except that Agent shall be liable with respect
to its own gross negligence or willful misconduct. Agent shall not be
liable for any apportionment or distribution of payments made by it in
good faith and if any such apportionment or distribution is
subsequently determined to have been made in error the sole recourse of
any Bank to whom payment was due but not made shall be to recover from
the other Banks any payment in excess of the amount to which it is
determined to be entitled (and such other Banks hereby agree to return
to such Bank any such erroneous payments received by them). In
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performing its functions and duties hereunder, Agent shall exercise the
same care which it would in dealing with loans for its own account, but
Agent shall not be responsible to any Bank for any recitals,
statements, representations or warranties herein or for the execution
(other than by Agent), effectiveness, genuineness, validity,
enforceability, collectibility, or sufficiency of this Agreement or any
other Loan Documents or any other agreement, or the transactions
contemplated hereby or thereby, or for the financial condition of
Borrowers or Guarantor or any of their subsidiaries or affiliates.
Agent shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions
of this Agreement or any agreement or the financial condition of
Borrowers, or Guarantor or any of their subsidiaries or affiliates, or
the existence or possible existence of any Event of Default or any
event which, with the giving of notice or the passage of time, or both,
would constitute an Event of Default. Agent may at any time request
instructions from Banks with respect to any actions or approvals which
by the terms of this Agreement or of any agreement Agent is permitted
or required to take or to grant, and if such instructions are promptly
requested, Agent shall be absolutely entitled to refrain from taking
any action or to withhold any approval and shall not be under any
liability whatsoever to any person or entity for refraining from any
action or withholding any approval under this Agreement or any other
agreement until it shall have received such instructions from all
Banks. Without limiting the foregoing, no Bank shall have any right of
action whatsoever against Agent as a result of Agent acting or
refraining from acting under this Agreement, any of the Loan Documents
or any other agreement in accordance with the instructions of all
Banks.
(d) Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any
telephone message or other communication (including any writing, telex,
telecopy or telegram) believed by it in good faith to be genuine and
correct and to have been signed, sent or made by the proper person or
entity, and with respect to all matters pertaining to this Agreement,
the Loan Documents or any other agreement and its duties hereunder or
thereunder, upon advice of counsel selected by it. Agent shall be
entitled to rely upon the advice of legal counsel, independent
accountants and other experts selected by Agent in its sole discretion.
(e) Banks will reimburse and indemnify Agent for and
against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, advances or
disbursements of any kind or nature whatsoever which may be imposed on,
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incurred by, or asserted against Agent in any way relating to or
arising out of this Agreement, the Loan Documents or any other
agreement or any action taken or omitted by Agent under this Agreement,
the Loan Documents or any other agreement, in proportion to each Bank's
Pro Rata Share; provided, however, that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements
resulting from Agent's gross negligence or willful misconduct; and
provided further, however, that Agent shall distribute to each of the
Banks in accordance with their Pro Rata Share all net payments and
recoveries (after deduction of expenses) received by Agent from
Borrowers and Guarantor. The obligations of the Banks under this
Section 9.2 shall survive the payment in full of all extensions of
credit hereunder and the termination of this Agreement.
(f) With respect to the extensions of credit made by
it, Agent shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Bank. The term "Banks" or
any similar terms shall, unless the context clearly otherwise
indicates, include Agent in its individual capacity as a Bank. Agent
may lend money to, and generally engage in any kind of banking, trust
or other business with Borrowers as if it were not acting as Agent
pursuant hereto.
(g) Agent may resign from the performance of all its
functions and duties hereunder at any time by giving at least thirty
(30) Banking Days' prior written notice to Borrowers and Banks. Such
resignation shall take effect upon the acceptance by a successor Agent
of appointment pursuant to clause (h) below or as otherwise provided
below.
(h) Upon any such notice of resignation pursuant to
clause (g) above, the Banks shall appoint a successor Agent. If a
successor Agent shall not have been so appointed within said thirty
(30) Banking Day period, the retiring Agent, upon notice to Borrowers,
shall then appoint a successor Agent who shall serve as Agent until
such time, if any, as Banks appoint a successor Agent as provided
above.
(i) Upon the acceptance by a successor Agent of any
appointment as an Agent under this Agreement and the Loan Documents,
such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's
resignation as Agent under this Agreement, the provisions of this
Section 9.2 shall inure to its benefit as to any actions taken or
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omitted to be taken by it while it was Agent under this Agreement.
Notwithstanding anything contained herein which may be construed to the
contrary, if Sumitomo is acquired by or merged into another financial
institution which does not have at least $100,000,000 in
capitalization, Manufacturers may, at its option, within 45 days of
such acquisition or merger, elect to become Agent hereunder by sending
written notice to Sumitomo's successor and to Borrowers that
Manufacturers has elected to become the Agent hereunder pursuant to the
provisions of this section, and Manufacturers will, after the sending
of such notice, be the Agent hereunder and shall have all the rights
and responsibilities of the Agent hereunder.
(j) Banks hereby irrevocably authorize Agent, at its
option and in its discretion, to release any lien granted to or held by
Agent upon any property covered by this Agreement or the Security
Documents (A) upon termination of Bank's obligations hereunder and
payment and satisfaction of all liabilities of Borrowers under the
Notes; or (B) constituting property being sold or disposed of if
Borrowers certify to Agent that the sale or disposition is made in
compliance with the provisions of this Agreement (and Agent may rely in
good faith conclusively on any such certificate, without further
inquiry); or (C) constituting property leased to Borrowers under a
lease which has expired or been terminated in a transaction permitted
under this Agreement or is about to expire and which has not been, and
is not intended by such Borrower to be, renewed or extended. Upon
request by Agent at any time, any Bank will confirm in writing the
Agent's authority to release particular types or items of property
covered by this Agreement or the Loan Documents pursuant to this
Section 9.2(j) or Section 9.3.
(x) Without in any manner limiting Agent's
authority to act without any specific or further authorization
or consent by the Banks (as set forth in Section 9.2(j), each
Bank agrees to confirm in writing, upon request by Borrowers,
the authority to release any property covered by this
Agreement and the Security Documents conferred upon Agent
under clauses (A) through (C) of Section 9.2(j) and under
Section 9.3. So long as no Event of Default is then
continuing, upon receipt by Agent of confirmation from the
Banks of their authority to release any particular item or
types of property covered by this Agreement or the Loan
Documents, and upon at least five (5) Banking Days' prior
written request by Borrowers, Agent shall (and is hereby
irrevocably authorized by the Banks to) execute such documents
as may be necessary to evidence the release of the liens
granted to Agent for the benefit of the Banks herein or
pursuant hereto upon such collateral; provided, however, that
(A) Agent shall not be required to execute any such document
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on terms which, in Agent's opinion, would expose Agent to
liability or create any obligation or entail any consequence
other than the release of such liens without recourse or
warranty, and (B) such release shall not in any manner
discharge, affect or impair the obligations of Borrowers
hereunder.
(y) Agent shall have no obligation
whatsoever to any Bank or any other person or entity to assure
that the property covered by this Agreement or any of the
Security Documents exists or is owned by Borrowers, or is
cared for, protected or insured or has been encumbered or that
the liens granted to Agent pursuant to the Security Documents
have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent in this
Section 9.2 or elsewhere in this Agreement or in any of the
Security Documents, it being understood and agreed that in
respect of the property covered by any of the Security
Documents or any act, omission or event related thereto, Agent
may act in any manner Agent deems appropriate, in its sole
discretion, given Agent's own interest in property covered by
any of the Security Documents as one of the Banks and that
Agent shall have no duty or liability whatsoever to any of the
other Banks; provided, that Agent shall exercise the same care
which it would exercise in dealing with loans for its own
account.
(k) Each Bank hereby appoints each other Bank as
agent for the purpose of perfecting security interests in assets which,
in accordance with Article 9 of the Uniform Commercial Code in any
applicable jurisdiction, can be perfected only by possession. Should
any Bank (other than Agent) obtain possession of any such collateral,
such Bank shall notify Agent thereof and, promptly upon Agent's request
therefor, shall deliver such collateral to Agent or in accordance with
Agent's instructions. Each Bank agrees that it will not have any right
individually to enforce or seek to enforce any right or remedy under
this Agreement or any of the Security Documents or to realize upon any
collateral securing any extensions of credit hereunder, it being
understood and agreed that such rights and remedies may be exercised
only by Agent.
9.3 Amendments; Consents and Waivers for Certain Actions. No
amendment, modification, termination or waiver of any provision of this
Agreement or consent to any departure by Borrowers therefrom, shall in any event
be effective unless the same shall be in writing and signed by the Borrowers and
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by the Banks holding at least two-thirds (66 2/3%) of the outstanding amounts of
the Loans; provided, that no amendment, modification, termination or waiver
shall, unless in writing and signed by all Banks or, in the case of subsection
(a) below, the affected Bank, do any of the following:
(a) increase the Commitment of any Bank;
(b) reduce the principal of, rate of interest on or
fees payable with respect to any extensions of credit hereunder;
(c) postpone the Maturity Date or any date fixed for
any payment with respect to any amount of principal, interest or fees
with respect to any extensions of credit hereunder;
(d) amend or waive any of the covenants contained in
Article 6 hereof, or this Section 9.3;
(e) consent to the assignment or other transfer by
Borrowers of any of their rights and obligations under this Agreement
or any of the Loan Documents;
(f) except as specified in section 9.2(j) above,
release any material portion of the Collateral; or
(g) waive any material condition precedent to any
borrowing hereunder.
Each amendment, modification, termination or waiver shall be effective only in
the specific instance and for the specific purpose for which it was given. No
amendment, modification, termination or waiver shall be required for Agent to
accept from the Borrowers additional collateral. No notice to or demand on
Borrowers not required by the terms hereof in any case shall entitle Borrowers
to any other or further notice or demand in similar or other circumstances.
9.4 Set Off and Sharing of Payments. In addition to any rights
now or hereafter granted under applicable law and not by way of limitation of
any such rights, upon the occurrence and during the continuance of any Event of
Default, each Bank is hereby authorized by Borrowers at any time or from time to
time, with reasonably prompt subsequent notice to Borrowers (any prior or
contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (a) balances (including, without
limitation, all account balances, whether provisional or final and whether or
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not collected or available, but expressly excluding any trust funds) held by
such Bank at any of its offices for the account of Borrowers (regardless of
whether such balances are then due to Borrowers) and (b) other property held or
owing by such Bank to or for the credit or for the account of Borrowers, against
and on account of any amounts owed by Borrowers hereunder which are not paid
when due; provided, however, that at any time that there exists any real
property collateral for the Loans or any other obligations of Borrowers or
Guarantor under the Loan Documents, no Bank shall exercise any right of setoff
without the prior written consent of each other Bank.
10. MISCELLANEOUS.
10.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to Agent and all financial covenants will be made
under generally accepted accounting principles consistently applied.
10.2 California Law. This Agreement is governed by California
law without reference to its conflict of laws principles.
10.3 Successors and Assigns. This Agreement is binding on
Borrowers', Guarantor's, Agent's and Banks' successors and assignees. Borrowers
agree that they may not assign this Agreement without the prior written consent
of Agent and Banks. As used herein, including for purposes of obtaining interest
rate quotes or making interest rate determinations, the term "Sumitomo", "Agent"
or "Manufacturers" shall mean and include Sumitomo's, Agent's and
Manufacturers', respectively, successors, including without limitation
successors by merger or acquisition.
10.4 Severability; Waivers; Interpretation. If any part of
this Agreement is not enforceable, the rest of the Agreement may be enforced. No
failure on the part of Agent to exercise, and no delay in exercising, any right,
power, or remedy under this Agreement shall operate as a waiver thereof; nor
shall any single or partial exercise of any right under this Agreement preclude
any other or further exercise thereof or the exercise of any other right. Any
consent or waiver under this Agreement must be in writing. If Agent waives a
default, it may enforce a later default. Wherever the context so requires, all
words used in the singular will be construed to have been used in the plural,
and vice versa. The word "include(s)" means "include(s), without limitation,"
and the word "including" means "including, but not limited to." No listing of
specific instances, items or matters in any way limits the scope or generality
of any language of this Agreement. Time is of the essence in the performance of
this Agreement by Borrowers and Guarantor. The exhibits to this Agreement are
hereby incorporated in this Agreement. The language of this Agreement shall be
construed as a whole according to its fair meaning, and not strictly for or
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against any party (and the parties hereto acknowledge that they participated in
the negotiation and drafting of this Agreement, and that any ambiguity shall not
be construed against any party).
10.5 Costs and Expenses. In addition to the recovery of costs
and expenses upon an occurrence of an Event of Default, if Agent or Banks incur
expenses in connection with the preparation, administering or enforcing of this
Agreement, Borrowers shall pay Agent and Banks all such costs and reasonable
attorneys' fees, including any allocated costs of in-house counsel.
10.6 Entire Agreement. This Agreement and the Loan Documents,
collectively:
(a) represent the sum of the understandings and
agreements between Agent, Banks and Borrowers concerning this credit;
and
(b) replace any prior oral or written agreements
between Agent, Banks and Borrowers concerning this credit; and
(c) are intended by Agent, Banks and Borrowers as the
final, complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any
other agreements required by this Agreement, this Agreement will prevail.
10.7 Notices. Except as otherwise expressly provided elsewhere
in this Agreement or in the Loan Documents: (a) all notices, requests, demands,
directions and other communications provided for hereunder or under any of the
Loan Documents must be in writing and must be mailed, telecopied or personally
delivered to the appropriate party at the address set forth on the signature
pages of this Agreement or, as to any party, at any other address as may be
designated by it in a written notice sent to all other parties in accordance
with this Section 10.7; and (b) any notice, request, demand, direction or other
communication given by telecopier, must be confirmed within 48 hours by letter
mailed or delivered to the appropriate party at its respective address. Except
as otherwise expressly provided elsewhere herein or in any Loan Document, if any
notice, request, demand, direction or other communication required or permitted
hereunder or under any Loan Document is given by mail it will be effective on
the earlier of receipt or the third calendar day after deposit in the United
States mail with first class or airmail postage prepaid; if given by telecopier,
upon electronic confirmation of receipt, and if given after 4:00 p.m., Los
Angeles time, effective on the next Banking Day; or if given by personal
delivery, when delivered.
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10.8 Headings. Article and paragraph headings are for
reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement.
10.9 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
10.10 Further Assurances. Borrowers shall, at their expense
and without expense to Agent, do, execute and deliver such further acts and
documents as Agent from time to time reasonably requires to assure Agent the
rights created or intended to be created by this Agreement, and for carrying out
the intention or facilitating the performance of the terms of this Agreement or
any document executed in connection with this Agreement.
10.11 Hazardous Waste Indemnification. Borrowers will
indemnify and hold harmless Agent and Banks from any loss or liability directly
or indirectly arising out of the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal or presence of a
hazardous substance by Borrowers or at Borrowers' premises or on Borrowers'
behalf. This indemnity will apply whether the hazardous substance is on, under
or about Borrowers' property or operations or property leased to Borrowers. The
indemnity includes but is not limited to reasonable attorneys' fees (including
the reasonable estimate of the allocated cost of in-house counsel and staff).
The indemnity extends to Agent, each Bank, their parents and subsidiaries and
all of their directors, officers, employees, agents, successors, attorneys and
assigns. For these purposes, the term "hazardous substances" means any substance
which is or becomes designated as "hazardous" or "toxic" under any federal,
state or local law. This indemnity will survive repayment of Borrowers'
obligations hereunder.
Upon demand by Agent, Borrowers will defend any investigation,
action or proceeding alleging the presence of any hazardous substance in any
such location, which affects any of Borrowers' property or operations or
property leased to Borrowers or which is brought or commenced against Agent in
respect of Borrowers, whether alone or together with Borrowers or any other
person, all at Borrowers' own cost and by counsel to be approved by Agent in the
exercise of its reasonable judgment. If Borrowers fail to so defend the
investigation, action, or proceeding, then Agent may elect to conduct its own
defense at the expense of Borrowers.
10.12 Waiver of Jury Trial. The parties to this Agreement
acknowledge that jury trials often entail additional expenses and delays not
occasioned by nonjury trials. The parties to this Agreement further agree and
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stipulate that a fair trial may be had before a state or federal judge by means
of a bench trial without a jury. In view of the foregoing, and as a specifically
negotiated provision of this Agreement, each party to this Agreement hereby
expressly waives any right to trial by jury of any claim, demand, action or
cause of action (1) arising under this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or (2) in
any way connected with or related or incidental to the dealings of the parties
hereto or any of them with respect to this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether sounding in contract or tort or otherwise; and
each party hereby agrees and consents that any such claim, demand, action or
cause of action shall be decided by court trial without a jury, and that any
party to this Agreement may file an original counterpart or a copy of this
section with any court as written evidence of the consent of the parties hereto
to the waiver of their right to trial by jury.
10.13 Joint Borrower Provisions. Each Borrower acknowledges
and agrees that it shall be jointly and severally liable for the Revolving Line
of Credit, the Term Loan and all other indebtedness and obligations arising
under this Agreement, the Notes, and all of the other Loan Documents
(collectively, the "Obligations"). In furtherance thereof, each Borrower
acknowledges and agrees as follows:
(a) For the purpose of implementing the joint
borrower provisions of the Loan Documents, each Borrower hereby
irrevocably appoints the other as its agent and attorney-in-fact for
all purposes of the Loan Documents, including the giving and receiving
of notices and other communications.
(b) To induce the Banks to provide the Borrowers with
the Revolving Line of Credit and the Term Loan, and in consideration
thereof, each Borrower hereby agrees to indemnify the Agent and the
Banks against, and hold the Agent and Banks harmless from, any and all
liabilities, expenses, losses, damages and/or claims of damage or
injury asserted against the Agent and/or Banks by either Borrower or by
any other individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture or governmental authority (collectively, a
"Person") arising from or incurred by reason of (i) reliance by the
Agent or Banks on any requests or instructions from either Borrower, or
(ii) any other action taken by the Agent or Banks in good faith with
respect to this Agreement or the other Loan Documents.
(c) Each Borrower acknowledges that the liens and
security interests created or granted herein and by the other Loan
Documents will secure Obligations of both Borrowers under the Loan
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Documents and, in full recognition of that fact, each Borrower consents
and agrees that the Agent and Banks may, at any time and from time to
time, without notice or demand, and without affecting the
enforceability or security hereof or of any other Loan Document:
(i) agree with the Borrowers to supplement,
modify, amend, extend, renew, accelerate, or otherwise change
the time for payment or the terms of the Obligations or any
part thereof, including any increase or decrease of the
rate(s) of interest thereon;
(ii) agree with the Borrowers to supplement,
modify, amend or waive, or enter into or give any agreement,
approval or consent with respect to, the Obligations or any
part thereof or any of the Loan Documents or any additional
security or guaranties, or any condition, covenant, default,
remedy, right, representation or term thereof or thereunder;
(iii) accept new or additional instruments,
documents or agreements in exchange for or relative to any of
the Loan Documents or the Obligations or any part thereof;
(iv) accept partial payments on the
Obligations;
(v) receive and hold additional security or
guaranties for the Obligations or any part thereof;
(vi) release, reconvey, terminate, waive,
abandon, subordinate, exchange, substitute, transfer and
enforce any security for or guaranties of the Obligations, and
apply any security and direct the order or manner of sale
thereof as Agent, in its sole and absolute discretion may
determine;
(vii) release any Person or entity or any
guarantor from any personal liability with respect to the
Obligations or any part thereof;
(viii) settle, release on terms satisfactory
to the Agent or Banks or by operation of applicable laws or
otherwise liquidate or enforce any Obligations and any
security therefor or guaranty thereof in any manner, consent
to the transfer of any such security and bid and purchase at
any sale; and
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(ix) consent to the merger, change or any
other restructuring or termination of the corporate existence
of either Borrower or any other Person, and correspondingly
restructure the obligations of such Borrower or other Person,
and any such merger, change, restructuring or termination
shall not affect the liability of either Borrower or the
continuing existence of any lien or security interest
hereunder, under any other Loan Document to which either
Borrower is a party or the enforceability hereof or thereof
with respect to all or any part of the Obligations.
(d) Upon the occurrence of and during the continuance
of any Event of Default, the Agent or Banks may enforce this Agreement
and the other Loan Documents independently as to each Borrower and
independently of any other remedy or security the Agent or Banks at any
time may have or hold in connection with the Obligations, and in
collecting on the Obligations it shall not be necessary for the Agent
or Banks to marshal assets in favor of either Borrower or any other
Person or to proceed upon or against and/or exhaust any other security
or remedy before proceeding to enforce this Agreement and the other
Loan Documents. Each Borrower expressly waives any right to require the
Agent or Banks, in connection with the Agent's or Bank's efforts to
obtain repayment of the Obligations, to marshal assets in favor of
either Borrower or any other Person or to proceed against any other
Person or any collateral provided by any other Person, and agrees that
the Agent and Banks may proceed against any Persons and/or collateral
in such order as they shall determine in their sole and absolute
discretion in connection with the Bank's efforts to obtain repayment of
the Obligations. Agent and Banks may file a separate action or actions
against each Borrower to enforce the Obligations, whether action is
brought or prosecuted with respect to any other security or against any
other Person, or whether any other Person is joined in any such action
or actions. Each Borrower agrees that Agents and Banks, each Borrower
and/or any other Person may deal with each other in connection with the
Obligations or otherwise, or alter any contracts or agreements now or
hereafter existing between any of them, in any manner whatsoever, all
without in any way altering or affecting the security of this Agreement
or the other Loan Documents. The rights of the Agent and Banks
hereunder and under the other Loan Documents shall be reinstated and
revived, and the enforceability of this Agreement and the other Loan
Documents shall continue, with respect to any amount at any time paid
on account of the Obligations which thereafter shall be required to be
restored or returned by the Agent or Banks as a result of the
bankruptcy, insolvency or reorganization of either Borrower or any
other Person, or otherwise, all as though such amount had not been
paid. The enforceability of this Agreement and the other Loan Documents
at all times shall remain effective even though any or all Obligations,
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or any other security or guaranty therefor, may be or hereafter may
become invalid or otherwise unenforceable as against either Borrower or
any other Person and whether or not either Borrower or any other Person
shall have any personal liability with respect thereto. Each Borrower
expressly waives any and all defenses to the enforcement of its
obligations under the Loan Documents now or hereafter arising or
asserted by reason of (i) any disability or other defense of either
Borrower or any other Person with respect to the Obligations, (ii) the
unenforceability or invalidity of any security or guaranty for the
Obligations or the lack of perfection or continuing perfection or
failure of priority of any security for the Obligations, (iii) the
cessation for any cause whatsoever of the liability of either Borrower
or any other Person (other than by reason of the full and final payment
and performance of all Obligations), (iv) any failure of the Agent or
Banks to marshal assets in favor of either of the Borrowers or any
other Person, (v) any failure of the Agent or Banks to give notice of
sale or other disposition of any Collateral for the Obligations to
either Borrower or to any other Person or any defect in any notice that
may be given in connection with any such sale or disposition, (vi) any
failure of the Agent or Banks to comply in any non-material respect
with applicable laws in connection with the sale or other disposition
of any Collateral or other security for any Obligation, (vii) any act
or omission of the Agent or Banks or others that directly or indirectly
results in or aids the discharge or release of either Borrower or of
any other Person or of any of the Obligations or any other security or
guaranty therefor by operation of law or otherwise, (viii) any law
which provides that the obligation of a surety or guarantor must
neither be larger in amount nor in other respects more burdensome than
that of the principal or which reduces a surety's or guarantor's
obligation in proportion to the principal obligation, (ix) any failure
of the Agent or Banks to file or enforce a claim in any bankruptcy or
other proceeding with respect to any Person, (x) the election by the
Agent or Banks, in any bankruptcy proceeding of any Person, of the
application or non-application of Section 1111(b)(2) of the United
States Bankruptcy Code, (xi) any extension of credit or the grant of
any lien under Section 364 of the United States Bankruptcy Code except
to extent otherwise provided in this Agreement, (xii) any use of cash
collateral under Section 363 of the United States Bankruptcy Code,
(xiii) any agreement or stipulation with respect to the provision of
adequate protection in any bankruptcy proceeding of any Person, (xiv)
the avoidance of any lien or security interest in favor of the Agent or
Banks securing the Obligations for any reason, or (xv) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against any
Person, including any discharge of, or bar or stay against collecting,
all or any of the Obligations (or any interest thereon) in or as a
result of any such proceeding.
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(e) The Borrowers represent and warrant to the Agent
and the Banks that they have established adequate means of obtaining
from each other, on a continuing basis, financial and other information
pertaining to their respective businesses, operations and condition
(financial and otherwise) and their respective properties, and each now
is and hereafter will be completely familiar with the businesses,
operations and condition (financial and otherwise) of the other and
their respective properties. Each Borrower hereby expressly waives and
relinquishes any duty on the part of Agent and the Banks to disclose to
such Borrower any matter, fact or thing related to the businesses,
operations or condition (financial or otherwise) of the other Borrower
or the other Borrower's properties, whether now known or hereafter
known by the Agent or Banks during the life of this Agreement. With
respect to any of the Obligations, the Agent or Banks need not inquire
into the powers of either Borrower or the officers, employees or other
persons acting or purporting to act on such Borrower's behalf.
(f) Notwithstanding anything to the contrary
elsewhere contained herein or in any other Loan Document to which
either Borrower is a party, with respect to the Obligations, each
Borrower hereby waives with respect to the other Borrower and its
successors and assigns (including any surety) and any other Person any
and all rights at law or in equity, to subrogation, to reimbursement,
to exoneration, to contribution, to setoff, to any other rights and
defenses available to it by reason of California Civil Code Sections
2787 and 2855, inclusive, or to any other rights that could accrue to a
surety against a principal, to a guarantor against a maker or obligor,
to an accommodation party against the party accommodated, or to a
holder or transferee against a maker and which each of them may have or
hereafter acquire against the other or any other Person in connection
with or as a result of such Borrower's execution, delivery and/or
performance of this Agreement or any other Loan Document to which it is
a party until the Obligations are paid and performed in full. Each
Borrower agrees that it shall not have or assert any such rights
against the other Borrower or the other Borrower's successors and
assigns or any other Person (including any surety), either directly or
as an attempted setoff to any action commenced against such Borrower by
the other Borrower (as borrower or in any other capacity) or any other
Person until all the Obligations are paid and performed in full. Each
Borrower hereby acknowledges and agrees that this waiver is intended to
benefit the Bank and shall not limit or otherwise affect either
Borrower's liability under this Agreement or any other Loan Document to
which it is a party, or the enforceability hereof or thereof.
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(g) Each Borrower warrants and agrees that each of
the waivers and consents set forth herein is made with full knowledge
of its significance and consequences, with the understanding that
events giving rise to any defense waived may diminish, destroy or
otherwise adversely affect rights which each otherwise may have against
the other, against the Agent or the Banks or others, or against any
Collateral. If any of the waivers or consents herein are determined to
be contrary to any applicable law or public policy, such waivers and
consents shall be effective to the maximum extent permitted by law.
10.14 Existing Agreement. If not sooner terminated in
accordance with the terms thereof, any and all obligations of Sumitomo to
advance funds under the Existing Agreement, and any other obligations of
Sumitomo under the Existing Agreement and the documents executed in connection
therewith, shall terminate concurrently with the first advance made under this
Agreement (provided that all of Sumitomo's rights thereunder shall remain intact
until it has been repaid in full in connection therewith).
10.15 Inter-Affiliate Indebtedness. Borrowers and Guarantor
agree that all indebtedness and obligations owing between the Borrowers and/or
between either of the Borrowers and Guarantor, or owing by any subsidiaries to
Guarantor, shall at all times be subject and subordinate to all indebtedness and
obligations owing by Borrowers and Guarantor to the Banks hereunder, and under
the Notes and other Loan Documents.
This Agreement is executed as of the date stated at the top
of the first page.
"Borrowers"
AB PLASTICS CORPORATION, a California corporation
By: ___________________________________
___________________________________
[Printed Name and Title]
By: ___________________________________
___________________________________
[Printed Name and Title]
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M.O.S. PLASTICS, INC., a California
corporation
By: ___________________________________
___________________________________
[Printed Name and Title]
By: ___________________________________
___________________________________
[Printed Name and Title]
Address where notices to Borrowers are to be
sent:
15730 South Figueroa Street
Gardena, California 90248
Attn: Paul J. Iacono
Telecopier: (310) 523-9859
Telephone: (213) 770-8771
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"Guarantor"
COMPASS PLASTICS & TECHNOLOGIES, INC.,
a Delaware corporation
By: ___________________________________
___________________________________
[Printed Name and Title]
By: ___________________________________
___________________________________
[Printed Name and Title]
Address where notices to Guarantor
are to be sent:
15730 South Figueroa Street
Gardena, California 90248
Attn: Paul J. Iacono
Telecopier: (310) 523-9859
Telephone: (213) 770-8771
"Banks"
THE SUMITOMO BANK OF CALIFORNIA,
a California banking corporation, in its
individual capacity
By: ____________________________________
Sajeda Simjee, Vice President
Address where notices to Sumitomo
are to be sent:
The Sumitomo Bank of California
20100 Magnolia Street
Huntington Beach, California 92646
Attn: Manager
Telecopier: (714) 968-4959
Telephone: (714) 965-5560
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MANUFACTURERS BANK, a California
banking corporation
By: ___________________________________
___________________________________
[Printed Name and Title]
Address where notices to
Manufacturers are to be sent:
Manufacturers Bank
515 South Figueroa Street
Los Angeles, California 90071
Attn: Greg Hall
Telecopier: (213) 489-6291
Telephone: (213) 489-6252
"Agent"
THE SUMITOMO BANK OF CALIFORNIA, a
California banking corporation, as
Agent for itself and Manufacturers
Bank
By: ___________________________________
Sajeda Simjee, Vice President
Address where notices to Agent are
to be sent:
The Sumitomo Bank of California
20100 Magnolia Street
Huntington Beach, California 92646
Attn.: Manager
Telecopier: (714) 968-4959
Telephone: (714) 965-5560
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EXHIBIT A-1
REVOLVING LINE NOTE
(Sumitomo)
$3,000,000.00 _____________, 1998
_________________, California
FOR VALUE RECEIVED, the undersigned jointly and severally
promise to pay to the order of The Sumitomo Bank of California, a California
banking corporation (the "Bank"), the principal amount of THREE MILLION AND
NO/100 DOLLARS ($3,000,000.00) or such lesser aggregate amount of advances under
the Revolving Line of Credit as may be made by the Bank pursuant to the Loan
Agreement referred to below, together with interest on the principal amount of
each advance by Bank under the Revolving Line of Credit remaining unpaid from
time to time from and including the date of each such advance by Bank under the
Revolving Line of Credit until the date of payment in full, payable as
hereinafter set forth.
Reference is made to the Commercial Loan Agreement dated as of
even date herewith, by and among the undersigned, as Borrowers, the Bank and
Manufacturers Bank, collectively as the "Banks", and the Bank as the "Agent"
(the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise
defined herein are used herein with the meanings defined for those terms in the
Loan Agreement. This is one of the Revolving Line Notes referred to in the Loan
Agreement, and any holder hereof is entitled to all of the rights, remedies,
benefits and privileges provided for in the Loan Agreement as originally
executed or as it may from time to time be supplemented, modified or amended.
The Loan Agreement, among other things, contains provisions for acceleration of
the maturity hereof upon the happening of certain stated events upon the terms
and conditions therein specified.
The principal indebtedness evidenced by this Revolving Line
Note shall be payable as provided in the Loan Agreement and in any event on
January 2, 2003.
Interest shall be payable on the outstanding daily unpaid
principal amount of advances by the Bank under the Revolving Line of Credit from
and including the date of each advance until payment in full and shall accrue
and be payable at the rates and on the dates set forth in the Loan Agreement
both before and after default and before and after maturity and judgment, with
interest on overdue principal and interest to bear interest at the rate set
forth in Section 3.11 of the Loan Agreement, to the fullest extent permitted by
applicable law.
EXHIBIT A-1
<PAGE>
Each payment hereunder shall be made to the Agent on behalf of
the Bank in immediately available funds not later than 1:00 p.m. (Los Angeles
time) on the day of payment (which must be a Banking Day). All payments received
after 1:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed
received on the next succeeding Banking Day. All payments shall be made in
lawful money of the United States of America.
The Bank shall use its best efforts to keep a record of
advances under the Revolving Line of Credit made by it and payments received by
it with respect to this Revolving Line Note, and, absent manifest error, such
record shall be presumptive evidence of the amounts owing under this Revolving
Line Note.
The undersigned hereby promise to pay all costs and expenses
of any rightful holder hereof incurred in collecting the undersigned's
obligations hereunder or in enforcing or attempting to enforce any of such
holder's rights hereunder, including reasonable attorneys' fees and
disbursements (including the allocated costs of in-house counsel), whether or
not an action is filed in connection therewith.
Each of the undersigned acknowledges and agrees that it shall
be jointly and severally liable for the indebtedness and obligations evidenced
by this Revolving Line Note. The joint borrower provisions contained in Section
10.13 of the Loan Agreement are hereby incorporated herein by this reference in
their entirety.
Subject to the provisions of the Loan Agreement, the
undersigned hereby waives presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other notice or formality, to the
fullest extent permitted by applicable law.
EXHIBIT A-1
<PAGE>
This Revolving Line Note shall be delivered to and accepted by
the Bank in the State of California, and shall be governed by, and construed and
enforced in accordance with, the local laws thereof.
AB PLASTICS CORPORATION, M.O.S. PLASTICS, INC.,
a California corporation a California corporation
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
EXHIBIT A-1
<PAGE>
EXHIBIT A-2
REVOLVING LINE NOTE
(Manufacturers)
$3,000,000.00 _____________, 1998
_______________, California
FOR VALUE RECEIVED, the undersigned jointly and severally
promise to pay to the order of Manufacturers Bank, a California banking
corporation (the "Bank"), the principal amount of THREE MILLION AND NO/100
DOLLARS ($3,000,000.00) or such lesser aggregate amount of advances under the
Revolving Line of Credit as may be made by the Bank pursuant to the Loan
Agreement referred to below, together with interest on the principal amount of
each advance by Bank under the Revolving Line of Credit remaining unpaid from
time to time from and including the date of each such advance by Bank under the
Revolving Line of Credit until the date of payment in full, payable as
hereinafter set forth.
Reference is made to the Commercial Loan Agreement dated as of
even date herewith, by and between the undersigned, as Borrowers, the Bank and
The Sumitomo Bank of California, collectively as the "Banks", and The Sumitomo
Bank of California as the "Agent" (the "Loan Agreement"). Terms defined in the
Loan Agreement and not otherwise defined herein are used herein with the
meanings defined for those terms in the Loan Agreement. This is one of the
Revolving Line Notes referred to in the Loan Agreement, and any holder hereof is
entitled to all of the rights, remedies, benefits and privileges provided for in
the Loan Agreement as originally executed or as it may from time to time be
supplemented, modified or amended. The Loan Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events upon the terms and conditions therein specified.
The principal indebtedness evidenced by this Revolving Line
Note shall be payable as provided in the Loan Agreement and in any event on
January 2, 2003.
Interest shall be payable on the outstanding daily unpaid
principal amount of advances by the Bank under the Revolving Line of Credit from
and including the date of each advance until payment in full and shall accrue
and be payable at the rates and on the dates set forth in the Loan Agreement
both before and after default and before and after maturity and judgment, with
EXHIBIT A-2
<PAGE>
interest on overdue principal and interest to bear interest at the rate set
forth in Section 3.11 of the Loan Agreement, to the fullest extent permitted by
applicable law.
Each payment hereunder shall be made to the Agent on behalf of
the Bank in immediately available funds not later than 1:00 p.m. (Los Angeles
time) on the day of payment (which must be a Banking Day). All payments received
after 1:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed
received on the next succeeding Banking Day. All payments shall be made in
lawful money of the United States of America.
The Bank shall use its best efforts to keep a record of
advances made by it under the Revolving Line of Credit made by it and payments
received by it with respect to this Revolving Line Note, and, absent manifest
error, such record shall be presumptive evidence of the amounts owing under this
Revolving Line Note.
The undersigned hereby promise to pay all costs and expenses
of any rightful holder hereof incurred in collecting the undersigned's
obligations hereunder or in enforcing or attempting to enforce any of such
holder's rights hereunder, including reasonable attorneys' fees and
disbursements (including the allocated costs of in-house counsel), whether or
not an action is filed in connection therewith.
Each of the undersigned acknowledges and agrees that it shall
be jointly and severally liable for the indebtedness and obligations evidenced
by this Revolving Line Note. The joint borrower provisions contained in Section
10.13 of the Loan Agreement are hereby incorporated herein by this reference in
their entirety.
Subject to the provisions of the Loan Agreement, the
undersigned hereby waives presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other notice or formality, to the
fullest extent permitted by applicable law.
EXHIBIT A-2
<PAGE>
This Revolving Line Note shall be delivered to and accepted by
the Bank in the State of California, and shall be governed by, and construed and
enforced in accordance with, the local laws thereof.
AB PLASTICS CORPORATION, M.O.S. PLASTICS, INC.,
a California corporation a California corporation
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
EXHIBIT A-2
<PAGE>
EXHIBIT A-3
TERM LOAN NOTE
(Sumitomo)
$7,000,000.00 ___________, 1998
______________, California
FOR VALUE RECEIVED, the undersigned jointly and severally
promise to pay to the order of The Sumitomo Bank of California, a California
banking corporation (the "Bank"), the principal amount of SEVEN MILLION AND
NO/100 DOLLARS ($7,000,000.00) together with interest on the principal amount of
the Term Loan remaining unpaid from time to time from the date the Term Loan is
made until the date of payment in full, payable as hereinafter set forth.
Reference is made to the Commercial Loan Agreement dated as of
even date herewith, by and among the undersigned, as Borrowers, and the Bank and
Manufacturers Bank, collectively as the "Banks," and the Bank as the "Agent"
(the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise
defined herein are used herein with the meanings defined for those terms in the
Loan Agreement. This is one of the Term Loan Notes referred to in the Loan
Agreement, and any holder hereof is entitled to all of the rights, remedies,
benefits and privileges provided for in the Loan Agreement as originally
executed or as it may from time to time be supplemented, modified or amended.
The Loan Agreement, among other things, contains provisions for acceleration of
the maturity hereof upon the happening of certain stated events upon the terms
and conditions therein specified.
The principal indebtedness evidenced by this Term Loan Note
shall be payable as provided in the Loan Agreement and in any event on January
2, 2003.
Interest shall be payable on the outstanding daily unpaid
principal amount of the Term Loan from the date first written above until
payment in full and shall accrue and be payable at the rate and on the dates set
forth in the Loan Agreement both before and after default and before and after
maturity and judgment, with interest on overdue principal and interest to bear
interest at the rate set forth in Section 3.11 of the Loan Agreement, to the
fullest extent permitted by applicable law.
Each payment hereunder shall be made to the Agent on behalf of
the Bank in immediately available funds not later than 1:00 p.m. (Los Angeles
time) on the day of payment (which must be a Banking Day). All payments received
after 1:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed
EXHIBIT A-3
<PAGE>
received on the next succeeding Banking Day. All payments shall be made in
lawful money of the United States of America.
The Bank shall use its best efforts to keep a record of
payments received by it with respect to this Term Loan Note, and, absent
manifest error, such record shall be presumptive evidence of the amounts owing
under this Term Loan Note.
The undersigned hereby promise to pay all costs and expenses
of any rightful holder hereof incurred in collecting the undersigned's
obligations hereunder or in enforcing or attempting to enforce any of such
holder's rights hereunder, including reasonable attorneys' fees and
disbursements (including the allocated costs of in-house counsel), whether or
not an action is filed in connection therewith.
Each of the undersigned acknowledges and agrees that it shall
be jointly and severally liable for the indebtedness and obligations evidenced
by this Term Loan Note. The joint borrower provisions contained in Section 10.13
of the Loan Agreement are hereby incorporated herein by this reference in their
entirety.
Subject to the provisions of the Loan Agreement, the
undersigned hereby waive presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other notice or formality, to the
fullest extent permitted by applicable laws.
This Term Loan Note shall be delivered to and accepted by the
Bank in the State of California, and shall be governed by, and construed and
enforced in accordance with, the local laws thereof.
AB PLASTICS CORPORATION, M.O.S. PLASTICS, INC.,
a California corporation a California corporation
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
EXHIBIT A-3
<PAGE>
EXHIBIT A-4
TERM LOAN NOTE
(Manufacturers)
$7,000,000.00 ___________, 1998
______________, California
FOR VALUE RECEIVED, the undersigned jointly and severally
promise to pay to the order of Manufacturers Bank, a California banking
corporation (the "Bank"), the principal amount of SEVEN MILLION AND NO/100
DOLLARS ($7,000,000.00) together with interest on the principal amount of the
Term Loan remaining unpaid from time to time from the date the Term Loan is made
until the date of payment in full, payable as hereinafter set forth.
Reference is made to the Commercial Loan Agreement dated as of
even date herewith, by and among the undersigned, as Borrowers, and the Bank and
The Sumitomo Bank of California, collectively as the "Banks," and The Sumitomo
Bank of California, as the "Agent" (the "Loan Agreement"). Terms defined in the
Loan Agreement and not otherwise defined herein are used herein with the
meanings defined for those terms in the Loan Agreement. This is one of the Term
Loan Notes referred to in the Loan Agreement, and any holder hereof is entitled
to all of the rights, remedies, benefits and privileges provided for in the Loan
Agreement as originally executed or as it may from time to time be supplemented,
modified or amended. The Loan Agreement, among other things, contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events upon the terms and conditions therein specified.
The principal indebtedness evidenced by this Term Loan Note
shall be payable as provided in the Loan Agreement and in any event on January
2, 2003.
Interest shall be payable on the outstanding daily unpaid
principal amount of the Term Loan from the date first written above until
payment in full and shall accrue and be payable at the rate and on the dates set
forth in the Loan Agreement both before and after default and before and after
maturity and judgment, with interest on overdue principal and interest to bear
interest at the rate set forth in Section 3.11 of the Loan Agreement, to the
fullest extent permitted by applicable law.
Each payment hereunder shall be made to the Agent on behalf of
the Bank in immediately available funds not later than 1:00 p.m. (Los Angeles
EXHIBIT A-4
<PAGE>
time) on the day of payment (which must be a Banking Day). All payments received
after 1:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed
received on the next succeeding Banking Day. All payments shall be made in
lawful money of the United States of America.
The Bank shall use its best efforts to keep a record of
payments received by it with respect to this Term Loan Note, and, absent
manifest error, such record shall be presumptive evidence of the amounts owing
under this Term Loan Note.
The undersigned hereby promise to pay all costs and expenses
of any rightful holder hereof incurred in collecting the undersigned's
obligations hereunder or in enforcing or attempting to enforce any of such
holder's rights hereunder, including reasonable attorneys' fees and
disbursements (including the allocated costs of in-house counsel), whether or
not an action is filed in connection therewith.
Each of the undersigned acknowledges and agrees that it shall
be jointly and severally liable for the indebtedness and obligations evidenced
by this Term Loan Note. The joint borrower provisions contained in Section 10.13
of the Loan Agreement are hereby incorporated herein by this reference in their
entirety.
Subject to the provisions of the Loan Agreement, the
undersigned hereby waive presentment, demand for payment, dishonor, notice of
dishonor, protest, notice of protest and any other notice or formality, to the
fullest extent permitted by applicable laws.
This Term Loan Note shall be delivered to and accepted by the
Bank in the State of California, and shall be governed by, and construed and
enforced in accordance with, the local laws thereof.
AB PLASTICS CORPORATION, M.O.S. PLASTICS, INC.,
a California corporation a California corporation
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
EXHIBIT A-4
<PAGE>
EXHIBIT B
REQUEST FOR CREDIT
1. This Request for Credit is executed and delivered by AB PLASTICS
CORPORATION, a California corporation, and M.O.S. PLASTICS, INC., a California
corporation (collectively the "Borrowers"), to The Sumitomo Bank of California,
as Agent, pursuant to that certain Commercial Loan Agreement (as amended,
modified or extended, the "Agreement") dated as of ___________, 1998, entered
into by Borrowers, the Guarantor, the Agent and the Banks therein named. Any
terms used herein and not defined herein shall have the meanings defined in the
Agreement.
2. Borrowers hereby request that the Banks make an extension of credit
under the Revolving Line of Credit for the account of Borrowers pursuant to the
Agreement, as follows:
(a) Principal Amount of Extension of Credit: $____________.
(b) Date of Extension of Credit: _______________, 19___.
(c) Type of Extension of Credit (check one box only):
[ ] Prime Rate Credit.
[ ] Offshore Rate Credit with a ___-day
interest period, commencing
_____________ and ending
____________.
(d) This extension of credit will be (check one box
only):
[ ] Used by AB Plastics and shall be
made against the AB Plastics
Borrowing Base.
[ ] used by MOS Plastics and shall be
made against the MOS Plastics
Borrowing Base.
EXHIBIT B - Page 1
<PAGE>
3. In connection with the extension of credit requested herein,
Borrowers hereby represent, warrant and certify to Agent and the Banks that, as
of the date of the extension of credit set forth in paragraph 2(b), above: such
request shall not exceed the availability under the Revolving Line of Credit;
each representation and warranty made by Borrowers in Article 5 of the Agreement
will be true and correct in all material respects, both immediately before and
after such extension of credit is made, as though such representations and
warranties were made on and as of the date of such extension of credit; no
actions, suits or proceedings will be pending against or affecting Borrowers or
any of their subsidiaries in any court of law or before any governmental agency
which might reasonably be expected to materially adversely affect the business,
operations or condition (financial or otherwise) of Borrowers and their
subsidiaries, taken as a whole; no material adverse change will have occurred in
the business, operations or condition (financial or otherwise) of Borrowers and
their subsidiaries, taken as a whole, since the date of the most recent
financial statements delivered pursuant to the Agreement; and no event which is
(or with notice or lapse of time or both would be) an Event of Default under the
Agreement, will have occurred and be continuing. (If any of the foregoing
statements is not true and correct, attach a statement specifying in detail the
circumstances thereof and the actions Borrowers are taking or propose to take
with respect thereto.)
4. This Request for Credit is executed on _______________, 19__, by
authorized officers of Borrowers, on behalf of Borrowers. The undersigned, in
such capacity, hereby certify each and every matter contained herein to be true
and correct.
"Borrowers":
AB PLASTICS CORPORATION, M.O.S. PLASTICS, INC.,
a California corporation a California corporation
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
EXHIBIT B - Page 2
<PAGE>
EXHIBIT C
REQUEST FOR CONVERSION
1. This Request for Conversion is executed and delivered by AB
PLASTICS CORPORATION, a California corporation, and M.O.S. PLASTICS, INC., a
California corporation (collectively the "Borrowers") to The Sumitomo Bank of
California, as Agent, pursuant to that certain Commercial Loan Agreement (as
amended, modified or extended, the "Agreement") dated as of ____________, 1998,
entered into by Borrowers, the Guarantor, the Agent and the Banks therein named.
Any terms used herein and not defined herein shall have the meanings defined in
the Agreement.
2. Borrowers hereby request that the Banks convert one or more
(i) outstanding Prime Rate Credits to Offshore Rate Credits, and/or (ii) one or
more existing Offshore Rate Credits to other Offshore Rate Credits pursuant to
the Agreement, as follows:
(a) Total Amount of Prime Rate Credits to be Converted:
$____________________.
(b) Existing Offshore Rate Credit to be Converted is in
Amount of $_________ and has an Interest Period
Expiring ____________.
(c) Date of Conversion: ______________, 19___.
(d) Requesting Conversion to an Offshore Rate Credit with
a __-day Interest Period, Commencing ________________
and Ending _______________.
3. In connection with the conversion requested herein,
Borrowers hereby represent, warrant and certify to Agent and the Banks that, as
of the date of the requested conversion set forth in paragraph 2(b), above: each
representation and warranty made by Borrowers in Article 5 of the Agreement will
be true and correct in all material respects, both immediately before and after
such conversion is made, as though such representations and warranties were made
on and as of the date of such conversion; no actions, suits or proceedings will
EXHIBIT C - Page 1
<PAGE>
be pending against or affecting Borrowers or any of their subsidiaries in any
court of law or before any governmental agency which might reasonably be
expected to materially adversely affect the business, operations or condition
(financial or otherwise) of Borrowers and their subsidiaries, taken as a whole;
no material adverse change will have occurred in the business, operations or
condition (financial or otherwise) of Borrowers and their subsidiaries, taken as
a whole, since the date of the most recent financial statements delivered
pursuant to the Agreement; and no event which is (or with notice or lapse of
time or both would be) an Event of Default under the Agreement, will have
occurred and be continuing. (If any of the foregoing statements is not true and
correct, attach a statement specifying in detail the circumstances thereof and
the actions Borrowers are taking or propose to take with respect thereto.)
4. This Request for Conversion is executed on _____________,
19__, by authorized officers of Borrowers, on behalf of Borrowers. The
undersigned, in such capacity, hereby certify each and every matter contained
herein to be true and correct.
"Borrowers":
AB PLASTICS CORPORATION, M.O.S. PLASTICS, INC.,
a California corporation a California corporation
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
EXHIBIT C - Page 2
<PAGE>
EXHIBIT D
REQUEST FOR LETTER OF CREDIT
1. This Request for Letter of Credit is executed and delivered
by AB PLASTICS CORPORATION, a California corporation, and M.O.S. PLASTICS, INC.,
a California corporation (collectively the "Borrowers") to The Sumitomo Bank of
California, as Agent, pursuant to that certain Commercial Loan Agreement (as
amended, modified or extended, the "Agreement") dated as of ____________, 1998
entered into by Borrowers, the Guarantor, the Agent and the Banks therein named.
Any terms used herein and not defined herein shall have the meanings defined in
the Agreement.
2. Borrowers hereby request that Sumitomo issue a letter of
credit for the account of Borrowers pursuant to the Agreement, as follows:
(a) Face Amount of Letter of Credit: $________.
(b) Date of Issuance: _____________, 19__.
(c) Beneficiary under Letter of Credit:
Name: ________________________
Address: _______________________
_______________________
_______________________
(d) Expiry Date: __________________, 19___
(e) Documents to be submitted with drafts:
(f) Purpose of Letter of Credit: _______________
____________________________________________
(g) Additional Information/Terms: ______________
____________________________________________
3. The requested letter of credit is (check one box only):
EXHIBIT D -- Page 1
<PAGE>
[ ] a new letter of credit in addition to letters of
credit already outstanding.
[ ] a supplement, modification, amendment, renewal, or
extension to or of the following outstanding letter(s)
of credit: [Identify]
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
4. The requested letter of credit is (check one box only):
[ ] a standby letter of credit.
[ ] a commercial letter of credit.
5. This extension of credit will be (check one box only):
[ ] used by AB Plastics and shall be made against the AB
Plastics Borrowing Base.
[ ] used by MOS Plastics and shall be made against the MOS
Plastics Borrowing Base.
6. In connection with the issuance of the letter of credit requested
herein, Borrowers hereby represent, warrant, and certify to Agent and the Banks
that:
(a) As of the date of issuance of the letter of
credit requested herein, each representation and warranty made
by Borrowers in Article 5 of the Agreement will be true and
correct in all material respects, both immediately before and
after the issuance of such letter of credit, as though such
representations and warranties were made on and as of the date
of issuance of such letter of credit; no actions, suits or
proceedings will be pending against or affecting Borrowers or
any of their subsidiaries in any court of law or before any
governmental agency which might reasonably be expected to
EXHIBIT D -- Page 2
<PAGE>
materially adversely affect the business, operations or
condition (financial or otherwise) of Borrowers and their
subsidiaries, taken as a whole; no material adverse change
will have occurred in the business, operations or condition
(financial or otherwise) of Borrowers and their subsidiaries,
taken as a whole, since the date of the most recent financial
statements delivered pursuant to the Agreement; and no event
which is (or with notice or lapse of time or both would be) an
Event of Default under the Agreement, will have occurred and
be continuing. (If any of the foregoing statements is not true
and correct, attach a statement specifying in detail the
circumstances thereof and the actions Borrowers are taking or
propose to take with respect thereto.)
(b) Following the issuance of the letter of credit
requested herein, (i) the amount of all outstanding letters of
credit, including amounts drawn on letters of credit and not
yet reimbursed by Borrowers, will not exceed $500,000 in the
aggregate, and (ii) the amount of standby letters of credit
issued in favor of governmental agencies in lieu of worker's
compensation insurance premiums shall not exceed $200,000 in
the aggregate.
7. This Request for Letter of Credit is executed on
___________, 19___, by authorized officers of Borrowers, on behalf of Borrowers.
The undersigned, in such capacity, hereby certify each and every matter
contained herein to be true and correct.
"Borrowers":
AB PLASTICS CORPORATION, M.O.S. PLASTICS, INC.,
a California corporation a California corporation
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
By: __________________________ By: __________________________
__________________________ __________________________
[Printed Name & Title] [Printed Name & Title]
EXHIBIT D -- Page 3
<PAGE>
EXHIBIT E
[ATTACH FORM OF COMPLIANCE CERTIFICATE]
<PAGE>
SCHEDULE 4.1(x)
CONTINUING INDEBTEDNESS OF MOS PLASTICS
All indebtedness reflected in the MOS Plastics financial
statements as of December 31, 1997, other than indebtedness owed to Comerica
Bank - California and to Horst Kaiser.
<PAGE>
SCHEDULE 5.7
LAWSUITS/CLAIMS
1. Claim by Guadelupe Contrares for wrongful termination of employment by AB
Plastics due to alleged age discrimination.
<PAGE>
SCHEDULE 5.9
DEFAULTS ON EXISTING OBLIGATIONS
None.
<PAGE>
SCHEDULE 5.13
PERMITTED ENCUMBRANCES
A. AB Plastics
1. TM Acceptance Corporation - Capital leases on three (3) Toshiba
Plastic Injection Molding Machines, with all attachments, accessories,
replacements, improvements, modifications and substitutions, and proceeds,
including insurance.
2. Toyota Lift of Los Angeles, Inc. - 2 Toyota forklifts #61020 and
61054, UCC-1 filed 4/19/96 as #96-11360360 - (treated as lease by Borrower).
3. General Electric Capital Corporation - Various machinery and
equipment located at AB Mexico's facilities in Tijuana, Mexico.
4. Transamerica Business Credit Corporation - Certain machinery and
equipment, consisting of five (5) injection molding machines and additions,
parts, accessories, attachments, substitutions, repairs, improvements and
replacements, and proceeds thereof.
5. The Sumitomo Bank of California - Mortgage on the land, buildings
and improvements owned by AB Plastics and located in Gardena, California.
6. Junior liens in favor of Tandem on substantially all assets (other
than real property).
B. MOS Plastics
1. The CIT Group/Equipment Financing, Inc. - Certain machinery and
equipment and attachments, replacements, substitutions and additions.
2. JLA Credit Corporation - Certain equipment and tooling.
3. Hewlett-Packard Company - Certain equipment purchased from
Hewlett-Packard Company.
4. U.S. Bancorp Leasing & Financial - Machine Tool Finance Group -
Husky Model LX300 RS 50/42, 330-ton injection molding machine and Husky Model A
Top-Entry Servo Robot, each with all accessories and attachments.
5. Orix Credit Alliance, Inc. - Husky Model LX300 RS injection molding
machine and Husky Top-Entry Robot and accessories.
6. Advanta Business Services - Computer hardware and software system.
C. Compass.
1. Junior liens in favor of Tandem on substantially all assets.
D. Permitted Encumbrances may also include, from time to time, (a) liens for
taxes, assessments or other governmental charges not delinquent, or being
contested in good faith and by appropriate proceedings and with respect to which
proper reserves have been taken by either Borrower; provided, that the lien
shall have no effect on the priority of the liens in favor of Bank and a stay of
enforcement of any such lien shall be in effect; (b) deposits or pledges to
secure obligations under workers compensation, social security or similar laws,
or under unemployment insurance; (c) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety, performance and appeal bonds and other
obligations of like nature arising in the ordinary course of either Borrower's
business (d) judgment liens that have been stayed or bonded and mechanics',
worker's, materialmen's or other like liens arising in the ordinary course of
either Borrower's business with respect to obligations which are not past due or
which are being contested in good faith by such Borrower; (e) liens placed upon
fixed assets hereafter acquired to secure a portion of the purchase price
thereof, provided that any such lien shall not encumber any other property of
either Borrower.
<PAGE>
SCHEDULE 5.15
LOCATION OF INVENTORY AND EQUIPMENT
(for Borrowers, Guarantor and AB Mexico)
AB Plastics:
15730 South Figueroa Street
Gardena, California 90248
400 West 157th Street
Gardena, California 90248
1700 South Wilmington
Compton, California 90220-5116
Lots 3 and 4A of Block 5
Baja Maquiladora Industrial Park
Tijuana, Baja California, Mexico
MOS Plastics:
2308 Zanker Road
San Jose, California 95131-1115
326 Charcot Avenue
San Jose, California 95131-1104
AB Mexico:
Lots 3 and 4A of Block 5
Baja Maquiladora Industrial Park
Tijuana, Baja California, Mexico
<PAGE>
SCHEDULE 6.5
EBITDA CALCULATION
<PAGE>
EXHIBIT 10.20
DEBENTURE PURCHASE AGREEMENT
BETWEEN
SIRROM CAPITAL CORPORATION
d/b/a
TANDEM CAPITAL
AND
COMPASS PLASTICS & TECHNOLOGIES, INC.
AND
AB PLASTICS CORPORATION
February 27, 1998
<PAGE>
TABLE OF CONTENTS
1. Sale and Purchase of Debentures........................................1
1.1 Debentures............................................................1
1.2 Optional Redemption..................................................1
1.3 Warrants..............................................................2
1.4 Commitment; Closing Date..............................................2
1.5 Processing Fee........................................................3
2. Representations and Warranties of the Borrowers........................3
2.1 Corporate Status......................................................3
2.2 Capitalization........................................................4
2.3 Authorization.........................................................5
2.4 Validity and Binding Effect...........................................5
2.5 Contracts and Other Commitments.......................................5
2.6 Litigation............................................................5
2.7 Financial Statements..................................................6
2.8 SEC Reports...........................................................6
2.9 Absence of Changes....................................................6
2.10 No Defaults..........................................................7
2.11 Compliance With Law..................................................7
2.12 Taxes................................................................7
2.13 Certain Transactions.................................................7
2.14 Title to Property....................................................8
2.15 Intellectual Property................................................8
2.16 Environmental Matters................................................9
2.17 Accounting Matters..................................................10
2.18 [Reserved]..........................................................10
2.19 Prior Sales.........................................................10
2.20 Regulatory Compliance...............................................10
2.21 Margin Regulations..................................................10
2.22 [Reserved]..........................................................10
2.23 Limited Offering....................................................10
2.24 Registration Obligations............................................11
2.25 Insurance...........................................................11
2.26 Governmental Consents...............................................11
2.27 Employees...........................................................11
2.28 ERISA...............................................................11
2.29 Fees/Commissions....................................................12
2.30 Survival............................................................12
3. Representations and Warranties of Purchaser...........................12
3.1 Corporate Status.....................................................12
3.2 Authorization........................................................12
3.3 Validity and Binding Effect..........................................13
3.4 Accredited Investor, Investment Intent...............................13
3.5 Survival.............................................................13
4. Conditions Precedent to the Obligations of Purchaser..................13
4.1 Representations and Warranties.......................................14
4.2 Officer's Certificate................................................14
4.3 Satisfactory Proceedings and Secretary's Certificate.................14
4.4 Legal Opinion........................................................14
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4.5 Authorization Agreement..............................................14
4.6 Existence and Authority..............................................14
4.7 Delivery of Operative Documents......................................15
4.8 Required Consents....................................................15
4.9 Waiver of Conditions.................................................15
5. Covenants of Company and the Co-Maker.................................16
5.1 Use of Proceeds......................................................16
5.2 Corporate Existence, Etc.............................................16
5.3 Maintenance of Properties, Etc.......................................16
5.4 Nature of Business...................................................16
5.5 Insurance............................................................16
5.6 Taxes, Claims for Labor and Materials................................16
5.7 Compliance with Laws, Agreements, Etc...............................17
5.8 ERISA Matters........................................................17
5.9 Books and Records: Rights of Inspection..............................17
5.10 Reports.............................................................17
5.11 Limitations on Debt and Obligations.................................19
5.12 Guaranties..........................................................20
5.13 Limitation on Liens.................................................20
5.14 Restricted Payments.................................................21
5.15 Investments.........................................................22
5.16 Mergers, Consolidations and Sales of Assets.........................22
5.17 Transactions with Affiliates........................................24
5.18 Notice..............................................................24
5.19 Board of Directors; Observer Rights.................................25
5.20 Annual Plan.........................................................25
5.21 Further Assurances..................................................25
6. Subordination of Debentures...........................................25
6.1 Subordination........................................................25
6.2 Subrogation..........................................................26
7. [Reserved]............................................................26
8. Restrictions on Transfer; Registration Rights.........................26
8.1 Legends; Restrictions on Transfer....................................26
8.2 Registration Rights..................................................27
9. Events of Default; Remedies...........................................27
9.1 Events of Default....................................................27
9.2 Remedies Upon Default................................................29
9.3 Acceleration of Maturities...........................................29
9.4 Joint and Several Obligations........................................30
10. Amendments, Waivers and Consents.....................................30
10.1 Consent Required....................................................30
10.2 Solicitation of Debenture Holders...................................30
10.3 Effect of Amendment or Waiver.......................................30
11. Interpretation of Agreement; Definitions.............................30
11.1 Definitions.........................................................31
11.2 Accounting Principles...............................................34
11.3 Directly or Indirectly..............................................34
12. Miscellaneous........................................................34
12.1 Expenses, Stamp Tax Indemnity.......................................34
12.2 Powers and Rights Not Waived; Remedies Cumulative...................35
12.3 Notices.............................................................35
12.4 Assignments.........................................................36
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12.5 Survival of Covenants and Representations...........................36
12.6 Severability........................................................36
12.7 Governing Law.......................................................36
12.8 Captions; Counterparts..............................................36
12.9 Confidentiality.....................................................37
12.10 Publicity..........................................................37
<PAGE>
DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement ") entered into the
27th day of February, 1998, by and between COMPASS PLASTICS & TECHNOLOGIES,
INC., a Delaware corporation (the "Company"), AB PLASTICS CORPORATION, a
California corporation (the "Co-Maker"), and SIRROM CAPITAL CORPORATION d/b/a
TANDEM CAPITAL, a Tennessee corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, each of the Company and the Co-Maker (each a "Borrower" and
collectively the "Borrowers") desires to obtain additional capital for use in
connection with its business through the issue and sale of certain securities,
and Purchaser is willing to purchase such obligations from the Company and the
Co-Maker, on the terms and conditions set forth herein.
NOW, THEREFORE, in mutual consideration of the premises and the
respective representations, warranties, covenants and agreements contained
herein, the parties agree as follows:
1. Sale and Purchase of Debentures.
1.1 Debentures. The Borrowers have authorized the issue and
sale of Seven Million Dollars ($7,000,000.00) aggregate principal amount of
12.25% Subordinated Debentures due February 27, 2003 (the "Debentures"), to be
dated the date of issue, to bear interest from such date at the rate of 12.25%
per annum, payable quarterly by automatic debit on the first day of each March,
June, September, and December in each year, commencing June 1, 1998, and at
maturity, to mature on February 27, 2003, and to bear such other terms as are
set forth in the form attached hereto as Exhibit A-1. Interest on the Debentures
shall be computed on the basis of a 360-day year of twelve 30-day months. The
Borrowers may prepay the indebtedness evidenced by the Debentures without
premium or penalty and as provided by Section 1.2. The term "Debenture" and
"Debentures" as used herein includes the Debenture in the form of Exhibit A-1
and any other Debenture delivered pursuant to this Agreement.
Capitalized terms shall have the meanings assigned by Section 11 unless
otherwise defined herein.
1.2 Optional Redemption.
(a) The Debentures may be redeemed, repaid, or
repurchased, at the Borrowers' option, in whole at any time or in part from time
to time, provided that in case of each redemption at the Borrowers' option
hereunder, the Borrowers shall give written notice (the "Redemption Notice") to
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each holder of a Debenture to be redeemed not less than 30 nor more than 45 days
prior to the date fixed for such redemption (the "Redemption Date"). The
Redemption Notice shall specify the Redemption Date, the aggregate principal
amount of the Debentures to be redeemed on the Redemption Date, and the
principal amount of Debentures held by such holder to be redeemed on such date.
After the Redemption Notice is mailed, Debentures called for redemption shall
become due and payable on the Redemption Date.
(b) Neither the Borrowers nor any Subsidiary or
Affiliate of the Borrowers, directly or indirectly, may repurchase or make any
offer to repurchase any Debentures unless the offer has been made to repurchase
Debentures, pro rata, from all holders of the Debentures at the same time and
upon the same terms. If the Borrowers repurchase or otherwise acquire any
Debentures, such Debentures shall immediately thereafter be canceled, and no
Debentures shall be issued in substitution therefor. Without limiting the
foregoing, upon the purchase or other acquisition of any Debentures by the
Borrowers or any Subsidiary or Affiliate, such Debentures shall no longer be
outstanding for purposes of any Section of this Agreement relating to the taking
by the holders of the Debentures of any actions with respect hereto.
1.3 Warrants. In consideration of the Purchaser's purchase of
the Debentures, the Company shall grant to Purchaser the following Warrants.
(a) At the Closing, the Company shall grant, issue,
and deliver to Purchaser a Stock Purchase Warrant, dated the Closing Date, in
the form attached hereto as Exhibit A-2 (the "Initial Warrant"), entitling
Purchaser to purchase, at any time and from time to time during the five year
period beginning on the Closing Date, up to 420,000 Shares of the Company's
Common Stock at an initial Exercise Price of $6.75 per share.
(b) Until the indebtedness evidenced by the
Debentures has been paid in full, on the anniversary of the Closing Date of each
year beginning on the anniversary of the Closing Date, in the year 2000, the
Company shall grant, issue, and deliver to Purchaser additional Stock Purchase
Warrants, in the form of Exhibit A-3 ("Contingent Warrants"), each entitling
Purchaser to purchase up to 140,000 Shares of Common Stock at an Exercise Price
equal to the greater of (i) $7.00 per share, or (ii) 75% of the average closing
bid price of the Company's Common Stock for the 20 trading days preceding such
anniversary date, at any time and from time to time during the five year period
beginning on the date of issue of such Contingent Warrant.
1.4 Commitment; Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Borrowers agree to issue and sell to Purchaser, and
Purchaser agrees to purchase from the Borrowers, Debentures (the "Debentures")
in the aggregate principal amount of Seven Million Dollars ($7,000,000.00) at a
purchase price equal to 100% of the principal amount thereof, at the Closing.
Delivery of the Debentures (the "Closi ") shall be made at the offices of Tandem
Capital, Inc., Nashville, Tennessee, against payment therefor by federal funds
wire transfer in immediately available funds and to the accounts and in the
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amounts set forth in the Borrowers' wire instructions in the form of Exhibit B
hereto, at 10:00 A.M., Nashville time, on February 27, 1998, or such later date
as the Borrowers and Purchaser shall agree (the "Closing Date"). The Debentures
delivered to Purchaser on the Closing Date shall be delivered to Purchaser in
the form of a single Debenture for the full amount of such purchase price
(unless different denominations are specified by Purchaser), registered on the
books of the Borrowers in Purchaser's name or in the name of such nominee as
Purchaser may specify and, with appropriate insertions, in the form attached
hereto as Exhibit A-1, all as Purchaser may specify at least 24 hours prior to
the date fixed for delivery.
1.5 Processing Fee. The Borrowers shall pay to Purchaser on or
before the Closing Date a processing fee in an amount equal to $140,000.
2. Representations and Warranties of the Borrowers. Each of the Company
and the Co-Maker hereby represents and warrants to Purchaser as follows:
2.1 Corporate Status.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement, the Debentures, the Registration Rights Agreement, and any other
document executed and delivered by the Company in connection herewith or
therewith (collectively, the "Operative Documents"). The Company is qualified to
do business and is in good standing in each state or other jurisdiction in which
such qualification is necessary under applicable law, except where the failure
to so qualify would not have a Material Adverse Effect on the financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole. The Co-Maker is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has the corporate
power to own and operate its properties, to carry on its business as now
conducted and to enter into and to perform its obligations under this Agreement,
the Debentures, and any other document executed and delivered by the Co-Maker in
connection herewith or therewith (collectively, the "Operative Documents"). The
Co-Maker is qualified to do business and is in good standing in each state or
other jurisdiction in which such qualification is necessary under applicable
law, except where the failure to so qualify would not have a Material Adverse
Effect on the financial condition or results of operations of the Co-Maker or
the Company and its Subsidiaries taken as a whole.
(b) Schedule 2.1(b) sets forth a complete list of
each corporation, partnership, joint venture, limited liability company or other
business organization in which the Company owns, directly or indirectly, any
capital stock or other equity interest in excess of $1,000, or with respect to
which the Company or any Subsidiary, alone or in combination with others, is in
a control position, which list shows the jurisdiction of incorporation or other
organization and the percentage of stock or other equity interest of each
Subsidiary owned by the Company. Each Subsidiary is duly organized, validly
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existing and in good standing under the laws of the jurisdiction of
incorporation or other organization as indicated on Schedule 2.1(b), each has
all requisite power and authority and holds all material licenses, permits and
other required authorizations from government authorities necessary to own its
properties and assets and to conduct its business as now being conducted, and
each is qualified to do business as a foreign corporation (or business
organization) and is in good standing in every jurisdiction in which such
qualification is necessary under applicable law, except where the failure to so
qualify would not have a Material Adverse Effect on the financial condition or
results of operations of the Company and its Subsidiaries taken as a whole. All
of the outstanding shares of capital stock, or other equity interest, of each
Subsidiary owned, directly or indirectly, by the Company have been validly
issued, are fully paid and nonassessable, and are owned by the Company free and
clear of all liens, charges, security interests, or encumbrances, except in
favor of The Sumitomo Bank of California (as Agent) and Purchaser.
2.2 Capitalization.
(a) The authorized capital stock of the Company
consists of (i) 5,000,000 shares of Preferred Stock, $.0001 par value, none of
which are issued and outstanding, and (ii) 20,000,000 shares of Common Stock,
$.0001 par value, 4,883,750 of which are issued and outstanding as of the date
hereof. All shares of Common Stock outstanding have been validly issued and are
fully paid and nonassessable. There are no statutory or contractual preemptive
rights, rights of first refusal, antidilution rights, or any similar rights held
by any party with respect to the issuance of the Debentures.
(b) The Company has not granted, or agreed to grant
or issue, any options, warrants or rights to purchase or acquire from the
Company any shares of capital stock of the Company, there are no securities
outstanding or committed to be issued by the Company or any Subsidiary which are
convertible into or exchangeable for any shares of capital stock or other
securities of the Company, and there are no contracts, commitments, agreements,
understandings, arrangements or restrictions as to which the Company is a party,
or by which it is bound, relating to any shares of capital stock or other
securities of the Company, whether or not outstanding except for (i) the
Debentures and Warrants to be issued pursuant to this Agreement, and (ii) such
options, warrants and other rights to acquire capital stock of the Company set
forth on Schedule 2.2(b). Except as set forth on Schedule 2.2(b), all such
shares have been duly reserved for issuance, have been duly and validly
authorized, and upon issuance in accordance with the terms of the respective
instruments and receipt of payment therefor, will be validly issued, fully paid,
and nonassessable.
(c) The Common Stock issuable upon exercise of the
Warrants has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer other
than restrictions under applicable state and federal securities laws.
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2.3 Authorization. Each of the Company and the Co-Maker has
full legal right, power and authority to enter into and perform its obligations
under the Operative Documents without the consent or approval of any other
person, firm, governmental agency, or other legal entity, other than The
Sumitomo Bank of California and Manufacturers Bank (which consents have been
obtained). The execution and delivery of this Agreement, the issuance of the
Debentures hereunder, the execution and delivery of each other document in
connection herewith or therewith to which either Borrower is a party, and the
performance by each Borrower of its obligations hereunder or thereunder, have
been duly authorized by all necessary corporate action properly taken, have
received all necessary governmental approvals, if any were required, and do not
and will not contravene or conflict with (i) the Certificate or Articles of
Incorporation or Bylaws of either Borrower, (ii) any material agreement to which
the Company or any of its Subsidiaries is a party or by which any of them or
their properties is bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge, security interest, or encumbrance
(other than in favor of Purchaser) of any nature upon any of the property or
assets of the Company or any of its Subsidiaries pursuant to the terms of any
such agreement or instrument, or (iii) violate any provision of law or any
applicable judgment, ordinance, regulation or order of any court or governmental
agency. The officer(s) executing this Agreement, the Debentures, and any other
document executed and delivered by either Borrower in connection herewith or
therewith, is duly authorized to act on behalf of the Company or the Co-Maker
2.4 Validity and Binding Effect. Each of the Operative
Documents is the legal, valid and binding obligation of the Company and the
Co-Maker, enforceable against the Company and the Co-Maker in accordance with
its terms, subject to such limitations on enforceability as may exist under
equitable principles of law or the application of bankruptcy or insolvency laws.
2.5 Contracts and Other Commitments. Except as disclosed on
Schedule 2.5 and other than as filed by the Company with the Securities and
Exchange Commission ("SEC") as an exhibit pursuant to Item 601(b)(10) of
Regulation S-K under the Securities Act (each such disclosed or filed agreement
an "Applicable Contract"), the Company and its Subsidiaries are not bound by any
loans, liens, pledges, security interests, agreements, indentures, or
instruments defining the rights of security holders under any securities or
other financings upon which the Company or any Subsidiary is obligated or by
which the Company is bound.
2.6 Litigation. Except as set forth on Schedule 2.6, there is
no litigation, arbitration, claim, proceeding or investigation pending or
threatened in writing to which the Company or any Subsidiary is a party or of
which any of its respective properties or assets is the subject which, if
determined adversely to the Company or such Subsidiary, would individually or in
the aggregate have a Material Adverse Effect on the financial position, results
of operations, or business of the Company and its Subsidiaries taken as a whole.
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2.7 Financial Statements. Except as set forth on Schedule 2.7,
the consolidated financial statements of the Company and its Subsidiaries (i)
for the fiscal year ended October 26, 1997, and (ii) as of October 27, 1996
(which include related consolidated statement of operation, stockholders' equity
and cash flows for the 48 weeks ended September 27, 1996 and for the four weeks
ended October 27, 1996); the financial statements of AB Plastics Corporation as
of October 29, 1995 and October 30, 1994; and the unaudited consolidated
financial statements of the Company and AB Plastics Corporation as of and for
the fiscal quarter ended January 25, 1998, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly present the
financial position, results of operations, cash flows and changes in
stockholders' equity of the Company and its consolidated Subsidiaries, and of AB
Plastics Corporation, at the respective dates of and for the periods to which
they apply in such financial statements, and have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the periods indicated, subject, in the case of interim financial
statements, to normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the most recent audited consolidated financial statements). No financial
statements of any other person(s) are required by GAAP to be included in the
consolidated financial statements of the Company.
2.8 SEC Reports. The Company's Common Stock is listed for
trading on the NASDAQ National Market and has been duly registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). To the date
hereof, the Company has timely filed all reports, registrations, proxy or
information statements, and all other documents, together with any amendments
required to be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC Reports"). As of
their respective dates, the SEC Reports complied in all material respects with
all rules and regulations promulgated by the SEC and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.9 Absence of Changes. Except as set forth on Schedule 2.9,
since January 25, 1998, (i) neither the Company nor any of its Subsidiaries have
incurred any liabilities or obligations, direct or contingent, or entered into
any transactions, not in the ordinary course of business, that are material to
the Company and its Subsidiaries taken as a whole, (ii) neither the Company nor
any of its Subsidiaries have purchased any of its outstanding capital stock or
declared, or paid any dividend or other distribution or payment in respect of
its capital stock, other than intercompany transfers from AB Plastics
Corporation to the Company, (iii) there has not been any change in the
authorized or issued capital stock, long-term debt, or short-term debt of the
Company or the Co-Maker, other than scheduled amortization of term debt and
changes in revolving credit usage in the ordinary course of business, and (iv)
there has not been any material adverse change in or affecting the business,
operations, properties, assets, or condition (financial or otherwise) of the
Company or any Subsidiary.
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2.10 No Defaults. Except as set forth on Schedule 2.10 and
except where a default or event of default does not constitute a Material
Adverse Event, no default or event of default by the Company or any Subsidiary
exists under this Agreement or any of the other Operative Documents, or under
any Applicable Contract, or other material instrument or agreement to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or its respective properties are bound or, to the knowledge of the Borrowers,
affected, and to the knowledge of the Borrowers no event has occurred and is
continuing that with notice or the passage of time or both would constitute a
default or event of default thereunder.
2.11 Compliance With Law. The Company and each Subsidiary are
in compliance with all foreign, federal, state or local laws, regulations,
decrees and orders applicable to them (including but not limited to the Foreign
Corrupt Practices Act, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), except to the
extent that noncompliance, in the aggregate, does not constitute a Material
Adverse Event.
2.12 Taxes. Except as set forth on Schedule 2.12, the Company
and its Subsidiaries have filed or caused to be filed all federal, state and
local income, excise and franchise tax returns for taxable years ending during
calendar years 1995, 1996, and 1997 required to be filed (except for returns
that have been appropriately extended), and have paid, or provided for the
payment of, all taxes shown to be due and payable on said returns and all other
taxes, impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency with
respect thereto (other than taxes, impositions, assessments, fees and charges
currently being contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved), and the Borrowers do not know of any
proposed assessment for additional taxes or any basis therefor. No tax liens
(which have not been released) have been filed against the Company or its
Subsidiaries or any of their properties.
2.13 Certain Transactions. Except as set forth in the filings
made by the Company with the SEC and except as to indebtedness incurred in the
ordinary course of business and approved by the Board of Directors of the
Company, neither the Company nor any Subsidiary is indebted, directly or
indirectly, to any of its officers or directors, or to their respective spouses
or children, or to any of their affiliates, in excess of an aggregate amount of
$60,000, and none of such officers or directors or any member of their immediate
families or affiliates, is indebted to the Company or any Subsidiary in excess
of an aggregate amount of $60,000, or has any direct or indirect ownership
interest in any firm or corporation with which the Company or any Subsidiary is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company or any Subsidiary, except as set
forth on Schedule 2.13. Except as set forth in the registration statements,
periodic reports, or proxy statements filed by the Company with the SEC, no
officer or director of the Company or any Subsidiary or any member of their
immediate families or affiliates is, directly or indirectly, interested in any
contract with the Company or any Subsidiary that would require disclosure under
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Item 404 of Regulation S-K. Neither the Company nor any Subsidiary is a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation, other than guaranties by the Company of indebtedness or obligations
of Wholly-owned Subsidiaries permitted by Section 5.11.
2.14 Title to Property. The Company and each Subsidiary has
good and marketable title to all real and personal property owned by it, free
and clear of all liens, security interests, pledges, encumbrances, claims and
restrictions of every kind and nature whatsoever, except as disclosed on
Schedule 2.14. Any real property and buildings held under lease by the Company
or any Subsidiary are held under valid existing and enforceable leases, and to
the best of the Borrowers' knowledge no default has occurred or is continuing
thereunder which might result in any material adverse change in the business,
financial conditions or results of operations of the Company and its
Subsidiaries taken as a whole.
2.15 Intellectual Property.
(a) Except as set forth in Schedule 2.15, or for
items that do not constitute a Material Adverse Event, to the Borrowers'
knowledge, each of the Company and the Co-Maker is the lawful owner or has a
valid right to use the proprietary information used in its business free and
clear of any claim, right, trademark, patent or copyright protection of any
third party; provided, however, that this paragraph (a) shall not be deemed to
include any representation regarding the absence of infringements or conflicts
with the rights of others, which representation is made only in paragraph (c)
hereof. As used herein, "proprietary information" includes without limitation
(i) any computer software and any documentation, inventions, and technical and
nontechnical data related thereto, and (ii) other documentation, inventions and
data related to patterns, plans, methods, techniques, drawings, finances,
customer lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used by the
Company or any Subsidiary or marketing studies conducted by the Company or any
Subsidiary, all of which the Borrowers consider to be commercially important and
competitively sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business.
(b) Except as set forth in Schedule 2.15, to the
Borrowers' knowledge, each of the Company and the Co-Maker has good and
marketable title to or has a valid right to use all patents, trademarks, trade
names, service marks, copyrights or other intangible property rights, and
registrations or applications for registration thereof, owned by the Company or
any Subsidiary or used or required by the Company or any Subsidiary in the
operation of its business as presently being conducted; provided, however, that
this paragraph (b) shall not be deemed to include any representation regarding
the absence of infringements or conflicts with the rights of others, which
representation is made only in paragraph (c) hereof.
(c) Except as disclosed on Schedule 2.15, neither
Borrower has any knowledge of any infringements or conflicts by the Company or
any Subsidiary with asserted rights of others with respect to copyrights,
patents, trademarks, service marks, trade names, trade secrets or other
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intangible property rights or know-how which constitute a Material Adverse
Event. To the Company's and the Co-Maker's knowledge, no products or processes
of the Company or the Co-Maker infringe or conflict with any rights of patent or
copyright, or any discovery, invention, product or process, that is the subject
of a patent or copyright application or registration known to the Company or the
Co-Maker. Each of the Company and the Co-Maker follows such procedures as the
Company or the Co-Maker deems necessary or appropriate to provide reasonable
protection of the Company's or the Co-Maker's trade secrets and proprietary
rights in intellectual property of all kinds. To the knowledge of the Company
and the Co-Maker, no person employed by or affiliated with the Company or the
Co-Maker has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer, and to the knowledge of the
Company and the Co-Maker, no person employed by or affiliated with the Company
or the Co-Maker has violated any confidential relationship that such person may
have had with any third person, in connection with the development, manufacture
or sale of any product or proposed product or the development or sale of any
service or proposed service of the Company or the Co-Maker.
2.16 Environmental Matters. Each of the Company and the
Co-Maker has duly complied in all material respects with, and its business,
operations, assets, equipment, property, leaseholds or other facilities are in
compliance in all material respects with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder, except to the extent that the
violation thereof does not constitute a Material Adverse Event. Each of the
Company and the Co-Maker has been issued and will maintain all required material
federal, state and local permits, licenses, certificates and approvals relating
to (i) air emissions; (ii) discharges to surface water or groundwater; (iii)
noise emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
(which shall include any and all such materials listed in any federal, state or
local law, code or ordinance and all rules and regulations promulgated
thereunder as hazardous or potentially hazardous); or (vi) other environmental,
health or safety matters, except to the extent that the violation thereof does
not constitute a Material Adverse Event. Except as noted on Schedule 2.16,
neither Borrower has received notice of, and neither Borrower knows of, a
material violation of any federal, state or local environmental, health or
safety laws, codes or ordinances, and any rules or regulations promulgated
thereunder with respect to its businesses, operations, assets, equipment,
property, leaseholds, or other facilities. Except in accordance with a valid
governmental permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (i) the air; (ii) soils, or
any improvements located thereon; (iii) surface water or groundwater; or (iv)
the sewer, septic system or waste treatment, storage or disposal system
servicing the premises, of any toxic or hazardous substances or wastes at or
from the premises of the Company or the Co-Maker, except to the extent that the
violation thereof does not constitute a Material Adverse Event. To the best of
its knowledge, neither Borrower has any material indebtedness, obligation or
liability (absolute or contingent, matured or not matured), with respect to the
storage, treatment, cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation any such
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indebtedness, obligation, or liability with respect to any current regulation,
law or statute regarding such storage, treatment, cleanup or disposal).
2.17 Accounting Matters. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for the assets of the
Company and each of its Subsidiaries; (iii) access to the assets of the Company
and each of its Subsidiaries is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets of the Company and each of its Subsidiaries are compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.18 [Reserved].
2.19 Prior Sales. All offers and sales of the Company's
capital stock prior to the date hereof were at all relevant times (i) exempt
from the registration requirements of the Securities Act or were duly registered
under the Securities Act, and (ii) were duly registered or were the subject of
an available exemption from the registration requirements of all applicable
state securities or Blue Sky laws.
2.20 Regulatory Compliance. Except as set forth on Schedule
2.20, the conduct of the business and the ownership of the assets of the
Borrowers is not dependent on any license, permit, approval, waiver or other
authorization of any federal, state or local governmental or regulatory body
which the Company or the Co-Maker has not obtained, except to the extent that
the absence thereof does not constitute a Material Adverse Event. All material
licenses, permits and authorizations held by the Company or the Co-Maker are in
full force and effect.
2.21 Margin Regulations. Neither the Company nor the Co-Maker
is engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock. No proceeds received pursuant to this Agreement will be
used to purchase or carry any equity security of a class which is registered
pursuant to Section 12 of the Exchange Act.
2.22 [Reserved].
2.23 Limited Offering. Subject in part to the truth and
accuracy of Purchaser's representations set forth in this Agreement, the offer,
sale and issuance of the Debentures is exempt from the registration requirements
of the Securities Act, and neither the Company nor the Co-Maker nor any
authorized agent acting on either of their behalf has taken or will take any
action hereafter that would cause the loss of such exemption.
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2.24 Registration Obligations. Except as described in Schedule
2.24, and except with respect to any registration statement on Form S-8 to be
filed in connection with the Company's stock option plan, the Company is not
under any obligation to register under the Securities Act or the Trust Indenture
Act of 1939, as amended, any of its presently outstanding securities or any of
its securities that are proposed to be subsequently issued.
2.25 Insurance. The Company has maintained, and has caused
each Subsidiary to maintain, insurance coverage with respect to their respective
properties and business in such forms and amounts and against such risks,
casualties and contingencies as are reasonable and customary for corporations of
comparable size and condition (financial and otherwise) engaged in the same or a
similar business and owning and operating similar properties.
2.26 Governmental Consents. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company or the
Co-Maker in connection with the their valid execution, delivery, or performance
of this Agreement, except such filings as have been made prior to the Closing,
and except notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act or such post-closing filings
as may be required under applicable securities laws, which will be timely filed
within the applicable periods therefor.
2.27 Employees. To the best of the Borrowers' knowledge,
there is no strike, labor dispute or union organization activity pending or
threatened between the Company or the Co-Maker and their employees. None of
either Borrower's employees belongs to any union or collective bargaining unit.
Each of the Company and the Co-Maker has complied in all material respects with
all applicable state and federal equal opportunity and other laws related to
employment. To the best of the Borrowers' knowledge, no employee of the Company
or the Co-Maker is in violation of any judgment, decree, or order, or any term
of any employment contract, patent disclosure agreement, or other contract or
agreement relating to the relationship of any such employee with the Company or
the Co-Maker or any other party because of the nature of the business conducted
or presently proposed to be conducted by the Company or the Co-Maker or to the
use by the employee of his best efforts with respect to such business. Other
than as set forth on Schedule 2.27, neither the Company nor the Co-Maker is a
party to or bound by any employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan, or retirement agreement.
Neither the Company nor the Co-Maker is aware that any officer or key employee,
or that any group of key employees, intends to terminate employment with the
Company or the Co-Maker, nor does the Company or the Co-Maker have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to notice obligations to employees and wrongful
termination of employees and to existing employment contracts set forth on
Schedule 2.27, the employment of each officer and employee of the Company or the
Co-Maker is terminable at the will of the Company or the Co-Maker.
2.28 ERISA. Each of the Company and the Co-Maker is in
compliance in all material respects with all applicable provisions of ERISA.
Except as disclosed in Schedule 2.28, neither a reportable event nor a
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prohibited transaction (as defined in ERISA) has occurred and is continuing with
respect to any "pension plan" maintained by either Borrower (as such term is
defined in ERISA, a "Plan"); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation (together with any
entity succeeding to or all of its functions, the 'PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Company nor any commonly
controlled entity (as defined in ERISA) has completely or partially withdrawn
from a multiemployer plan (as defined in ERISA). The Company and each commonly
controlled entity has met its minimum funding requirements under ERISA with
respect to all of its Plans and the present fair market value of all Plan
property exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA and the regulations thereunder for calculating the
potential liability of the Company or any commonly controlled entity to the PBGC
or the Plan under Title IV or ERISA; and neither the Company nor any commonly
controlled entity has incurred any liability to the PBGC under ERISA.
2.29 Fees/Commissions. Except as set forth on Schedule 2.29,
neither Borrower has agreed to pay any finder's fee, commission, origination fee
or other fee or charge to any person or entity with respect to or as a result of
the consummation of the transactions contemplated hereunder, except for (i) the
processing fee due to Purchaser under Section 1.5, and (ii) reimbursement of
Purchaser's expenses under Section 12.1.
2.30 Survival. The representations and warranties of the
Company and the Co-Maker contained in this Agreement are made as of the date
hereof and shall survive in accordance with Section 12.5 hereof.
3. Representations and Warranties of Purchaser. The Purchaser hereby
represents to the Company and the Co-Maker as follows:
3.1 Corporate Status. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Tennessee and has the corporate power to own and operate its properties, to
carry on its business as now conducted and to enter into and to perform its
obligations under this Agreement and any other document executed or delivered by
Purchaser in connection herewith.
3.2 Authorization. Purchaser has full legal right, power and
authority to enter into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection herewith,
without the consent or approval of any other person, firm, governmental agency
or other legal entity. The execution and delivery of this Agreement and any
other document executed and delivered by Purchaser in connection herewith, and
the performance by Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all necessary
governmental approvals, if any were required, and do not and will not contravene
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or conflict with (i) the Charter or Bylaws of Purchaser, (ii) any material
agreement to which Purchaser is a party or by which it or any of its properties
is bound, or constitute a default thereunder, or result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
upon any of the property or assets of Purchaser pursuant to the terms of any
such agreement or instrument, or (iii) violate any provision of law or any
applicable judgment, ordinance, regulation or order of any court or governmental
agency. The officer(s) executing this Agreement and any other document executed
and delivered by Purchaser in connection herewith, is duly authorized to act on
behalf of Purchaser.
3.3 Validity and Binding Effect. This Agreement and any other
document executed and delivered by Purchaser in connection herewith have been
authorized by all requisite corporate action, and are the legal, valid and
binding obligations of the Purchaser, enforceable against it in accordance with
their respective terms, subject to such limitations on enforceability as may
exist under equitable principles of law or the application of bankruptcy or
insolvency laws.
3.4 Accredited Investor, Investment Intent. Purchaser is a
registered investment company under the Investment Company Act and as such is an
"accredited investor" under Rule 501(a) under the Securities Act. Purchaser is
acquiring the Debentures and the Initial Warrant, and will acquire any
Contingent Warrants, for its own account, for investment, and not with a view to
the distribution or resale thereof, in whole or in part, in violation of the
Securities Act or any applicable state securities law, and Purchaser has no
present intention of selling, negotiating or otherwise disposing of the
Debentures or the Initial Warrant; it being understood that Purchaser intends to
transfer and assign the Debentures and all Purchaser's rights and obligations
under this Agreement to one or more wholly-owned Subsidiaries of Purchaser.
Purchaser has relied solely upon an independent investigation made by it and its
representatives, if any, and has, prior to the date hereof, been given access to
and the opportunity to examine all books and records of the Company, and all
material contracts and documents of the Company. In making its investment
decision to purchase the Debentures and the Initial Warrants, Purchaser is not
relying on any oral or written representations or assurances from the Company or
any other person or any representation of the Company or any other person other
than as set forth in this Agreement. Purchaser has such experience in business
and financial matters that it is capable of evaluating the risk of its
investment and determining the suitability of its investment.
3.5 Survival. The representations and warranties of the
Purchaser contained in this Agreement shall survive in accordance with Section
12.5 hereof.
4. Conditions Precedent to the Obligations of Purchaser. The obligation
of Purchaser to purchase and pay for the Debentures on the Closing Date shall be
subject to the satisfaction, on or before the Closing Date, of each of the
conditions set forth below. These conditions are for Purchaser's sole benefit
and may be waived by Purchaser at any time in its sole discretion.
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4.1 Representations and Warranties. The representations and
warranties of the Company and the Co-Maker contained in this Agreement and in
any Schedule hereto or any document or instrument delivered to Purchaser or its
representatives hereunder, shall have been true and correct when made and shall
be true and correct in all material respects as of the Closing Date as if made
on such date, except to the extent such representations and warranties expressly
relate to a specific date. Each of the Company and the Co-Maker shall have duly
performed all of the covenants and agreements to be performed by it hereunder on
or prior to the Closing Date.
4.2 Officer's Certificate. The Company and the Co-Maker shall
have delivered to Purchaser a certificate, dated the Closing Date, signed by the
President or a Vice President of each Borrower, substantially in the form
attached hereto as Exhibit C.
4.3 Satisfactory Proceedings and Secretary's Certificate. All
proceedings taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to Purchaser and Purchaser's counsel, and the
Company and the Co-Maker shall have delivered to Purchaser a certificate, dated
the Closing Date, signed by the Secretary or an Assistant Secretary of each
Borrower, substantially in the form attached hereto as Exhibit D.
4.4 Legal Opinion. Purchaser shall have received the opinion
of counsel for the Company and the Co-Maker, dated the Closing Date, addressed
to Purchaser, in form and substance satisfactory to Purchaser's counsel, and
covering the matters set forth in Exhibit E hereto. 4.5 Authorization Agreement
. Each Borrower shall have delivered to Purchaser an Authorization Agreement for
Pre-Authorized Payments (Debit), dated the Closing Date, executed by a duly
authorized officer of each Borrower, in the form attached hereto as Exhibit F.
4.6 Existence and Authority. The Company shall have delivered
to Purchaser the following certificates of public officials, in each case as of
a date within 15 days of the Closing Date:
(a) the certificate or articles of incorporation of
the Company and each of the Subsidiaries, certified by the Secretary of State or
other appropriate official in the jurisdiction by which each such entity is
incorporated; and
(b) a certificate as to the legal existence and good
standing of the Company and each of the Subsidiaries issued by the Secretary of
State or other appropriate official of the jurisdiction in which each such
entity is incorporated; and
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(c) a certificate as to the tax status of the Company
and each of the Subsidiaries issued by the Secretary of State or other
appropriate official of the jurisdiction in which each such entity is
incorporated.
4.7 Delivery of Operative Documents. The Company and the
Co-Maker shall have delivered to Purchaser the following documents, executed by
the Company or the Co-Maker as appropriate and dated the Closing Date:
(a) the Debenture;
(b) the Initial Warrant;
(c) the Security Agreement in the form of Exhibit G,
executed by the Company and the Co-Maker;
(d) [reserved];
(e) the Financing Statements;
(f) Warrant Valuation Letter substantially in the
form of Exhibit H;
(g) Closing Statement substantially in the form of
Exhibit I; and
(h) Registration Rights Agreement between the Company
and the Purchaser in the form of Exhibit J.
4.8 Required Consents. Any consents or approvals required to
be obtained from any third party, including any holder of indebtedness or any
outstanding security of the Company or the Co-Maker, and any amendments of
agreements which shall be necessary to permit the consummation of the
transactions contemplated hereby on the Closing Date, shall have been obtained
and all such consents or amendments shall be satisfactory in form and substance
to Purchaser and Purchaser's counsel.
4.9 Waiver of Conditions. If on the Closing Date the Company
or the Co-Maker fails to tender to Purchaser the Debentures to be issued to
Purchaser, or if the conditions specified in this Section 4 have not been
fulfilled, Purchaser may thereupon elect to be relieved of all further
obligations under this Agreement and shall (i) be paid the processing fee
provided by Section 1.5, and (ii) be paid the expenses provided by Section 12.1,
which processing fee and expense reimbursement shall be treated as liquidated
damages and as Purchaser's sole remedy if on the Closing Date the Company or the
Co-Maker fails to tender to Purchaser the Debentures or if the conditions
specified in this Section 4 have not been fulfilled. Without limiting the
foregoing, if the conditions specified in this Section 4 have not been
fulfilled, Purchaser may waive compliance by the Company and the Co-Maker with
any such condition to such extent as Purchaser, in Purchaser's sole discretion,
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may determine. Nothing in this Section 4.9 shall operate to relieve the Company
or the Co-Maker of any of its obligations hereunder, or to waive any of
Purchaser's rights against the Company or the Co-Maker.
5. Covenants of Company and the Co-Maker. From and after the Closing
Date and continuing so long as any amount remains unpaid on any of the
Debentures,
5.1 Use of Proceeds. The Borrowers shall use the proceeds of
the Debentures solely for the purpose of acquiring M.O.S. Plastics, Inc.
("MOS").
5.2 Corporate Existence, Etc. The Company will preserve and
keep in force and effect, and will cause each Subsidiary to preserve and keep in
force and effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a foreign
corporation in each jurisdiction where such qualification is required by
applicable law except where the failure to so qualify would not have a Material
Adverse Effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole, and all material licenses and
permits necessary to the proper conduct of its business.
5.3 Maintenance of Properties, Etc. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, its properties and assets which are used or useful in the conduct of its
business (whether owned in fee or pursuant to a leasehold interest) in good
repair and working order, excepting normal wear and tear, and from time to time
will make all necessary repairs, replacements, renewals and additions required
in the opinion of the Company to maintain the efficiency thereof.
5.4 Nature of Business. Neither the Company nor any
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed from the general
nature of the business engaged in by the Company and its Subsidiaries on the
date of this Agreement.
5.5 Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage with respect to their respective
properties and business in such forms and amounts and against such risks,
casualties and contingencies as are customary for corporations of comparable
size and condition (financial and otherwise) engaged in the same or a similar
business and owning and operating similar properties.
5.6 Taxes, Claims for Labor and Materials. The Company will
promptly pay and discharge, and will cause each Subsidiary promptly to pay and
discharge, (i) all lawful taxes, assessments and governmental charges or levies
imposed upon the property or business of the Company or such Subsidiary,
respectively, (ii) all trade accounts payable in accordance with usual and
customary business terms, and (iii) all claims for work, labor or materials,
which if unpaid might become a lien or charge upon any property of the Company
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or such Subsidiary; provided the Company or such Subsidiary shall not be
required to pay any such tax, assessment, charge, levy, account payable or claim
if (i) the validity, applicability or amount thereof is being contested in good
faith by appropriate actions or proceedings which will prevent the forfeiture or
sale of any property of the Company or such Subsidiary or any material
interference with the use thereof by the Company or such Subsidiary, and (ii)
the Company or such Subsidiary shall set aside on its books, reserves deemed by
it to be adequate with respect thereto.
5.7 Compliance with Laws, Agreements, Etc. Except where
failure to do so does not and would not constitute a Material Adverse Event,
each Borrower shall maintain its business operations and property owned or used
in connection therewith in compliance with (i) all applicable federal, state and
local laws, regulations and ordinances, and such laws, regulations and
ordinances of foreign jurisdictions, governing such business operations and the
use and ownership of such property, and (ii) all agreements, licenses,
franchises, indentures and mortgages to which it is a party or by which it or
any of its properties is bound.
5.8 ERISA Matters. If the Company has in effect or hereafter
institutes a Plan, then the following covenants shall be applicable during such
period as any such Plan shall be in effect: (i) throughout the existence of the
Plan, the Company's contributions under the Plan will meet the minimum funding
standards required by ERISA and the Company will not institute a distress
termination of the Plan; and (ii) the Company will send to Purchaser a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the PBGC, at the time that such notice is so
filed.
5.9 Books and Records: Rights of Inspection. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which entries will be made of all dealings or transactions of or in relation
to the business and affairs of the Company or such Subsidiary, in accordance
with GAAP consistently maintained. The Company shall permit a representative of
Purchaser to visit any of its properties and inspect its corporate books and
financial records, and will discuss its accounts, affairs and finances with a
representative of Purchaser, during normal business hours of the Company, at all
such times as Purchaser may reasonably request upon reasonable prior notice and
without undue disruption of the business of the Company.
5.10 Reports. The Company will furnish to Purchaser the
following information, which information shall be subject to confidential
treatment by Purchaser:
(a) Monthly Statements. Within 30 days after the end
of each fiscal month, beginning the month of February, 1998, monthly internal
financial reports which at a minimum shall consist of a balance sheet of the
Company and balance sheets of each Subsidiary as of the close of such month and
related statements of income and cash flows for the one-month period then ended,
as well as any additional financial reports for such period routinely prepared
with respect to the Company and the Subsidiaries;
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(b) Quarterly Statements. As soon as available and in
any event within 45 days after the end of each quarterly fiscal period (except
the last) of each fiscal year, copies of:
(i) consolidated and consolidating balance
sheets of the Company and Subsidiaries as of the close of the quarterly
fiscal period then ended, setting forth in comparative form the
consolidated and consolidating figures for the corresponding period of
the preceding fiscal year,
(ii) consolidated and consolidating
statements of income of the Company and Subsidiaries for the quarterly
fiscal period then ended, setting forth in comparative form the
consolidated and consolidating figures for the corresponding period of
the preceding fiscal year, and
(iii) consolidated and consolidating
statements of cash flows of the Company and Subsidiaries for the
portion of the fiscal year ending with such quarterly fiscal period,
setting forth in comparative form the consolidated and consolidating
figures for the corresponding period of the preceding fiscal year,
all in reasonable detail and accompanied by a certificate of an authorized
financial officer of the Company that such financial statements fairly present
the financial condition and results of operations and cash flows of the Company
at and for the periods presented, subject to normal year-end adjustment;
(c) Annual Statements. As soon as available and in
any event within 90 days after the close of each fiscal year of the Company,
copies of:
(i) consolidated and consolidating balance
sheets of the Company and Subsidiaries as of the close of such fiscal
year, and
(ii) consolidated and consolidating
statements of income and consolidated and consolidating statements of
changes in stockholders' equity and cash flows of the Company and
Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated and
consolidating figures for the preceding fiscal year, all in reasonable detail
and accompanied by an unqualified report thereon of Marcum & Kliegman, LLP, or
another firm of independent public accountants reasonably satisfactory to
Purchaser;
(d) Special Audit Reports. Promptly upon receipt
thereof, one copy of each interim or special audit made by independent
accountants of the books of the Company or any Subsidiary;
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(e) SEC and Other Reports. Promptly upon their
becoming available, one copy of each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally and of each
periodic or current report, and any registration statement or prospectus filed
by the Company or any Subsidiary with any securities exchange or the SEC or any
successor agency, and copies of any material orders in any proceedings to which
the Company or any of its Subsidiaries is party, issued by any governmental
agency, federal or state, having jurisdiction over the Company or any of its
Subsidiaries. The Company specifically covenants to use reasonable commercial
efforts to timely file each such item required to be filed with the SEC and each
state requiring securities laws filings; and
(f) Requested Information. With reasonable
promptness, such financial data and other information relating to the business
of the Company as Purchaser may from time to time reasonably request.
5.11 Limitations on Debt and Obligations. Except as to
(i) Indebtedness existing on the date hereof
and reflected on (a) the Company's unaudited balance sheet as of
January 25, 1998, and (b) Schedule 5.11, as the same Indebtedness may
be extended or renewed (but not increased);
(ii) the Indebtedness incurred pursuant to
the Debentures;
(iii) accounts payable and other trade
payables incurred in the ordinary course of business;
(iv) purchase money indebtedness incurred in
the purchase of equipment and other property used by the Company or any
Subsidiary in the ordinary course of business, such purchase money
indebtedness not to exceed an aggregate amount of principal and accrued
interest thereon of $1,000,000 at any time outstanding, in addition to
the amount currently permitted under clause (i);
(v) obligations of the Company or any
Subsidiary pursuant to capitalized leases;
(vi) Indebtedness that refinances secured
Indebtedness under clause (i) above, provided that the collateral for
such new Indebtedness is the same type of collateral for the refinanced
secured Indebtedness and the aggregate principal amount of such
Indebtedness does not exceed the maximum principal amount outstanding
and/or committed under the refinanced Indebtedness plus interest
accrued to the date of refinancing; and
(vii) Indebtedness incurred in connection
with the acquisition of a business (including the assets of a
business), provided such Indebtedness is secured solely by the assets
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of the business so acquired, and is otherwise nonrecourse to the
Company and its Subsidiaries;
the Company and its Subsidiaries shall not, on a consolidated basis, incur
additional indebtedness which is senior to or pari passu with the Debentures in
excess of an aggregate amount of principal and interest thereon, at any time
outstanding, of (A) $50,000.00, plus (B) such amounts of principal that are paid
and may not be reborrowed under the Senior Credit Agreement, plus (C) the
additional Senior Debt permitted by the Subordination Agreement, without the
prior written consent of Purchaser. Notwithstanding the foregoing, the aggregate
principal amount of any Indebtedness secured by the accounts receivable and/or
inventory of the Company and its Subsidiaries (whether such Indebtedness is
permitted under clause (i) or clause (vi)), may be increased based upon the
amount of the accounts receivable and/or inventory eligible as collateral, so
long as the ratio of the permitted outstanding principal amount of such
Indebtedness to "eligible receivables" and/or "inventory" does not increase from
the ratios permitted as of the date here (howsoever such terms are defined but
provided such definitions remain substantially consistent).
5.12 Guaranties. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, become
or be liable in respect of any Guaranty except Guaranties by the Company or any
Subsidiary which are limited in maximum financial exposure on a consolidated
basis to the amounts set forth in, and are incurred in compliance with, the
provisions of Section 5.11 of this Agreement.
5.13 Limitation on Liens. Without the prior written consent
of Purchaser, the Company will not, and will not permit any Subsidiary to,
create or incur, or suffer to be incurred or to exist, any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind (collectively,
"Liens") on its or their property or assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom, or transfer any property for
the purpose of subjecting the same to the payment of obligations in priority to
the payment of its or their general creditors, or acquire or agree to acquire,
or permit any Subsidiary to acquire, any property or assets upon conditional
sales agreement or other title retention devices, except those Liens which exist
as of the date hereof as set forth on Schedule 2.14; Liens securing the Senior
Debt in accordance with the Subordination Agreement; Liens on accounts
receivable and/or inventory of the Company permitted by Section 5.11; Liens
securing Indebtedness permitted by Section 5.11(vi) and Section 5.11(vii), and
except:
(a) purchase money liens on and security interests in
equipment hereafter acquired securing Indebtedness permitted by Section 5.11(iv)
and Section 5.11(v) of this Agreement, provided that such liens and security
interests attach only to the equipment so acquired and do not encumber any other
property of the Company or any Subsidiary;
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(b) liens for taxes not yet payable or being
contested in good faith by appropriate proceedings and for which adequate
reserves have been provided on the books of the Company or a Subsidiary;
(c) mechanics', materialmen's, warehousemen's,
carriers' or other like liens arising in the ordinary course of business of the
Company or any Subsidiary, if any, arising with respect to obligations which are
not overdue for a period longer than 90 days or which are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
provided on the books of the Company or a Subsidiary;
(d) deposits or pledges to secure the performance of
bids, tenders, contracts, leases, public or statutory obligations, surety or
appeal bonds or other deposits or pledges for purposes of a like general nature
or given in the ordinary course of business by the Company or any Subsidiary;
and
(e) other encumbrances consisting of zoning
restrictions, easements, restrictions on the use of real property or minor
irregularities in the title thereto, which do not arise in connection with the
borrowing of, or any obligation for the payment of, money and which, in the
aggregate, do not materially detract from the normal use of the premises or the
business, properties or assets of the Company or any Subsidiary.
5.14 Restricted Payments. Except as set forth on Schedule
5.14, the Company will not, without the prior written consent of Purchaser and
except as hereinafter provided:
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class except dividends or
other distributions payable solely in shares of Common Stock of the Company; or
(b) directly or indirectly, or through any
Subsidiary, purchase, redeem or retire any shares of its capital stock of any
class or any warrants, rights or options to purchase or acquire any shares of
its capital stock (other than in exchange for or out of the net proceeds to the
Company from the substantially concurrent issue or sale of other shares of
capital stock of the Company or warrants, rights or options to purchase or
acquire any shares of its capital stock); or
(c) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in respect of its capital
stock, provided, that distributions from a Subsidiary to the Company, or from a
Subsidiary to another Subsidiary, shall be permitted; or
(d) make any payment or distribution, either directly
or indirectly or through any Subsidiary, with respect to any indebtedness of the
Company or any Subsidiary, to any Affiliate of the Company or any Subsidiary.
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5.15 Investments. Except as set forth on Schedule 5.15, the
Company will not, and will not permit any Subsidiary to, make any Investments
outside the ordinary course of business of the Company or any Subsidiary,
without the prior written consent of Purchaser, except:
(a) Investments in direct obligations of the United
States of America, or any agency or instrumentality of the United States of
America, the payment or guaranty of which constitutes a full faith and credit
obligation of the United States of America, in either case maturing in twelve
months or less from the date of acquisition thereof;
(b) Investments in certificates of deposit maturing
within one year from the date of origin, issued by a bank or trust company
organized under the laws of the United States or any state thereof, having
capital, surplus and undivided profits aggregating at least $100,000,000 and
whose long-term certificates of deposit are, at the time of acquisition thereof
by Company or a Subsidiary, rated AA or better by Standard & Poor's Corporation
or AA or better by Moody's Investors Service, Inc.;
(c) Investments in commercial paper maturing in 270
days or less from the date of issuance which, at the time of acquisition by the
Company or any Subsidiary, is accorded the highest rating by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or another nationally recognized
credit rating agency of similar standing;
(d) Loans or advances in the usual and ordinary
course of business to officers, directors and employees for expenses (including
moving expenses related to a transfer) incidental to carrying on the business of
the Company or any Subsidiary;
(e) receivables arising from the sale of goods and
services in the ordinary course of business of the Company and its Subsidiaries;
and
(f) acquisitions, mergers, and consolidations
permissible under Section 5.16(a)(ii).
5.16 Mergers, Consolidations and Sales of Assets.
(a) Without the prior written consent of Purchaser,
the Company will not, and will not permit any Subsidiary to (i) consolidate with
or be a party to a merger or share exchange with any other corporation, or (ii)
sell, lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section 5.16) of the assets of Company and its
Subsidiaries; provided, however, that:
(i) any Subsidiary may merge or consolidate
with or into the Company or any Wholly-owned Subsidiary so long as in
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any merger or consolidation involving the Company, the Company shall be
the surviving or continuing corporation; and
(ii) the Company (or a Subsidiary) may
consolidate or merge with any other corporation, or acquire all or a
substantial portion of the assets of any other entity, provided that
such corporation or entity is engaged primarily in the Company's
(Subsidiary's) general line of business on a consolidated basis as
conducted on the date hereof, and further provided that (A) the Company
(the Subsidiary) shall be the surviving or continuing corporation, (B)
at the time of such consolidation or merger and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing, (C) such consolidation or merger shall be deemed in the
good faith estimate of the Board of Directors to be a consolidation or
merger that will be accretive to earnings per share in the fiscal year
following the consolidation or merger, and (D) such consolidation or
merger shall be approved unanimously by the Company's Board of
Directors; and
(iii) any Subsidiary may sell, lease or
otherwise dispose of all or any substantial part of its assets to the
Company or any other Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser,
the Company will not permit any Subsidiary to issue or sell any shares of stock
of any class (including as "stock" for the purposes of this Section 5.16, any
warrants, rights or options to purchase or otherwise acquire stock or other
securities exchangeable for or convertible into stock) of such Subsidiary to any
person other than the Company or a Wholly-owned Subsidiary, except for the
purpose of qualifying directors, or except in satisfaction of the validly
preexisting preemptive rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate interest in
such Subsidiary.
(c) Without the prior written consent of Purchaser,
the Company will not sell, transfer or otherwise dispose of any shares of stock
in any Subsidiary (except to qualify directors) or any indebtedness of any
Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a Wholly-owned Subsidiary) any shares of
stock or any indebtedness of any other Subsidiary, unless all of the following
conditions are met:
(i) simultaneously with such sale, transfer
or disposition, all shares of stock and all indebtedness of such
Subsidiary at the time owned by the Company and by every other
Subsidiary shall be sold, transferred or disposed of as an entirety;
(ii) the Board of Directors of the Company
shall have determined, as evidenced by a resolution thereof, that the
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retention of such stock or indebtedness is no longer in the best
interests of the Company, or that the sale, transfer, or disposition
thereof is in the best interests of the Company;
(iii) such stock or indebtedness is sold,
transferred or otherwise disposed of to a person, for a cash
consideration and on terms reasonably deemed by the Board of Directors
to be adequate and satisfactory;
(iv) the Subsidiary being disposed of shall
not have any continuing investment in the Company or any other
Subsidiary not being simultaneously disposed of; and
(v) such sale or other disposition does not
involve a substantial part (as hereinafter defined) of the assets of
the Company and its Subsidiaries taken as a whole.
Provided, that, notwithstanding this Section 5.16(c), without the prior written
consent of Purchaser, the Company shall not sell, transfer, or otherwise dispose
of any shares of stock of (i) the Co-Maker, or (ii) M.O.S. Plastics, Inc.
("MOS"), or any indebtedness of the Co-Maker or MOS, and will not permit any
Subsidiary to sell, transfer, or otherwise dispose of (except to the Company or
a Wholly-owned Subsidiary) any shares of stock or any indebtedness of the
Co-Maker or MOS.
(d) As used in this Section 5.16, a sale, lease or
other disposition of assets shall be deemed to be a "substantial part" of the
assets of the Company and its Subsidiaries only if the book value of such
assets, when added to the book value of all other assets sold, leased or
otherwise disposed of by the Company and its Subsidiaries (other than in the
ordinary course of business) during the twelve month period ending on the date
of such sale, lease or other disposition, exceeds 25 percent of the consolidated
net tangible assets of the Company and its Subsidiaries determined as of the end
of the immediately preceding fiscal year.
5.17 Transactions with Affiliates. Except as set forth on
Schedule 5.17, without the prior written consent of Purchaser, the Company will
not, and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any officer, director or Affiliate (including,
without limitation, the purchase from, sale to, or exchange of property with, or
the rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than could be obtained in an arm's-length
transaction with a person other than an Affiliate, in each case as determined in
good faith by a majority of the disinterested directors of the Company.
5.18 Notice. The Company shall promptly upon the discovery
thereof give written notice to Purchaser of (i) the occurrence of any Default or
Event of Default under this Agreement, (ii) the occurrence of any material
default or material event of default under any other agreement providing for
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Indebtedness of the Company or any Subsidiary or under a capitalized lease
obligation having a principal balance in excess of $500,000, (iii) any material
actions, suits or proceedings instituted by any person against the Company or a
Subsidiary or affecting any of the assets of the Company or any Subsidiary, or
(iv) any investigation initiated by, or any dispute between any governmental
regulatory body, on the one hand, and the Company or any Subsidiary, on the
other hand, which dispute might materially interfere with the normal operations
of the Company or any Subsidiary; provided, however, that Purchaser shall not be
required by this Agreement to disclose any such information provided in (iii) or
(iv) above to any third party other than Purchaser's counsel and except to the
extent compelled by law or otherwise authorized by the Company.
5.19 Board of Directors; Observer Rights. For so long as the
Purchaser or any Affiliate of Purchaser owns Debentures representing at least
25% of the original principal amount of the Debentures, the Company shall invite
one representative of Purchaser to attend, at the Company's expense, all
meetings of the Company's Board of Directors and all committees of the Company's
Board of Directors in a nonvoting observer capacity and, in this respect, shall
provide such representative copies of all notices and meeting agenda in advance
of such meetings and shall permit such representative to review all documents
and other materials provided to directors at such meetings. The Company shall
also provide Purchaser, in advance, with copies of all actions proposed to be
taken by the Board of Directors in lieu of meeting. Purchaser shall execute a
confidentiality and nondisclosure agreement with respect to any information
obtained by or provided to Purchaser's representative.
5.20 Annual Plan. The Company's Board of Directors shall adopt
no later than the thirtieth day of each fiscal year, a financial plan for the
Company, which shall include a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each month in
such fiscal year, and a projected balance sheet as of the end of each month in
such fiscal year (the "Annual Plan"). The Annual Plan may only be amended or
revised, in any material manner, with the approval of the Company's Board of
Directors.
5.21 Further Assurances. The Borrowers will take and cause to
be taken all actions reasonably requested by Purchaser to effect the
transactions contemplated by this Agreement and the other Operative Documents,
including but not limited to the execution and delivery of additional financing
statements and other security agreements granting Purchaser a lien upon the
tangible and intangible personal property of the Company and its Subsidiaries,
subject to the liens securing the Senior Debt and to other liens permitted under
Section 5.13.
6. Subordination of Debentures.
6.1 Subordination. The indebtedness evidenced by the
Debentures, including principal and interest, shall be subordinate and junior to
the prior payment of the indebtedness of the Company to the Senior Lenders as
described in the Senior Credit Agreement and as provided in the Subordination
Agreement, but otherwise the indebtedness evidenced by the Debentures shall not
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be subordinate and junior to the prior payment of any other indebtedness of the
Company for borrowed money. The indebtedness evidenced by the Debentures shall
be senior in right of payment to all other Indebtedness of the Company which is
expressly stated to be subordinate or junior in any respect to other
Indebtedness of the Company.
6.2 Subrogation. Upon the prior payment in full of all Senior
Debt, the Purchaser shall be subrogated to the rights of the holders of the
Senior Debt to receive payments or distributions of assets of the Company
applicable to the Senior Debt until all amounts owing on the Debentures shall be
paid in full, and for the purpose of such subrogation, no payments or
distributions to the Purchaser otherwise payable or distributable to the holders
of Senior Debt shall, as between the Company, its creditors, other than the
holders of Senior Debt, and Purchaser, be deemed to be payment by the Company to
or on account of the Debentures, it being understood that the provisions of this
Section 6 are and are intended solely for the purpose of defining the relative
rights of Purchaser, on the one hand, and the holders of the Senior Debt, on the
other hand.
6.3 Borrowers' Obligations Not Impaired. Nothing contained in
this Section 6 or in the Debentures is intended to or shall impair, as between
the Borrowers and Purchaser, the obligation of each Borrower, which is absolute
and unconditional, joint and several, to pay the Purchaser the principal of and
interest on the Debentures as and when the same shall become due and payable in
accordance with the terms of the Debentures, or is intended to or shall affect
the relative rights of the Purchaser other than with respect to the holders of
the Senior Debt, nor, except as expressly provided in this Section 6, shall
anything herein or therein prevent the Purchaser from exercising all remedies
otherwise permitted by applicable law upon the occurrence of an Event of Default
under this Agreement or under the Debentures.
7. [Reserved].
8. Restrictions on Transfer; Registration Rights.
8.1 Legends; Restrictions on Transfer. Neither the Debentures
nor the shares of Common Stock issuable upon exercise of Warrants have been
registered under the Securities Act or any state securities laws. Each Debenture
issued pursuant to this Agreement and each stock certificate issued upon
exercise of Warrants shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW. THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT SUCH
REGISTRATION OR EXEMPTION THEREFROM.
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8.2 Registration Rights.
The Company shall cause the Common Stock issuable upon exercise of
Warrants to be registered as provided in the Registration Rights Agreement.
9. Events of Default; Remedies.
9.1 Events of Default. The occurrence of any one of the
following shall constitute an "Event of Default" under this Agreement:
(a) Default shall occur in the payment of interest on
any Debenture when the same shall have become due, provided, that any such
default shall be curable within two business days if the failure to make such
payment when due was caused by a financial institution's error in effecting an
automatic debit transaction against an account containing sufficient funds; or
(b) Default shall occur in the making of any payment
of the principal of any Debenture at the expressed or any accelerated maturity
date or at any date fixed by the Borrowers for prepayment, provided, that any
such default shall be curable within two business days if the failure to make
such payment when due was caused by a financial institution's error in effecting
an automatic debit transaction against an account containing sufficient funds;
or
(c) Default shall be made in the payment of the
principal of or interest on any Indebtedness (other than the Debentures) of the
Company or any Subsidiary in excess of $500,000 and such default shall continue
beyond the period of grace, if any, allowed with respect thereto; or
(d) Default or the happening of any event shall occur
under any contract, agreement, lease, indenture or other instrument under which
any Indebtedness (other than the Debentures) of the Company or any Subsidiary in
excess of $500,000 may be accelerated and such default or event shall continue
for a period of time sufficient to permit the acceleration of the maturity of
any such Indebtedness of the Company or any Subsidiary outstanding thereunder;
or
(e) Default shall occur in the observance or
performance of any covenant or agreement contained in Sections 5.11 through 5.20
hereof which is not remedied within 30 days; or
(f) Default shall occur in the observance or
performance of any other provision of this Agreement which is not remedied
within 30 days after the earlier of (i) the date on which either the Company or
the Co-Maker first obtains knowledge of such default, and (ii) the date on which
written notice thereof is given to the Borrowers by the holder of any Debenture;
or
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(g) Any representation or warranty made by the
Company or the Co-Maker herein, or made by the Company or the Co-Maker in any
statement or certificate furnished by the Company or the Co-Maker in connection
with the consummation of the issuance and delivery of the Debentures or
furnished by the Company or the Co-Maker pursuant hereto, is untrue in any
material respect as of the date of the issuance or making thereof and would have
a Material Adverse Effect, subject to the limitations on survival of Section
12.5; or
(h) Final judgments for the payment of money in
uninsured amounts aggregating in excess of $500,000, are outstanding against the
Company or any Subsidiary or against any property or assets of either and any
one of such judgments has remained unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of 30 days from the date of its entry; or
(i) The Company or any Subsidiary becomes insolvent
or bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Subsidiary
applies for or consents to the appointment of a custodian, trustee, liquidator,
or receiver for the Company or such Subsidiary or for the major part of the
property of either; or
(j) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any Subsidiary or for the major part of the
property of either and is not discharged within 60 days after such appointment;
or
(k) Bankruptcy, reorganization, arrangement or
insolvency proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against the
Company or any Subsidiary and, if instituted against the company or any
Subsidiary, are consented to or are not dismissed within 60 days after such
institution.
(l) Michael A. Gibbs shall resign or be terminated,
other than for cause and other than as a result of death or disability, as
President of the Company and Chief Executive Officer of AB Plastics Corporation,
and a successor acceptable to Purchaser shall not have been elected within 90
days after such resignation or termination; provided, that if no such successor
is elected, an Event of Default shall be deemed to have occurred and have been
continuing from and after the date of such resignation or termination.
(m) Paul J. Iacono shall resign or be terminated,
other than for cause and other than as a result of death or disability, as Chief
Financial Officer and Vice President -- Finance of the Company and of AB
Plastics Corporation, and a successor acceptable to Purchaser shall not have
been elected within 90 days after such resignation or termination; provided,
that if no such successor is elected, an Event of Default shall be deemed to
have occurred and have been continuing from and after the date of such
resignation or termination.
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(n) Any of Michael A. Gibbs, Geoffrey J.F. Gorman, or
any Affiliate of either Mr. Gibbs or Mr. Gorman, shall, without Purchaser's
prior written consent, either (i) sell, exchange, transfer, or otherwise dispose
of any shares of the Company's Common Stock at a price less than $7.50 per share
(subject to adjustment in the event of stock splits, stock dividends,
combinations of shares, recapitalizations, or other similar events occurring
hereafter), or (ii) sell, exchange, transfer, or otherwise dispose of more than
five percent of their respective holdings of the Company's Common Stock in any
calendar year.
9.2 Remedies Upon Default.
(a) If an Event of Default shall occur, and for so
long as such Event of Default continues, the interest rate on the Debentures
shall increase by 5% per annum, that is, to 17.25% per annum, until such Event
of Default is cured.
(b) For so long as an Event of Default shall
continue, Purchaser shall be entitled to appoint an additional representative to
attend, at the Company's expense, all meetings of the Company's Board of
Directors and all committees of the Company's Board of Directors in a nonvoting
observer capacity and, in this respect, shall provide such representative copies
of all notices and meeting agenda in advance of such meetings and shall permit
such representative to review all documents and other materials provided to
directors at such meetings. The Company shall also provide Purchaser, in
advance, with copies of all actions proposed to be taken by the Board of
Directors in lieu of meeting. Purchaser shall execute a confidentiality and
nondisclosure agreement with respect to any information obtained by or provided
to Purchaser's representative.
(c) When any Event of Default has occurred and is
continuing, or if the holder of any Debenture or of any other evidence of
indebtedness of the Company gives any notice or takes any other action with
respect to a claimed default, the Company agrees to give notice within three
Business Days of such event to all holders of the Debentures then outstanding.
9.3 Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of Section 9.1 has occurred and is
continuing, any holder of any Debenture may, and when any Event of Default
described in paragraphs (d) through (i), inclusive, and (l) through (n),
inclusive, of Section 9.1 has occurred and is continuing, the holder or holders
of 50% or more of the principal amount of Debentures at the time outstanding
may, by notice to the Borrowers, declare the entire principal and all interest
accrued on all Debentures to be, and all Debentures shall thereupon become,
forthwith due and payable, without any presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived. When any Event of
Default described in paragraph (j) or (k) of Section 9.1 has occurred, then all
outstanding Debentures shall immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived. Upon the Debentures becoming due and payable as a result of
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any Event of Default as aforesaid, the Borrowers will forthwith pay to the
holders of the Debentures the entire principal and interest accrued on the
Debentures. No course of dealing on the part of any Debenture holder nor any
delay or failure on the part of any Debenture holder to exercise any right shall
operate as a waiver of such right or otherwise prejudice such holder's rights,
powers and remedies. Each of the Company and the Co Maker further agrees, to the
fullest extent permitted by law, to pay to the holder or holders of the
Debentures all costs and expenses, including reasonable attorneys' fees,
incurred by them in the collection of any Debentures upon any default hereunder
or thereon.
9.4 Joint and Several Obligations. The obligations of the
Company and the Co-Maker under this Agreement, the Debentures, and the other
Operative Documents, are joint and several. Each of the Company and the Co-Maker
shall be fully responsible for payment and performance of such obligations.
10. Amendments, Waivers and Consents.
10.1 Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of at least 50% in aggregate principal
amount of outstanding Debentures; provided that without the written consent of
the holders of all of the Debentures then outstanding, no such waiver,
modification, alteration or amendment shall be effective (i) which will change
the time of payment of the principal of or the interest on any Debenture or
reduce the principal amount thereof or change the rate of interest thereon, (ii)
which will change any of the provisions with respect to optional prepayments, or
(iii) which will change the percentage of holders of the Debentures required to
consent to any such amendment, modification or waiver of any of the provisions
of Section 9 or Section 10.
10.2 Solicitation of Debenture Holders. Neither Borrower
shall, directly or indirectly, pay or cause to be paid any remuneration, whether
by way of supplemental or additional interest, fee or otherwise, to any holder
of the Debentures as consideration for or as an inducement to the entering into
by any holder of the Debentures of any waiver or amendment of any of the terms
and provisions of this Agreement, unless such remuneration is concurrently paid,
on the same terms, ratably to the holders of all of the Debentures then
outstanding.
10.3 Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of the Debentures and shall be
binding upon them, upon each future holder of any Debenture, and upon the
Borrowers, whether or not such Debenture shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.
11. Interpretation of Agreement; Definitions.
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11.1 Definitions. As used herein,
"Affiliate" means any person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with, the Company, (ii) which beneficially owns or holds 10% or more of
any class of the Voting Stock of the Company, 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 by the Company or
a Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which banks in Tennessee or California are authorized to close.
"Change in Control" means when any person or entity, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its subsidiaries, becomes the
beneficial owner of the Company's securities having 50% or more of the combined
voting power of the then outstanding securities of the Company that may be cast
for the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of
business).
The term "control" (including the terms "controlling," "controlled by"
and "under common control") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by contract, or
otherwise.
"Default" means any event or condition, the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default as defined in Section 9.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer any successor sections.
"Fair Market Value" per share of Common Stock means (i) in the case of
a security listed or admitted to trading on any securities exchange, the last
reported sale price, regular way (as determined in accordance with the practices
of such exchange), on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day (and in the case of a
security traded on more than one national securities exchange, at such price or
such average, upon the exchange on which the volume of trading during the last
calendar year was the greatest), (ii) in the case of a security not then listed
or admitted to trading on any securities exchange, the last reported sale price
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reputable quotation service
designated by the Company, (iii) in the case of a security not then listed or
admitted to trading on any securities exchange and as to which no such reported
sale price or bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reputable quotation
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service, or the Wall Street Journal, or if there are no bids and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than 30 days prior to the date in question) for
which prices have been so reported, and (iv) in the case of a security
determined by the Company's Board of Directors as not having an active quoted
market or in the case of other property, such fair market value as shall in good
faith be determined by the Board of Directors.
"Guaranties" by any person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (A) for the purchase or payment of such Indebtedness or obligation, (B) to
maintain working capital or other balance sheet condition or (C) otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Hazardous Substance" means any hazardous or toxic material, substance
or waste, pollutant or contaminant which is regulated under any statute, law,
ordinance, rule or regulation of any local, state, regional or Federal authority
having jurisdiction over the property of the Company and its Subsidiaries or its
use, including but not limited to any material, substance or waste which is: (i)
defined as a hazardous substance under Section 311 of the Federal Water
Pollution Control Act (33 U.S. C. SS 1317. 1) as amended; (ii) regulated as a
hazardous waste under Section 1004 or Section 3001 of the Federal Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act (42
U.S.C. SS 6901 et seq.) as amended; (iii) defined as a hazardous substance under
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. SS 9601 et seq.) as amended; or (iv) defined or
regulated as a hazardous substance or hazardous waste under any rules or
regulations promulgated under any of the foregoing statutes.
"Indebtedness" of any person means and includes all obligations of such
person which in accordance with GAAP shall be classified upon a balance sheet of
such person as liabilities of such person, and in any event shall include,
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without duplication, all (i) obligations of such person for borrowed money or
which have been incurred in connection with the acquisition of property or
assets, (ii) obligations secured by any lien or other charge upon property or
assets owned by such person, even though such person has not assumed or become
liable for the payment of such obligations, (iii) obligations created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such person, notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement in the case of
default are limited to repossession or sale or property, (iv) capitalized
leases, and (v) Guaranties of obligations of others of the character referred to
in this definition.
"Investments" means all investments, in cash or by delivery of property
made, directly or indirectly in any person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise; provided, however that "Investments"
shall not mean or include routine investments in property to be used or consumed
in the ordinary course of business.
"Material Adverse Event" means any event or circumstance, or set of
events or circumstances, individually or collectively, that reasonably could be
expected to result in any (i) material adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole (a "Material Adverse Effect"), or (iii)
material default or potential material default under any of the Operative
Documents.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Purchaser of even date herewith.
"Senior Credit Agreement," "Senior Lenders," and "Senior Debt" shall
have the meanings assigned by the Subordination Agreement.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Subordination Agreement" means the Subordination Agreement of even
date herewith among The Sumitomo Bank of California, Manufacturers Bank,
Purchaser, and Pinecreek Capital Partners, L.P.
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The term "subsidiary" means, as to any particular parent corporation,
any corporation of which more than 50% (by number of votes) of the Voting Stock
shall be owned by such parent corporation and/or one or more corporations which
are themselves subsidiaries of such parent corporation. The term "Subsidiary"
shall mean a subsidiary of the Company.
"Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or persons performing similar functions).
"Warrants" means the Initial Warrant and the Contingent Warrants.
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) shall be owned by the Company
and/or one or more of its Subsidiaries.
11.2 Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
11.3 Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any person, or which such person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such person.
12. Miscellaneous.
12.1 Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Borrowers agree to
pay to Purchaser (i) Purchaser's reasonable out-of-pocket expenses in connection
with the entering into of this Agreement and the consummation of the
transactions contemplated hereby, including but not limited to the reasonable
fees, expenses and disbursements of Purchaser's counsel, and (ii) so long as
Purchaser holds any of the Debentures, all such reasonable expenses relating to
any amendment, waiver or consent pursuant to the provisions hereof (whether or
not the same are actually executed and delivered), including, without
limitation, any amendments, waivers or consents resulting from any work-out,
restructuring or similar proceedings relating to the performance by the Company
or the Co-Maker of its obligations under this Agreement and the Debentures. The
Borrowers also agree to pay and hold Purchaser harmless against any and all
liability with respect to stamp and other taxes, if any, which may be payable in
connection with the execution and delivery of this Agreement or the Debentures,
whether or not any Debentures are then outstanding. The Borrowers agree to
protect and indemnify Purchaser against any liability for any and all brokerage
fees and commissions payable or claimed to be payable to any person as a result
of any actions of the Borrowers or their agents in connection with the
transactions contemplated by this Agreement.
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12.2 Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Debenture 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. The rights and remedies of the holder
of any Debenture are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent, given
or extended hereunder, shall extend to or affect any obligation or right not
expressly waived or consented to.
12.3 Notices. All communications provided for hereunder shall
be in writing and shall be delivered personally, or mailed by registered mail,
or by prepaid overnight air courier, or by facsimile communication, in each case
addressed:
If to Purchaser: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Attention: Craig Macnab
Facsimile No.: 615-726-1208
with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327-1503
Facsimile No.: 404-816-6854
If to the Borrowers: Compass Plastics & Technologies, Inc.
15730 South Figueroa Street
Gardena, California 90248
Attention: Chief Financial Officer
Facsimile No.: 310-523-9859
with a copy to: Stephen A. Weiss, Esq.
Greenberg Traurig
200 Park Avenue, 15th Floor
New York, New York 10166
Facsimile No: 212-801-6400
or such other address as Purchaser or the subsequent holder of any Debenture
initially issued to Purchaser may designate to the Company in writing, or such
other address as the Company may in writing designate to Purchaser or to a
subsequent holder of the Debenture initially issued to Purchaser; provided,
however, that a notice sent by overnight air courier shall only be effective if
delivered at a street address designated for such purpose by such person and a
notice sent by facsimile communication shall only be effective if made by
confirmed transmission at a facsimile number designated for such purpose by such
person or, in either case, as Purchaser or a subsequent holder of any Debentures
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initially issued to Purchaser may designate to the Company in writing or at a
facsimile number herein set forth.
12.4 Assignments. This Agreement, the Debentures and the
other Operative Documents may be endorsed, assigned and/or transferred in whole
or in part by Purchaser, and any such holder and/or assignee of the same shall
succeed to and be possessed of the rights and powers of Purchaser under all of
the same to the extent transferred and assigned; provided, however, that
Purchaser shall not make any such transfer to a competitor of the Company or an
Affiliate of any such competitor without the prior written consent of the
Company. Neither Borrower shall assign any of its rights or delegate any of its
duties under this Agreement or any of the other Operative Documents by operation
of law or otherwise without the prior express written consent of Purchaser,
which may be withheld in Purchaser's sole and unfettered discretion, and if the
Company obtains such consent, this Agreement and such other Operative Documents
shall be binding upon such assignee.
12.5 Survival of Covenants and Representations. All
representations and warranties made by the Borrowers or the Purchaser herein and
in any instruments or certificates delivered pursuant hereto shall survive for a
period of thirteen months following the Closing Date, except the representations
and warranties made in Sections 2.1, 2.2, 2.3, and 2.4 by the Company and the
Co-Maker, and in Sections 3.1, 3.2, 3.3, and 3.4 by Purchaser, which shall
survive until payment in full of the principal amount of, all accrued but unpaid
interest under, and all expenses and other costs required to be paid by the
Borrowers under, the Debentures. All covenants made by the Borrowers and the
Purchaser herein and in any instruments or certificates delivered pursuant
hereto shall survive the closing and the delivery of this Agreement and the
Debentures, until the termination of this Agreement, which shall terminate and
be of no further force or effect upon the payment in full of the principal
amount of, all accrued but unpaid interest under, and all expenses and other
costs required to be paid by the Borrowers under, the Debentures.
12.6 Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Agreement had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby declared the intention
of the parties hereto that they would have executed the remaining portion of
this Agreement without including therein any such part, parts or portion which
may for any reason, be hereafter declared invalid or unenforceable.
12.7 Governing Law. This Agreement and the Debentures issued
and sold hereunder shall be governed by and construed in accordance with New
York law, without regard to its conflicts of law rules.
12.8 Captions; Counterparts. The descriptive headings of the
various Sections or parts of this Agreement are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof. This
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Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.9 Confidentiality. Each party (and each subsequent holder
of a Debenture) hereto agrees that, except with the prior written permission of
the other party hereto, it shall at all times keep confidential and not divulge,
furnish or make accessible to anyone any confidential information, knowledge or
data concerning or relating to the business or financial affairs of the other
party to which such party has been or shall become privy by reason of this
Agreement, discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder, or the ownership of the Debenture
purchased hereunder, except as such disclosure may be required by law.
12.10 Publicity. The Company and Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby. No party shall issue any
press release or otherwise make any public statement without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed.
[rest of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Debenture
Purchase Agreement to be executed and delivered by their duly authorized
officers as of the date first written above.
COMPASS PLASTICS & TECHNOLOGIES, INC.
By: __________________________________________
Title: __________________________________________
AB PLASTICS CORPORATION
By: __________________________________________
Title: __________________________________________
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By: __________________________________________
Title: __________________________________________
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EXHIBIT 10.21
TABLE OF CONTENTS
1. Sale and Purchase of Debentures.................................... 2
1.1 Debentures................................................ 2
1.2 Optional Redemption....................................... 2
1.3 Warrants.................................................. 2
1.4 Commitment; Closing Date.................................. 3
1.5 Processing Fee............................................ 3
2. Representations and Warranties of the Borrowers.................... 3
2.1 Corporate Status.......................................... 3
2.2 Capitalization............................................ 4
2.3 Authorization............................................. 5
2.4 Validity and Binding Effect............................... 6
2.5 Contracts and Other Commitments........................... 6
2.6 Litigation................................................ 6
2.7 Financial Statements...................................... 6
2.8 SEC Reports............................................... 6
2.9 Absence of Changes........................................ 7
2.10 No Defaults............................................... 7
2.11 Compliance With Law....................................... 7
2.12 Taxes..................................................... 7
2.13 Certain Transactions...................................... 8
2.14 Title to Property......................................... 8
2.15 Intellectual Property..................................... 8
2.16 Environmental Matters..................................... 9
2.17 Accounting Matters........................................ 10
2.18 SBA Forms................................................. 10
2.19 Prior Sales............................................... 11
2.20 Regulatory Compliance..................................... 11
2.21 Margin Regulations........................................ 11
2.22 [Reserved]................................................ 11
2.23 Limited Offering.......................................... 11
2.24 Registration Obligations.................................. 11
2.25 Insurance................................................. 11
2.26 Governmental Consents..................................... 11
2.27 Employees................................................. 12
2.28 ERISA..................................................... 12
2.29 Fees/Commissions.......................................... 13
2.30 Survival.................................................. 13
3. Representations and Warranties of Purchaser........................ 13
3.1 Corporate Status.......................................... 13
3.2 Authorization............................................. 13
3.3 Validity and Binding Effect............................... 13
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3.4 Accredited Investor, Investment Intent.................... 14
3.5 Survival.................................................. 14
4. Conditions Precedent to the Obligations of Purchaser............... 14
4.1 Representations and Warranties............................ 14
4.2 Officer's Certificate..................................... 14
4.3 Satisfactory Proceedings and Secretary's Certificate...... 14
4.4 Legal Opinion............................................. 15
4.5 Authorization Agreement................................... 15
4.6 Existence and Authority................................... 15
4.7 Delivery of Operative Documents........................... 15
4.8 Required Consents......................................... 16
4.9 Waiver of Conditions...................................... 16
4.10 Small Business Concern.................................... 16
5. Covenants of the Company and the Co-Maker.......................... 16
5.1 Use of Proceeds........................................... 16
5.2 Corporate Existence, Etc.................................. 16
5.3 Maintenance of Properties, Etc............................ 17
5.4 Nature of Business........................................ 17
5.5 Insurance................................................. 17
5.6 Taxes, Claims for Labor and Materials..................... 17
5.7 Compliance with Laws, Agreements, Etc..................... 17
5.8 ERISA Matters............................................. 18
5.9 Books and Records: Rights of Inspection................... 18
5.10 Reports................................................... 18
5.11 Limitations on Debt and Obligations....................... 20
5.12 Guaranties................................................ 21
5.13 Limitation on Liens....................................... 21
5.14 Restricted Payments....................................... 22
5.15 Investments............................................... 22
5.16 Mergers, Consolidations and Sales of Assets............... 23
5.17 Transactions with Affiliates.............................. 25
5.18 Notice.................................................... 25
5.19 Board of Directors; Observer Rights....................... 25
5.20 Annual Plan............................................... 26
5.21 Further Assurances........................................ 26
6. Subordination of Debentures........................................ 26
6.1 Subordination............................................. 26
6.2 Subrogation............................................... 26
6.3 Borrowers Obligations Not Impaired........................ 26
7. [Reserved]......................................................... 27
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8. Restrictions on Transfer; Registration Rights...................... 27
8.1 Legends; Restrictions on Transfer......................... 27
8.2 Registration Rights....................................... 27
9. Events of Default; Remedies........................................ 27
9.1 Events of Default......................................... 27
9.2 Remedies Upon Default..................................... 29
9.3 Acceleration of Maturities................................ 30
9.4 Joint and Several Obligations............................. 30
10. Amendments, Waivers and Consents................................... 31
10.1 Consent Required.......................................... 31
10.2 Solicitation of Debenture Holders......................... 31
10.3 Effect of Amendment or Waiver............................. 31
11. Interpretation of Agreement; Definitions........................... 31
11.1 Definitions............................................... 31
11.2 Accounting Principles..................................... 35
11.3 Directly or Indirectly.................................... 35
12. Miscellaneous...................................................... 35
12.1 Expenses, Stamp Tax Indemnity............................. 35
12.2 Powers and Rights Not Waived; Remedies Cumulative......... 35
12.3 Notices................................................... 36
12.4 Assignments............................................... 37
12.5 Survival of Covenants and Representations................. 37
12.6 Severability.............................................. 37
12.7 Governing Law............................................. 37
12.8 Captions; Counterparts.................................... 37
12.9 Confidentiality........................................... 38
12.10 Publicity................................................. 38
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DEBENTURE PURCHASE AGREEMENT
BETWEEN
PINECREEK CAPITAL PARTNERS, L.P.
AND
COMPASS PLASTICS & TECHNOLOGIES, INC.
AND
AB PLASTICS CORPORATION
February 27, 1998
DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement") entered into the
27th day of February, 1998, by and between COMPASS PLASTICS & TECHNOLOGIES,
INC., a Delaware corporation (the "Company"), AB PLASTICS CORPORATION, a
California corporation (the "Co-Maker"), and PINECREEK CAPITAL PARTNERS, L.P., a
California limited partnership (the "Purchaser").
W I T N E S S E T H:
WHEREAS, each of the Company and the Co-Maker (each a "Borrower" and
collectively the "Borrowers") desires to obtain additional capital for use in
connection with its business through the issue and sale of certain securities,
and Purchaser is willing to purchase such obligations from the Company and the
Co-Maker, on the terms and conditions set forth herein.
NOW, THEREFORE, in mutual consideration of the premises and the
respective representations, warranties, covenants and agreements contained
herein, the parties agree as follows:
1. Sale and Purchase of Debentures
<PAGE>
1.1 Debentures. The Borrowers have authorized the issue and
sale of Two Million Dollars ($2,000,000.00) aggregate principal amount of 12.25%
Subordinated Debentures due February 27, 2003 (the "Debentures"), to be dated
the date of issue, to bear interest from such date at the rate of 12.25% per
annum, payable quarterly by automatic debit on the first day of each March,
June, September, and December in each year, commencing June 1, 1998, and at
maturity, to mature on February 27, 2003, and to bear such other terms as are
set forth in the form attached hereto as Exhibit A-1. Interest on the Debentures
shall be computed on the basis of a 360-day year of twelve 30-day months. The
Borrowers may prepay the indebtedness evidenced by the Debentures without
premium or penalty and as provided by Section 1.2. The term "Debenture" and
"Debentures" as used herein includes the Debenture in the form of Exhibit A-1
and any other Debenture delivered pursuant to this Agreement. Capitalized terms
shall have the meanings assigned by Section 11 unless otherwise defined herein.
1.2 Optional Redemption.
(a) The Debentures may be redeemed, repaid, or
repurchased, at the Borrowers option, in whole at any time or in part from time
to time, provided that in case of each redemption at the Borrowers option
hereunder, the Borrowers shall give written notice (the "Redemption Notice") to
each holder of a Debenture to be redeemed not less than 30 nor more than 45 days
prior to the date fixed for such redemption (the "Redemption Date"). The
Redemption Notice shall specify the Redemption Date, the aggregate principal
amount of the Debentures to be redeemed on the Redemption Date, and the
principal amount of Debentures held by such holder to be redeemed on such date.
After the Redemption Notice is mailed, Debentures called for redemption shall
become due and payable on the Redemption Date.
(b) Neither the Borrowers nor any Subsidiary or
Affiliate of the Borrowers, directly or indirectly, may repurchase or make any
offer to repurchase any Debentures unless the offer has been made to repurchase
Debentures, pro rata, from all holders of the Debentures at the same time and
upon the same terms. If the Borrowers repurchase or otherwise acquire any
Debentures, such Debentures shall immediately thereafter be canceled, and no
Debentures shall be issued in substitution therefor. Without limiting the
foregoing, upon the purchase or other acquisition of any Debentures by the
Borrowers or any Subsidiary or Affiliate, such Debentures shall no longer be
outstanding for purposes of any Section of this Agreement relating to the taking
by the holders of the Debentures of any actions with respect hereto.
1.3 Warrants In consideration of the Purchasers purchase of
the Debentures, the Company shall grant to Purchaser the following Warrants.
(a) At the Closing, the Company shall grant, issue, and
deliver to Purchaser a Stock Purchase Warrant, dated the Closing Date, in the
form attached hereto as Exhibit A-2 (the "Initial Warrant"), entitling Purchaser
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to purchase, at any time and from time to time during the five year period
beginning on the Closing Date, up to 120,000 Shares of the Company's Common
Stock at an initial Exercise Price of $6.75 per share.
(b) Until the indebtedness evidenced by the Debentures has
been paid in full, on the anniversary of the Closing Date of each year beginning
on the anniversary of the Closing Date beginning in the year 2000, the Company
shall grant, issue, and deliver to Purchaser additional Stock Purchase Warrants,
in the form of Exhibit A-3 ("Contingent Warrants"), each entitling Purchaser to
purchase up to 40,000 Shares of Common Stock at an Exercise Price equal to the
greater of (i) $7.00 per share, or (ii) 75% of the average closing bid price of
the Company's Common Stock for the 20 trading days preceding such anniversary
date, at any time and from time to time during the five year period beginning on
the date of issue of such Contingent Warrant.
1.4 Commitment; Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Borrowers agree to issue and sell to Purchaser, and
Purchaser agrees to purchase from the Borrowers, Debentures (the "Debentures")
in the aggregate principal amount of Two Million Dollars ($2,000,000.00) at a
purchase price equal to 100% of the principal amount thereof, at the Closing.
Delivery of the Debentures (the "Closing") shall be made at the offices of
Purchaser, Irvine, California, against payment therefor by federal funds wire
transfer in immediately available funds and to the accounts and in the amounts
set forth in the Borrowers wire instructions in the form of Exhibit B hereto, at
10:00 A.M., California time, on February 27, 1998, or such later date as the
Borrowers and Purchaser shall agree (the "Closing Date"). The Debentures
delivered to Purchaser on the Closing Date shall be delivered to Purchaser in
the form of a single Debenture for the full amount of such purchase price
(unless different denominations are specified by Purchaser), registered on the
books of the Borrowers in Purchaser's name or in the name of such nominee as
Purchaser may specify and, with appropriate insertions, in the form attached
hereto as Exhibit A-1, all as Purchaser may specify at least 24 hours prior to
the date fixed for delivery.
1.5 Processing Fee. The Borrowers shall pay to Purchaser on or
before the Closing Date a processing fee in an amount equal to $40,000.
2. Representations and Warranties of the Borrowers. Each of the Company
and the Co-Maker hereby represents and warrants to Purchaser as follows:
2.1 Corporate Status.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement, the Debentures, the Registration Rights Agreement, and any other
document executed and delivered by the Company in connection herewith or
therewith (collectively, the "Operative Documents"). The Company is qualified to
do business and is in good standing in each state or other jurisdiction in which
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such qualification is necessary under applicable law, except where the failure
to so qualify would not have a Material Adverse Effect on the financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole. The Co-Maker is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has the corporate
power to own and operate its properties, to carry on its business as now
conducted and to enter into and to perform its obligations under this Agreement,
the Debentures, and any other document executed and delivered by the Co-Maker in
connection herewith or therewith (collectively, the "Operative Documents"). The
Co-Maker is qualified to do business and is in good standing in each state or
other jurisdiction in which such qualification is necessary under applicable
law, except where the failure to so qualify would not have a Material Adverse
Effect on the financial condition or results of operations of the Co-Maker or
the Company and its Subsidiaries taken as a whole.
(b) Schedule 2.1(b) sets forth a complete list of
each corporation, partnership, joint venture, limited liability company or other
business organization in which the Company owns, directly or indirectly, any
capital stock or other equity interest in excess of $1,000, or with respect to
which the Company or any Subsidiary, alone or in combination with others, is in
a control position, which list shows the jurisdiction of incorporation or other
organization and the percentage of stock or other equity interest of each
Subsidiary owned by the Company. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction of
incorporation or other organization as indicated on Schedule 2.1(b), each has
all requisite power and authority and holds all material licenses, permits and
other required authorizations from government authorities necessary to own its
properties and assets and to conduct its business as now being conducted, and
each is qualified to do business as a foreign corporation (or business
organization) and is in good standing in every jurisdiction in which such
qualification is necessary under applicable law, except where the failure to so
qualify would not have a Material Adverse Effect on the financial condition or
results of operations of the Company and its Subsidiaries taken as a whole. All
of the outstanding shares of capital stock, or other equity interest, of each
Subsidiary owned, directly or indirectly, by the Company have been validly
issued, are fully paid and nonassessable, and are owned by the Company free and
clear of all liens, charges, security interests, or encumbrances except in favor
of The Sumitomo Bank of California (as Agent) and Purchaser.
2.2 Capitalization.
(a) The authorized capital stock of the Company
consists of (i) 5,000,000 shares of Preferred Stock, $.0001 par value, none of
which are issued and outstanding, and (ii) 20,000,000 shares of Common Stock,
$.0001 par value, 4,883,750 of which are issued and outstanding as of the date
hereof. All shares of Common Stock outstanding have been validly issued and are
fully paid and nonassessable. There are no statutory or contractual preemptive
rights, rights of first refusal, antidilution rights, or any similar rights held
by any party with respect to the issuance of the Debentures.
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(b) The Company has not granted, or agreed to grant
or issue, any options, warrants or rights to purchase or acquire from the
Company any shares of capital stock of the Company, there are no securities
outstanding or committed to be issued by the Company or any Subsidiary which are
convertible into or exchangeable for any shares of capital stock or other
securities of the Company, and there are no contracts, commitments, agreements,
understandings, arrangements or restrictions as to which the Company is a party,
or by which it is bound, relating to any shares of capital stock or other
securities of the Company, whether or not outstanding except for (i) the
Debentures and Warrants to be issued pursuant to this Agreement, and (ii) such
options, warrants and other rights to acquire capital stock of the Company set
forth on Schedule 2.2(b). Except as set forth on Schedule 2.2(b), all such
shares have been duly reserved for issuance, have been duly and validly
authorized, and upon issuance in accordance with the terms of the respective
instruments and receipt of payment therefor, will be validly issued, fully paid,
and nonassessable.
(c) The Common Stock issuable upon exercise of the
Warrants has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer other
than restrictions under applicable state and federal securities laws.
2.3 Authorization. Each of the Company and the Co-Maker has
full legal right, power and authority to enter into and perform its obligations
under the Operative Documents without the consent or approval of any other
person, firm, governmental agency, or other legal entity, other than The
Sumitomo Bank of California and Manufacturers Bank (which consents have been
obtained). The execution and delivery of this Agreement, the issuance of the
Debentures hereunder, the execution and delivery of each other document in
connection herewith or therewith to which either Borrower is a party, and the
performance by each Borrower of its obligations hereunder or thereunder, have
been duly authorized by all necessary corporate action properly taken, have
received all necessary governmental approvals, if any were required, and do not
and will not contravene or conflict with (i) the Certificate or Articles of
Incorporation or Bylaws of either Borrower, (ii) any material agreement to which
the Company or any of its Subsidiaries is a party or by which any of them or
their properties is bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge, security interest, or encumbrance of
any nature (other than in favor of purchaser) upon any of the property or assets
of the Company or any of its Subsidiaries pursuant to the terms of any such
agreement or instrument, or (iii) violate any provision of law or any applicable
judgment, ordinance, regulation or order of any court or governmental agency.
The officer(s) executing this Agreement, the Debentures, and any other document
executed and delivered by either Borrower in connection herewith or therewith,
is duly authorized to act on behalf of the Company or the Co-Maker.
2.4 Validity and Binding Effect. Each of the Operative
Documents is the legal, valid and binding obligation of the Company and the
Co-Maker, enforceable against the Company and the Co-Maker in accordance with
its terms, subject to such limitations on enforceability as may exist under
equitable principles of law or the application of bankruptcy or insolvency laws.
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2.5 Contracts and Other Commitments. Except as disclosed on
Schedule 2.5 and other than as filed by the Company with the Securities and
Exchange Commission ("SEC") as an exhibit pursuant to Item 601(b)(10) of
Regulation S-K under the Securities Act (each such disclosed or filed agreement
an "Applicable Contract"), the Company and its Subsidiaries are not bound by any
loans, liens, pledges, security interests, agreements, indentures, or
instruments defining the rights of security holders under any securities or
other financings upon which the Company or any Subsidiary is obligated or by
which the Company is bound.
2.6 Litigation. Except as set forth on Schedule 2.6, there is
no litigation, arbitration, claim, proceeding or investigation pending or
threatened in writing to which the Company or any Subsidiary is a party or of
which any of its respective properties or assets is the subject which, if
determined adversely to the Company or such Subsidiary, would individually or in
the aggregate have a Material Adverse Effect on the financial position, results
of operations, or business of the Company and its Subsidiaries taken as a whole.
2.7 Financial Statements. Except as set forth on Schedule 2.7,
the consolidated financial statements of the Company and its Subsidiaries (i)
for the fiscal year ended October 26, 1997, and (ii) as of October 27, 1996
(which include related consolidated statement of operation, stockholders equity
and cash flows for the 48 weeks ended September 27, 1996 and for the four weeks
ended October 27, 1996); the financial statements of AB Plastics Corporation as
of October 29, 1995 and October 30, 1994; and the unaudited consolidated
financial statements of the Company and AB Plastics Corporation as of and for
the fiscal quarter ended January 25, 1998, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly present the
financial position, results of operations, cash flows and changes in
stockholders' equity of the Company and its consolidated Subsidiaries, and of AB
Plastics Corporation, at the respective dates of and for the periods to which
they apply in such financial statements, and have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the periods indicated, subject, in the case of interim financial
statements, to normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the most recent audited consolidated financial statements). No financial
statements of any other person(s) are required by GAAP to be included in the
consolidated financial statements of the Company.
2.8 SEC Reports. The Company's Common Stock is listed for
trading on the NASDAQ National Market and has been duly registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). To the date
hereof, the Company has timely filed all reports, registrations, proxy or
information statements, and all other documents, together with any amendments
required to be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC Reports"). As of
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their respective dates, the SEC Reports complied in all material respects with
all rules and regulations promulgated by the SEC and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.9 Absence of Changes. Except as set forth on Schedule 2.9,
since January 25, 1998, (i) neither the Company nor any of its Subsidiaries have
incurred any liabilities or obligations, direct or contingent, or entered into
any transactions, not in the ordinary course of business, that are material to
the Company and its Subsidiaries taken as a whole, (ii) neither the Company nor
any of its Subsidiaries have purchased any of its outstanding capital stock or
declared, or paid any dividend or other distribution or payment in respect of
its capital stock, other than intercompany transfers from AB Plastics
Corporation to the Company, (iii) there has not been any change in the
authorized or issued capital stock, long-term debt, or short-term debt of the
Company or the Co-Maker, other than scheduled amortization of term debt and
changes in revolving credit usage in the ordinary course of business, and (iv)
there has not been any material adverse change in or affecting the business,
operations, properties, assets, or condition (financial or otherwise) of the
Company or any Subsidiary.
2.10 No Defaults. Except as set forth on Schedule 2.10 and
except where a default or event of default does not constitute a Material
Adverse Event, no default or event of default by the Company or any Subsidiary
exists under this Agreement or any of the other Operative Documents, or under
any Applicable Contract, or other material instrument or agreement to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or its respective properties are bound or, to the knowledge of the Borrowers,
affected, and to the knowledge of the Borrowers no event has occurred and is
continuing that with notice or the passage of time or both would constitute a
default or event of default thereunder.
2.11 Compliance With Law. The Company and each Subsidiary are
in compliance with all foreign, federal, state or local laws, regulations,
decrees and orders applicable to them (including but not limited to the Foreign
Corrupt Practices Act, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), except to the
extent that noncompliance, in the aggregate, does not constitute a Material
Adverse Event.
2.12 Taxes. Except as set forth on Schedule 2.12, the Company
and its Subsidiaries have filed or caused to be filed all federal, state and
local income, excise and franchise tax returns for taxable years ending during
calendar years 1995, 1996, and 1997 required to be filed (except for returns
that have been appropriately extended), and have paid, or provided for the
payment of, all taxes shown to be due and payable on said returns and all other
taxes, impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency with
respect thereto (other than taxes, impositions, assessments, fees and charges
currently being contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved), and the Borrowers do not know of any
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proposed assessment for additional taxes or any basis therefor. No tax liens
(which have not been released) have been filed against the Company or its
Subsidiaries or any of their properties.
2.13 Certain Transactions. Except as set forth in the filings
made by the Company with the SEC and except as to indebtedness incurred in the
ordinary course of business and approved by the Board of Directors of the
Company, neither the Company nor any Subsidiary is indebted, directly or
indirectly, to any of its officers or directors, or to their respective spouses
or children, or to any of their affiliates, in excess of an aggregate amount of
$60,000, and none of such officers or directors or any member of their immediate
families or affiliates, is indebted to the Company or any Subsidiary in excess
of an aggregate amount of $60,000, or has any direct or indirect ownership
interest in any firm or corporation with which the Company or any Subsidiary is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company or any Subsidiary, except as set
forth on Schedule 2.13. Except as set forth in the registration statements or
periodic reports filed by the Company with the SEC, no officer or director of
the Company or any Subsidiary or any member of their immediate families or
affiliates is, directly or indirectly, interested in any contract with the
Company or any Subsidiary that would require disclosure under Item 404 of
Regulation S-K. Neither the Company nor any Subsidiary is a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation, other
than guaranties by the Company of indebtedness or obligations of Wholly-owned
Subsidiaries permitted by Section 5.11.
2.14 Title to Property. The Company and each Subsidiary has
good and marketable title to all real and personal property owned by it, free
and clear of all liens, security interests, pledges, encumbrances, claims and
restrictions of every kind and nature whatsoever, except as disclosed on
Schedule 2.14. Any real property and buildings held under lease by the Company
or any Subsidiary are held under valid existing and enforceable leases, and to
the best of the Borrowers knowledge no default has occurred or is continuing
thereunder which might result in any material adverse change in the business,
prospects, financial conditions or results of operations of the Company and its
Subsidiaries taken as a whole.
2.15 Intellectual Property.
(a) Except as set forth in Schedule 2.15, or for
items that do not constitute a Material Adverse Event, to the Borrowers
knowledge, each of the Company and the Co-Maker is the lawful owner or has a
valid right to use the proprietary information used in its business free and
clear of any claim, right, trademark, patent or copyright protection of any
third party; provided, however, that this paragraph (a) shall not be deemed to
include any representation regarding the absence of infringements or conflicts
with the rights of others, which representation is made only in paragraph (c)
hereof. As used herein, "proprietary information" includes without limitation
(i) any computer software and any documentation, inventions, and technical and
nontechnical data related thereto, and (ii) other documentation, inventions and
data related to patterns, plans, methods, techniques, drawings, finances,
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customer lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used by the
Company or any Subsidiary or marketing studies conducted by the Company or any
Subsidiary, all of which the Borrowers consider to be commercially important and
competitively sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business.
(b) Except as set forth in Schedule 2.15, to the
Borrowers knowledge, each of the Company and the Co-Maker has good and
marketable title to or has a valid right to use all patents, trademarks, trade
names, service marks, copyrights or other intangible property rights, and
registrations or applications for registration thereof, owned by the Company or
any Subsidiary or used or required by the Company or any Subsidiary in the
operation of its business as presently being conducted; provided, however, that
this paragraph (b) shall not be deemed to include any representation regarding
the absence of infringements or conflicts with the rights of others, which
representation is made only in paragraph (c) hereof.
(c) Except as disclosed on Schedule 2.15, neither
Borrower has any knowledge of any infringements or conflicts by the Company or
any Subsidiary with asserted rights of others with respect to copyrights,
patents, trademarks, service marks, trade names, trade secrets or other
intangible property rights or know-how which constitute a Material Adverse
Event. To the Company's and the Co-Makers knowledge, no products or processes of
the Company or the Co-Maker infringe or conflict with any rights of patent or
copyright, or any discovery, invention, product or process, that is the subject
of a patent or copyright application or registration known to the Company or the
Co-Maker. Each of the Company and the Co-Maker follows such procedures as the
Company or the Co-Maker deems necessary or appropriate to provide reasonable
protection of the Company's or the Co-Makers trade secrets and proprietary
rights in intellectual property of all kinds. To the knowledge of the Company
and the Co-Maker, no person employed by or affiliated with the Company or the
Co-Maker has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer, and to the knowledge of the
Company and the Co-Maker, no person employed by or affiliated with the Company
or the Co-Maker has violated any confidential relationship that such person may
have had with any third person, in connection with the development, manufacture
or sale of any product or proposed product or the development or sale of any
service or proposed service of the Company or the Co-Maker.
2.16 Environmental Matters. Each of the Company and the
Co-Maker has duly complied in all material respects with, and its business,
operations, assets, equipment, property, leaseholds or other facilities are in
compliance in all material respects with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder, except to the extent that the
violation thereof does not constitute a Material Adverse Event. Each of the
Company and the Co-Maker has been issued and will maintain all required material
federal, state and local permits, licenses, certificates and approvals relating
to (i) air emissions; (ii) discharges to surface water or groundwater; (iii)
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noise emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
(which shall include any and all such materials listed in any federal, state or
local law, code or ordinance and all rules and regulations promulgated
thereunder as hazardous or potentially hazardous); or (vi) other environmental,
health or safety matters, except to the extent that the violation thereof does
not constitute a Material Adverse Event. Except as noted on Schedule 2.16,
neither Borrower has received notice of, and neither Borrower knows of, a
material violation of any federal, state or local environmental, health or
safety laws, codes or ordinances, and any rules or regulations promulgated
thereunder with respect to its businesses, operations, assets, equipment,
property, leaseholds, or other facilities. Except in accordance with a valid
governmental permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (i) the air; (ii) soils, or
any improvements located thereon; (iii) surface water or groundwater; or (iv)
the sewer, septic system or waste treatment, storage or disposal system
servicing the premises, of any toxic or hazardous substances or wastes at or
from the premises of the Company or the Co-Maker, except to the extent that the
violation thereof does not constitute a Material Adverse Event. To the best of
its knowledge, neither Borrower has any material indebtedness, obligation or
liability (absolute or contingent, matured or not matured), with respect to the
storage, treatment, cleanup or disposal of any solid wastes, hazardous wastes or
other toxic or hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current regulation,
law or statute regarding such storage, treatment, cleanup or disposal).
2.17 Accounting Matters. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for the assets of the
Company and each of its Subsidiaries; (iii) access to the assets of the Company
and each of its Subsidiaries is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets of the Company and each of its Subsidiaries are compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2.18 SBA Forms. The information set forth on the Small
Business Administration ("SBA") forms referred to in Section 4.10 delivered to
Purchaser is true and correct. The Company and the Co-Maker are "small business
concerns" as such term is defined in 13 C.F.R. 107.50 and each complies with all
applicable size standards specified in 13 C.F.R. 121.301.
2.19 Prior Sales. All offers and sales of the Company's
capital stock prior to the date hereof were at all relevant times (i) exempt
from the registration requirements of the Securities Act or were duly registered
under the Securities Act, and (ii) were duly registered or were the subject of
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an available exemption from the registration requirements of all applicable
state securities or Blue Sky laws.
2.20 Regulatory Compliance. Except as set forth on Schedule
2.20, the conduct of the business and the ownership of the assets of the
Borrowers is not dependent on any license, permit, approval, waiver or other
authorization of any federal, state or local governmental or regulatory body
which the Company or the Co-Maker has not obtained, except to the extent that
the absence thereof does not constitute a Material Adverse Event. All material
licenses, permits and authorizations held by the Company or the Co-Maker are in
full force and effect.
2.21 Margin Regulations. Neither the Company nor the Co-Maker
is engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock. No proceeds received pursuant to this Agreement will be
used to purchase or carry any equity security of a class which is registered
pursuant to Section 12 of the Exchange Act.
2.22 [Reserved].
2.23 Limited Offering. Subject in part to the truth and
accuracy of Purchaser's representations set forth in this Agreement, the offer,
sale and issuance of the Debentures is exempt from the registration requirements
of the Securities Act, and neither the Company nor the Co-Maker nor any
authorized agent acting on either of their behalf has taken or will take any
action hereafter that would cause the loss of such exemption.
2.24 Registration Obligations. Except as described in Schedule
2.24, and except with respect to any registration statement on Form S-8 to be
filed in connection with the Company's stock option plan, the Company is not
under any obligation to register under the Securities Act or the Trust Indenture
Act of 1939, as amended, any of its presently outstanding securities or any of
its securities that are proposed to be subsequently issued.
2.25 Insurance. The Company has maintained, and has caused
each Subsidiary to maintain, insurance coverage with respect to their respective
properties and business in such forms and amounts and against such risks,
casualties and contingencies as are reasonable and customary for corporations of
comparable size and condition (financial and otherwise) engaged in the same or a
similar business and owning and operating similar properties.
2.26 Governmental Consents. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company or the
Co-Maker in connection with the valid execution, delivery, or performance of
this Agreement, except such filings as have been made prior to the Closing, and
except notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act or such post-closing filings
as may be required under applicable securities laws, which will be timely filed
within the applicable periods therefor.
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2.27 Employees. To the best of the Borrowers knowledge, there
is no strike, labor dispute or union organization activity pending or threatened
between the Company or the Co-Maker and their employees. None of either
Borrowers employees belongs to any union or collective bargaining unit. Each of
the Company and the Co-Maker has complied in all material respects with all
applicable state and federal equal opportunity and other laws related to
employment. To the best of the Borrowers knowledge, no employee of the Company
or the Co-Maker is in violation of any judgment, decree, or order, or any term
of any employment contract, patent disclosure agreement, or other contract or
agreement relating to the relationship of any such employee with the Company or
the Co-Maker or any other party because of the nature of the business conducted
or presently proposed to be conducted by the Company or the Co-Maker or to the
use by the employee of his best efforts with respect to such business. Other
than as set forth on Schedule 2.27, neither the Company nor the Co-Maker is a
party to or bound by any employment contract, deferred compensation agreement,
bonus plan, incentive plan, profit sharing plan or retirement agreement. Neither
the Company nor the Co-Maker is aware that any officer or key employee, or that
any group of key employees, intends to terminate employment with the Company or
the Co-Maker, nor does the Company or the Co-Maker have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to notice obligations to employees and wrongful termination of employees
and to existing employment contracts set forth on Schedule 2.27, the employment
of each officer and employee of the Company or the Co-Maker is terminable at the
will of the Company or the Co-Maker.
2.28 ERISA. Each of the Company and the Co-Maker is in
compliance in all material respects with all applicable provisions of ERISA.
Except as disclosed in Schedule 2.28, neither a reportable event nor a
prohibited transaction (as defined in ERISA) has occurred and is continuing with
respect to any "pension plan" maintained by either Borrower (as such term is
defined in ERISA, a "Plan"); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation (together with any
entity succeeding to or all of its functions, the "PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Company nor any commonly
controlled entity (as defined in ERISA) has completely or partially withdrawn
from a multiemployer plan (as defined in ERISA). The Company and each commonly
controlled entity has met its minimum funding requirements under ERISA with
respect to all of its Plans and the present fair market value of all Plan
property exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA and the regulations thereunder for calculating the
potential liability of the Company or any commonly controlled entity to the PBGC
or the Plan under Title IV or ERISA; and neither the Company nor any commonly
controlled entity has incurred any liability to the PBGC under ERISA.
2.29 Fees/Commissions. Except as set forth on Schedule 2.29,
neither Borrower has agreed to pay any finder's fee, commission, origination fee
or other fee or charge to any person or entity with respect to or as a result of
the consummation of the transactions contemplated hereunder, except for (i) the
processing fee due to Purchaser under Section 1.5, and (ii) reimbursement of
Purchasers expenses under Section 12.1.
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2.30 Survival. The representations and warranties of the
Company and the Co-Maker contained in this Agreement are made as of the date
hereof and shall survive in accordance with Section 12.5 hereof.
3. Representations and Warranties of Purchaser. The Purchaser hereby
represents to the Company and the Co-Maker as follows:
3.1 Corporate Status. Purchaser is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
California and has the corporate power to own and operate its properties, to
carry on its business as now conducted and to enter into and to perform its
obligations under this Agreement and any other document executed or delivered by
Purchaser in connection herewith.
3.2 Authorization. Purchaser has full legal right, power and
authority to enter into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection herewith,
without the consent or approval of any other person, firm, governmental agency
or other legal entity. The execution and delivery of this Agreement and any
other document executed and delivered by Purchaser in connection herewith, and
the performance by Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all necessary
governmental approvals, if any were required, and do not and will not contravene
or conflict with (i) any material agreement to which Purchaser is a party or by
which it or any of its properties is bound, or constitute a default thereunder,
or result in the creation or imposition of any lien, charge, security interest
or encumbrance of any nature upon any of the property or assets of Purchaser
pursuant to the terms of any such agreement or instrument, or (ii) violate any
provision of law or any applicable judgment, ordinance, regulation or order of
any court or governmental agency. The officer(s) executing this Agreement and
any other document executed and delivered by Purchaser in connection herewith,
is duly authorized to act on behalf of Purchaser.
3.3 Validity and Binding Effect. This Agreement and any other
document executed and delivered by Purchaser in connection herewith have been
authorized by all requisite action, and are the legal, valid and binding
obligations of the Purchaser, enforceable against it in accordance with their
respective terms, subject to such limitations on enforceability as may exist
under equitable principles of law or the application of bankruptcy or insolvency
laws.
3.4 Accredited Investor, Investment Intent. Purchaser is an
"accredited investor" under Rule 501(a) under the Securities Act. Purchaser is
acquiring the Debentures and the Initial Warrant, and will acquire any
Contingent Warrants, for its own account, for investment, and not with a view to
the distribution or resale thereof, in whole or in part, in violation of the
Securities Act or any applicable state securities law, and Purchaser has no
present intention of selling, negotiating or otherwise disposing of the
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Debentures or Initial Warrant. Purchaser has relied solely upon an independent
investigation made by it and its representatives, if any, and has, prior to the
date hereof, been given access to and the opportunity to examine all books and
records of the Company, and all material contracts and documents of the Company.
In making its investment decision to purchase the Debentures and Initial
Warrant, Purchaser is not relying on any oral or written representations or
assurances from the Company or any other person or any representation of the
Company or any other person other than as set forth in this Agreement. Purchaser
has such experience in business and financial matters that it is capable of
evaluating the risk of its investment and determining the suitability of its
investment.
3.5 Survival. The representations and warranties of the
Purchaser contained in this Agreement shall survive in accordance with Section
12.5 hereof.
4. Conditions Precedent to the Obligations of Purchaser. The obligation
of Purchaser to purchase and pay for the Debentures on the Closing Date shall be
subject to the satisfaction, on or before the Closing Date, of each of the
conditions set forth below. These conditions are for Purchaser's sole benefit
and may be waived by Purchaser at any time in its sole discretion.
4.1 Representations and Warranties. The representations and
warranties of the Company and the Co-Maker contained in this Agreement and in
any Schedule hereto or any document or instrument delivered to Purchaser or its
representatives hereunder, shall have been true and correct when made and shall
be true and correct in all material respects as of the Closing Date as if made
on such date, except to the extent such representations and warranties expressly
relate to a specific date. Each of the Company and the Co-Maker shall have duly
performed all of the covenants and agreements to be performed by it hereunder on
or prior to the Closing Date.
4.2 Officer's Certificate. The Company and the Co-Maker shall
have delivered to Purchaser a certificate, dated the Closing Date, signed by the
President or a Vice President of each Borrower, substantially in the form
attached hereto as Exhibit C.
4.3 Satisfactory Proceedings and Secretary's Certificate. All
proceedings taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to Purchaser and Purchaser's counsel, and the
Company and the Co-Maker shall have delivered to Purchaser a certificate, dated
the Closing Date, signed by the Secretary or an Assistant Secretary of each
Borrower, substantially in the form attached hereto as Exhibit D.
4.4 Legal Opinion. Purchaser shall have received the opinion
of counsel for the Company and the Co-Maker, dated the Closing Date, addressed
to Purchaser, in form and substance satisfactory to Purchaser's counsel, and
covering the matters set forth in Exhibit E hereto.
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4.5 Authorization Agreement. Each Borrower shall have
delivered to Purchaser an Authorization Agreement for Pre-Authorized Payments
(Debit), dated the Closing Date, executed by a duly authorized officer of each
Borrower, in the form attached hereto as Exhibit F.
4.6 Existence and Authority. The Company shall have delivered
to Purchaser the following certificates of public officials, in each case as of
a date within fifteen days of the Closing Date:
(a) the certificate or articles of incorporation of
the Company and each of the Subsidiaries, certified by the Secretary of State or
other appropriate official in the jurisdiction in which each such entity is
incorporated;
(b) a certificate as to the legal existence and good
standing of the Company and each of the Subsidiaries issued by the Secretary of
State or other appropriate official of the jurisdiction in which each such
entity is incorporated; and
(c) a certificate as to the tax status of the Company
and each of the Subsidiaries issued by the Secretary of State or other
appropriate official of the jurisdiction in which each such entity is
incorporated.
4.7 Delivery of Operative Documents. The Company and the
Co-Maker shall have delivered to Purchaser the following documents, executed by
the Company or the Co-Maker as appropriate and dated the Closing Date:
(a) the Debenture;
(b) the Initial Warrant;
(c) the Security Agreement in the form of Exhibit G,
executed by the Company and the Co-Maker;
(d) [reserved];
(e) the Financing Statements;
(f) Warrant Valuation Letter substantially in the
form of Exhibit H;
(g) Closing Statement substantially in the form of
Exhibit I; and
(h) Registration Rights Agreement between the Company
and the Purchaser in the form of Exhibit J.
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s
4.8 Required Consents. Any consents or approvals required to
be obtained from any third party, including any holder of indebtedness or any
outstanding security of the Company or the Co-Maker, and any amendments of
agreements which shall be necessary to permit the consummation of the
transactions contemplated hereby on the Closing Date, shall have been obtained
and all such consents or amendments shall be satisfactory in form and substance
to Purchaser and Purchaser's counsel.
4.9 Waiver of Conditions. If on the Closing Date the Company
or the Co-Maker fails to tender to Purchaser the Debentures to be issued to
Purchaser, or if the conditions specified in this Section 4 have not been
fulfilled, Purchaser may thereupon elect to be relieved of all further
obligations under this Agreement and shall (i) be paid the processing fee
provided by Section 1.5, and (ii) be paid the expenses provided by Section 12.1,
which processing fee and expense reimbursement shall be treated as liquidated
damages and as Purchaser's sole remedy if on the Closing Date the Company or the
Co-Maker fails to tender to Purchaser the Debentures or if the conditions
specified in this Section 4 have not been fulfilled. Without limiting the
foregoing, if the conditions specified in this Section 4 have not been
fulfilled, Purchaser may waive compliance by the Company and the Co-Maker with
any such condition to such extent as Purchaser, in Purchaser's sole discretion,
may determine. Nothing in this Section 4.9 shall operate to relieve the Company
or the Co-Maker of any of its obligations hereunder, or to waive any of
Purchaser's rights against the Company or the Co-Maker.
4.10 Small Business Concern. The Company and the Co-Maker
shall have completed and delivered to Purchaser in form proper for filing with
the SBA, the following SBA forms identified by title and number as Size Status
Declaration No. 480 and Assurance of Compliance No. 652, and the Company and the
Co-Maker shall have completed the information requested by Purchaser for Parts A
and B of SBA form Portfolio Financing Report No. 1031.
5. Covenants of the Company and the Co-Maker. From and after the
Closing Date and continuing so long as any amount remains unpaid on any of the
Debentures,
5.1 Use of Proceeds. The Borrowers shall use the proceeds of
the Debentures solely for the purpose of acquiring M.O.S. Plastics, Inc.
("MOS").
5.2 Corporate Existence, Etc. The Company will preserve and
keep in force and effect, and will cause each Subsidiary to preserve and keep in
force and effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a foreign
corporation in each jurisdiction where such qualification is required by
applicable law except where the failure to so qualify would not have a Material
Adverse Effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole, and all material licenses and
permits necessary to the proper conduct of its business.
5.3 Maintenance of Properties, Etc. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, its properties and assets which are used or useful in the conduct of its
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business (whether owned in fee or pursuant to a leasehold interest) in good
repair and working order, excepting normal wear and tear, and from time to time
will make all necessary repairs, replacements, renewals and additions required
in the opinion of the Company to maintain the efficiency thereof.
5.4 Nature of Business. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries on the date of this
Agreement.
5.5 Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage with respect to their respective
properties and business in such forms and amounts and against such risks,
casualties and contingencies as are customary for corporations of comparable
size and condition (financial and otherwise) engaged in the same or a similar
business and owning and operating similar properties.
5.6 Taxes, Claims for Labor and Materials. The Company will
promptly pay and discharge, and will cause each Subsidiary promptly to pay and
discharge, (i) all lawful taxes, assessments and governmental charges or levies
imposed upon the property or business of the Company or such Subsidiary,
respectively, (ii) all trade accounts payable in accordance with usual and
customary business terms, and (iii) all claims for work, labor or materials,
which if unpaid might become a lien or charge upon any property of the Company
or such Subsidiary; provided the Company or such Subsidiary shall not be
required to pay any such tax, assessment, charge, levy, account payable or claim
if (i) the validity, applicability or amount thereof is being contested in good
faith by appropriate actions or proceedings which will prevent the forfeiture or
sale of any property of the Company or such Subsidiary or any material
interference with the use thereof by the Company or such Subsidiary, and (ii)
the Company or such Subsidiary shall set aside on its books, reserves deemed by
it to be adequate with respect thereto.
5.7 Compliance with Laws, Agreements, Etc. Except where
failure to do so does not and would not constitute a Material Adverse Event,
each Borrower shall maintain its business operations and property owned or used
in connection therewith in compliance with (i) all applicable federal, state and
local laws, regulations and ordinances, and such laws, regulations and
ordinances of foreign jurisdictions, governing such business operations and the
use and ownership of such property, and (ii) all agreements, licenses,
franchises, indentures and mortgages to which it is a party or by which it or
any of its properties is bound.
5.8 ERISA Matters. If the Company has in effect, or hereafter
institutes, a Plan, then the following covenants shall be applicable during such
period as any such Plan shall be in effect: (i) throughout the existence of the
Plan, the Company's contributions under the Plan will meet the minimum funding
standards required by ERISA and the Company will not institute a distress
termination of the Plan; and (ii) the Company will send to Purchaser a copy of
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any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the PBGC, at the time that such notice is so
filed.
5.9 Books and Records: Rights of Inspection. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which entries will be made of all dealings or transactions of or in relation
to the business and affairs of the Company or such Subsidiary, in accordance
with GAAP consistently maintained. The Company shall permit a representative of
Purchaser to visit any of its properties and inspect its corporate books and
financial records, and will discuss its accounts, affairs and finances with a
representative of Purchaser, during normal business hours of the Company, at all
such times as Purchaser may reasonably request upon reasonable prior notice and
without undue disruption of the business of the Company.
5.10 Reports. The Company will furnish to Purchaser the
following information, which information shall be subject to confidential
treatment by Purchaser:
(a) Monthly Statements. Within 30 days after the end
of each fiscal month, beginning the month of February, 1998, monthly internal
financial reports which at a minimum shall consist of a balance sheet of the
Company and balance sheets of each Subsidiary as of the close of such month and
related statements of income and cash flows for the one-month period then ended,
as well as any additional financial reports for such period routinely prepared
with respect to the Company and the Subsidiaries;
(b) Quarterly Statements. As soon as available and in
any event within 45 days after the end of each quarterly fiscal period (except
the last) of each fiscal year, copies of:
(i) consolidated and consolidating balance
sheets of the Company and Subsidiaries as of the close of the quarterly fiscal
period then ended, setting forth in comparative form the consolidated and
consolidating figures for the corresponding period of the preceding fiscal year,
(ii) consolidated and consolidating
statements of income of the Company and Subsidiaries for the quarterly fiscal
period then ended, setting forth in comparative form the consolidated and
consolidating figures for the corresponding period of the preceding fiscal year,
and
(iii) consolidated and consolidating
statements of cash flows of the Company and Subsidiaries for the portion of the
fiscal year ending with such quarterly fiscal period, setting forth in
comparative form the consolidated and consolidating figures for the
corresponding period of the preceding fiscal year,
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all in reasonable detail and accompanied by a certificate of an authorized
financial officer of the Company that such financial statements fairly present
the financial condition and results of operations and cash flows of the Company
at and for the periods presented, subject to normal year-end adjustment;
(c) Annual Statements. As soon as available and in
any event within 90 days after the close of each fiscal year of the Company,
copies of:
(i) consolidated and consolidating balance
sheets of the Company and Subsidiaries as of the close of such fiscal year, and
(ii) consolidated and consolidating
statements of income and consolidated and consolidating statements of changes in
stockholders equity and cash flows of the Company and Subsidiaries for such
fiscal year,
in each case setting forth in comparative form the consolidated and
consolidating figures for the preceding fiscal year, all in reasonable detail
and accompanied by an unqualified report thereon of Marcum & Kliegman, LLP or
another firm of independent public accountants reasonably satisfactory to
Purchaser;
(d) Special Audit Reports. Promptly upon receipt
thereof, one copy of each interim or special audit made by independent
accountants of the books of the Company or any Subsidiary;
(e) SEC and Other Reports. Promptly upon their
becoming available, one copy of each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally and of each
periodic or current report, and any registration statement or prospectus filed
by the Company or any Subsidiary with any securities exchange or the SEC or any
successor agency, and copies of any material orders in any proceedings to which
the Company or any of its Subsidiaries is a party, issued by any governmental
agency, federal or state, having jurisdiction over the Company or any of its
Subsidiaries. The Company specifically covenants to use reasonable commercial
efforts to timely file each such item required to be filed with the SEC and each
state requiring securities laws filings; and
(f) Requested Information. With reasonable
promptness, such financial data and other information relating to the business
of the Company as Purchaser may from time to time reasonably request.
5.11 Limitations on Debt and Obligations. Except as to
(i) Indebtedness existing on the date hereof
and reflected on (a) the Company's unaudited balance sheet as of January 25,
1998, and (b) Schedule 5.11, as the same Indebtedness may be extended or renewed
(but not increased);
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(ii) the Indebtedness incurred pursuant to
the Debentures;
(iii) accounts payable and other trade
payables incurred in the ordinary course of business;
(iv) purchase money indebtedness incurred in
the purchase of equipment and other property used by the Company or any
Subsidiary in the ordinary course of business, such purchase money
indebtedness not to exceed an aggregate amount of principal and accrued
interest thereon of $1,000,000 at any time outstanding, in addition to
the amount currently permitted under clause (i);
(v) obligations of the Company or any
Subsidiary pursuant to capitalized leases;
(vi) Indebtedness that refinances secured
Indebtedness under clause (i) above, provided that the collateral for
such new Indebtedness is the same type of collateral for the refinanced
secured Indebtedness and the aggregate principal amount of such
Indebtedness does not exceed the maximum principal amount outstanding
and/or committed under the refinanced Indebtedness plus interest
accrued to the date of refinancing; and
(vii) Indebtedness incurred in connection
with the acquisition of a business (including the assets of a
business), provided such Indebtedness is secured solely by the assets
of the business so acquired, and is otherwise nonrecourse to the
Company and its Subsidiaries;
the Company and its Subsidiaries shall not, on a consolidated basis, incur
additional indebtedness which is senior to or pari passu with the Debentures in
excess of an aggregate amount of principal and interest thereon, at any time
outstanding, of (A) $50,000.00, plus (B) such amounts of principal that are paid
and may not be reborrowed under the Senior Credit Agreement, plus (C) the
additional Senior Debt permitted by the Subordination Agreement, without the
prior written consent of Purchaser. Notwithstanding the foregoing, the aggregate
principal amount of any Indebtedness secured by the accounts receivable and/or
inventory of the Company and its Subsidiaries (whether such Indebtedness is
permitted under clause (i) or clause (vi)), may be increased based upon the
amount of the accounts receivable and/or inventory eligible as collateral, so
long as the ratio of the permitted outstanding principal amount of such
Indebtedness to "eligible receivables" and/or "inventory" does not increase from
the ratios permitted as of the date hereof (howsoever such terms are defined but
provided such definitions remain substantially consistent).
5.12 Guaranties. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, become
or be liable in respect of any Guaranty except Guaranties by the Company or any
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Subsidiary which are limited in maximum financial exposure on a consolidated
basis to the amounts set forth in, and are incurred in compliance with, the
provisions of Section 5.11 of this Agreement.
5.13 Limitation on Liens. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, create
or incur, or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (collectively, "Liens") on its
or their property or assets, whether now owned or hereafter acquired, or upon
any income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the payment of
its or their general creditors, or acquire or agree to acquire, or permit any
Subsidiary to acquire, any property or assets upon conditional sales agreement
or other title retention devices, except those Liens which exist as of the date
hereof as set forth on Schedule 2.14, Liens securing the Senior Debt in
accordance with the Subordination Agreement; Liens on accounts receivable and/or
inventory of the Company permitted by Section 5.11, Liens securing Indebtedness
permitted by Section 5.11(vi) and Section 5.11(vii), and except:
(a) purchase money liens on and security interests in
equipment hereafter acquired securing Indebtedness permitted by Section 5.11(iv)
and Section 5.11(v) of this Agreement, provided that such liens and security
interests attach only to the equipment so acquired and do not encumber any other
property of the Company or any Subsidiary;
(b) liens for taxes not yet payable or being
contested in good faith by appropriate proceedings and for which adequate
reserves have been provided on the books of the Company or a Subsidiary;
(c) mechanics', materialmen's, warehousemen's,
carriers' or other like liens arising in the ordinary course of business of the
Company or any Subsidiary, if any, arising with respect to obligations which are
not overdue for a period longer than 90 days or which are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
provided on the books of the Company or a Subsidiary;
(d) deposits or pledges to secure the performance of
bids, tenders, contracts, leases, public or statutory obligations, surety or
appeal bonds or other deposits or pledges for purposes of a like general nature
or given in the ordinary course of business by the Company or any Subsidiary;
and
(e) other encumbrances consisting of zoning
restrictions, easements, restrictions on the use of real property or minor
irregularities in the title thereto, which do not arise in connection with the
borrowing of, or any obligation for the payment of, money and which, in the
aggregate, do not materially detract from the normal use of the premises or the
business, properties or assets of the Company or any Subsidiary.
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5.14 Restricted Payments. Except as set forth on Schedule
5.14, the Company will not, without the prior written consent of Purchaser and
except as hereinafter provided:
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class except dividends or
other distributions payable solely in shares of Common Stock of the Company; or
(b) directly or indirectly, or through any
Subsidiary, purchase, redeem or retire any shares of its capital stock of any
class or any warrants, rights or options to purchase or acquire any shares of
its capital stock (other than in exchange for or out of the net proceeds to the
Company from the substantially concurrent issue or sale of other shares of
capital stock of the Company or warrants, rights or options to purchase or
acquire any shares of its capital stock); or
(c) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in respect of its capital
stock, provided, that distributions from a Subsidiary to the Company, or from a
Subsidiary to another Subsidiary, shall be permitted; or
(d) make any payment or distribution, either directly
or indirectly or through any Subsidiary, with respect to any indebtedness of the
Company or any Subsidiary, to any Affiliate of the Company or any Subsidiary.
5.15 Investments. Except as set forth on Schedule 5.15, the
Company will not, and will not permit any Subsidiary to, make any Investments
outside the ordinary course of business of the Company or any Subsidiary,
without the prior written consent of Purchaser, except:
(a) Investments in direct obligations of the United
States of America, or any agency or instrumentality of the United States of
America, the payment or guaranty of which constitutes a full faith and credit
obligation of the United States of America, in either case maturing in twelve
months or less from the date of acquisition thereof;
(b) Investments in certificates of deposit maturing
within one year from the date of origin, issued by a bank or trust company
organized under the laws of the United States or any state thereof, having
capital, surplus and undivided profits aggregating at least $100,000,000 and
whose long-term certificates of deposit are, at the time of acquisition thereof
by Company or a Subsidiary, rated AA or better by Standard & Poor's Corporation
or AA or better by Moody's Investors Service, Inc.;
(c) Investments in commercial paper maturing in 270
days or less from the date of issuance which, at the time of acquisition by the
Company or any Subsidiary, is accorded the highest rating by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or another nationally recognized
credit rating agency of similar standing;
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(d) Loans or advances in the usual and ordinary
course of business to officers, directors and employees for expenses (including
moving expenses related to a transfer) incidental to carrying on the business of
the Company or any Subsidiary;
(e) receivables arising from the sale of goods and
services in the ordinary course of business of the Company and its Subsidiaries;
and
(f) acquisitions, mergers, and consolidations
permissible under Section 5.16(a)(ii).
5.16 Mergers, Consolidations and Sales of Assets.
(a) Without the prior written consent of Purchaser,
the Company will not, and will not permit any Subsidiary to (i) consolidate with
or be a party to a merger or share exchange with any other corporation, or (ii)
sell, lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section 5.16) of the assets of Company and its
Subsidiaries; provided, however, that:
(i) any Subsidiary may merge or consolidate
with or into the Company or any Wholly-owned Subsidiary so long as in
any merger or consolidation involving the Company, the Company shall be
the surviving or continuing corporation; and
(ii) the Company (or a Subsidiary) may
consolidate or merge with any other corporation, or acquire all or a
substantial portion of the assets of any other entity, provided that
such corporation or entity is engaged primarily in the Company's
(Subsidiary's) general line of business on a consolidated basis as
conducted on the date hereof, and further provided that (A) the Company
(the Subsidiary) shall be the surviving or continuing corporation, (B)
at the time of such consolidation or merger and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing, (C) such consolidation or merger shall be deemed in the
good faith estimate of the Board of Directors to be a consolidation or
merger that will be accretive to earnings per share in the fiscal year
following the consolidation or merger, and (D) such consolidation or
merger shall be approved unanimously by the Company's Board of
Directors; and
(iii) any Subsidiary may sell, lease or
otherwise dispose of all or any substantial part of its assets to the
Company or any other Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser,
the Company will not permit any Subsidiary to issue or sell any shares of stock
of any class (including as "stock" for the purposes of this Section 5.16, any
warrants, rights or options to purchase or otherwise acquire stock or other
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securities exchangeable for or convertible into stock) of such Subsidiary to any
person other than the Company or a Wholly-owned Subsidiary, except for the
purpose of qualifying directors, or except in satisfaction of the validly
preexisting preemptive rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate interest in
such Subsidiary.
(c) Without the prior written consent of Purchaser,
the Company will not sell, transfer or otherwise dispose of any shares of stock
in any Subsidiary (except to qualify directors) or any indebtedness of any
Subsidiary, and will not permit any Subsidiary to sell, transfer or otherwise
dispose of (except to the Company or a Wholly-owned Subsidiary) any shares of
stock or any indebtedness of any other Subsidiary, unless all of the following
conditions are met:
(i) simultaneously with such sale, transfer
or disposition, all shares of stock and all indebtedness of such
Subsidiary at the time owned by the Company and by every other
Subsidiary shall be sold, transferred or disposed of as an entirety;
(ii) the Board of Directors of the Company
shall have determined, as evidenced by a resolution thereof, that the
retention of such stock or indebtedness is no longer in the best
interests of the Company, or that the sale, transfer or disposition
thereof is in the best interests of the Company;
(iii) such stock or Indebtedness is sold,
transferred or otherwise disposed of to a person, for a cash
consideration and on terms reasonably deemed by the Board of Directors
to be adequate and satisfactory;
(iv) the Subsidiary being disposed of shall
not have any continuing investment in the Company or any other
Subsidiary not being simultaneously disposed of; and
(v) such sale or other disposition does not
involve a substantial part (as hereinafter defined) of the assets of
the Company and its Subsidiaries taken as a whole.
Provided, that, notwithstanding this Section 5.16(c), without the prior written
consent of Purchaser, the Company shall not sell, transfer, or otherwise dispose
of any shares of stock of (i) the Co-Maker, or (ii) M.O.S. Plastics, Inc.
("MOS"), or any indebtedness of the Co-Maker or MOS, and will not permit any
Subsidiary to sell, transfer, or otherwise dispose of (except to the Company or
a Wholly-owned Subsidiary) any shares of stock or any indebtedness of the
Co-Maker or MOS.
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(d) As used in this Section 5.16, a sale, lease or
other disposition of assets shall be deemed to be a "substantial part" of the
assets of the Company and its Subsidiaries only if the book value of such
assets, when added to the book value of all other assets sold, leased or
otherwise disposed of by the Company and its Subsidiaries (other than in the
ordinary course of business) during the twelve month period ending on the date
of such sale, lease or other disposition, exceeds 25 percent of the consolidated
net tangible assets of the Company and its Subsidiaries determined as of the end
of the immediately preceding fiscal year.
5.17 Transactions with Affiliates. Except as set forth on
Schedule 5.17, without the prior written consent of Purchaser, the Company will
not, and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any officer, director or Affiliate (including,
without limitation, the purchase from, sale to, or exchange of property with, or
the rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than could be obtained in an arm's-length
transaction with a person other than an Affiliate, in each case as determined in
good faith by a majority of the disinterested directors of the Company.
5.18 Notice. The Company shall promptly upon the discovery
thereof give written notice to Purchaser of (i) the occurrence of any Default or
Event of Default under this Agreement, (ii) the occurrence of any material
default or material event of default under any other agreement providing for
Indebtedness of the Company or any Subsidiary or under a capitalized lease
obligation having a principal balance in excess of $500,000, (iii) any material
actions, suits or proceedings instituted by any person against the Company or a
Subsidiary or affecting any of the assets of the Company or any Subsidiary, or
(iv) any investigation initiated by, or any dispute between any governmental
regulatory body, on the one hand, and the Company or any Subsidiary, on the
other hand, which dispute might materially interfere with the normal operations
of the Company or any Subsidiary; provided, however, that Purchaser shall not be
required by this Agreement to disclose any such information provided in (iii) or
(iv) above to any third party other than Purchaser's counsel and except to the
extent compelled by law or otherwise authorized by the Company.
5.19 Board of Directors; Observer Rights. For so long as the
Purchaser or any Affiliate of Purchaser owns Debentures representing at least
25% of the original principal amount of the Debentures, the Company shall invite
one representative of Purchaser to attend, at the Company's expense, all
meetings of the Company's Board of Directors and all committees of the Company's
Board of Directors in a nonvoting observer capacity and, in this respect, shall
provide such representative copies of all notices and meeting agenda in advance
of such meetings and shall permit such representative to review all documents
and other materials provided to directors at such meetings. The Company shall
also provide Purchaser, in advance, with copies of all actions proposed to be
taken by the Board of Directors in lieu of meeting. Purchaser shall execute a
confidentiality and nondisclosure agreement with respect to any information
obtained by or provided to Purchasers representative.
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5.20 Annual Plan. The Company's Board of Directors shall adopt
no later than the thirtieth day of each fiscal year, a financial plan for the
Company, which shall include a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each month in
such fiscal year, and a projected balance sheet as of the end of each month in
such fiscal year (the "Annual Plan"). The Annual Plan may only be amended or
revised, in any material manner, with the approval of the Company's Board of
Directors.
5.21 Further Assurances. The Borrowers will take and cause to
be taken all actions reasonably requested by Purchaser to effect the
transactions contemplated by this Agreement and the other Operative Documents,
including but not limited to the execution and delivery of additional financing
statements and other security agreements granting Purchaser a lien upon the
tangible and intangible personal property of the Company and its Subsidiaries,
subject to the liens securing the Senior Debt and to other liens permitted under
Section 5.13.
6. Subordination of Debentures.
6.1 Subordination. The indebtedness evidenced by the
Debentures, including principal and interest, shall be subordinate and junior to
the prior payment of the indebtedness of the Company to the Senior Lenders as
described in the Senior Credit Agreement and as provided in the Subordination
Agreement, but otherwise the indebtedness evidenced by the Debentures shall not
be subordinate and junior to the prior payment of any other indebtedness of the
Company for borrowed money. The indebtedness evidenced by the Debentures shall
be senior in right of payment to all other Indebtedness of the Company which is
expressly stated to be subordinate or junior in any respect to other
Indebtedness of the Company.
6.2 Subrogation. Upon the prior payment in full of all Senior
Debt, the Purchaser shall be subrogated to the rights of the holders of the
Senior Debt to receive payments or distributions of assets of the Company
applicable to the Senior Debt until all amounts owing on the Debentures shall be
paid in full, and for the purpose of such subrogation, no payments or
distributions to the Purchaser otherwise payable or distributable to the holders
of Senior Debt shall, as between the Company, its creditors, other than the
holders of Senior Debt, and Purchaser, be deemed to be payment by the Company to
or on account of the Debentures, it being understood that the provisions of this
Section 6 are and are intended solely for the purpose of defining the relative
rights of Purchaser, on the one hand, and the holders of the Senior Debt, on the
other hand.
6.3 Borrowers Obligations Not Impaired. Nothing contained in
this Section 6 or in the Debentures is intended to or shall impair, as between
the Borrowers and Purchaser, the obligation of each Borrower, which is absolute
and unconditional, joint and several, to pay the Purchaser the principal of and
interest on the Debentures as and when the same shall become due and payable in
accordance with the terms of the Debentures, or is intended to or shall affect
the relative rights of the Purchaser other than with respect to the holders of
the Senior Debt, nor, except as expressly provided in this Section 6, shall
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anything herein or therein prevent the Purchaser from exercising all remedies
otherwise permitted by applicable law upon the occurrence of an Event of Default
under this Agreement or under the Debentures.
7. [Reserved].
8. Restrictions on Transfer; Registration Rights.
8.1 Legends; Restrictions on Transfer. Neither the Debentures
nor the shares of Common Stock issuable upon exercise of Warrants have been
registered under the Securities Act or any state securities laws. Each Debenture
issued pursuant to this Agreement and each stock certificate issued upon
exercise of Warrants shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW. THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT SUCH
REGISTRATION OR EXEMPTION THEREFROM.
8.2 Registration Rights.
The Company shall cause the Common Stock issuable upon exercise of
Warrants to be registered as provided in the Registration Rights Agreement.
9. Events of Default; Remedies.
9.1 Events of Default. The occurrence of any one of the
following shall constitute an "Event of Default" under this Agreement:
(a) Default shall occur in the payment of interest on
any Debenture when the same shall have become due, provided, that any such
default shall be curable within two business days after the Company receives
written notice thereof if the failure to make such payment when due was caused
by a financial institutions error in effecting an automatic debit transaction
against an account containing sufficient funds; or
(b) Default shall occur in the making of any payment
of the principal of any Debenture at the expressed or any accelerated maturity
date or at any date fixed by the Borrowers for prepayment, provided, that any
such default shall be curable within two business days after the Company
receives written notice thereof if the failure to make such payment when due was
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caused by a financial institutions error in effecting an automatic debit
transaction against an account containing sufficient funds; or
(c) Default shall be made in the payment of the
principal of or interest on any Indebtedness (other than the Debentures) of the
Company or any Subsidiary in excess of $500,000 and such default shall continue
beyond the period of grace, if any, allowed with respect thereto; or
(d) Default or the happening of any event shall occur
under any contract, agreement, lease, indenture or other instrument under which
any Indebtedness (other than the Debentures) of the Company or any Subsidiary in
excess of $500,000 may be accelerated and such default or event shall continue
for a period of time sufficient to permit the acceleration of the maturity of
any such Indebtedness of the Company or any Subsidiary outstanding thereunder;
or
(e) Default shall occur in the observance or
performance of any covenant or agreement contained in Sections 5.11 through 5.20
hereof which is not remedied within 30 days; or
(f) Default shall occur in the observance or
performance of any other provision of this Agreement which is not remedied
within 30 days after the earlier of (i) the date on which either the Company or
the Co-Maker first obtains knowledge of such default, and (ii) the date on which
written notice thereof is given to the Borrowers by the holder of any Debenture;
or
(g) Any representation or warranty made by the
Company or the Co-Maker herein, or made by the Company or the Co-Maker in any
statement or certificate furnished by the Company or the Co-Maker in connection
with the consummation of the issuance and delivery of the Debentures or
furnished by the Company or the Co-Maker pursuant hereto, is untrue in any
material respect as of the date of the issuance or making thereof and would have
a Material Adverse Effect, subject to the limitations on survival of Section
12.5; or
(h) Final judgments for the payment of money in
uninsured amounts aggregating in excess of $500,000, are outstanding against the
Company or any Subsidiary or against any property or assets of either and any
one of such judgments has remained unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of 30 days from the date of its entry; or
(i) The Company or any Subsidiary becomes insolvent
or bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Subsidiary
applies for or consents to the appointment of a custodian, trustee, liquidator,
or receiver for the Company or such Subsidiary or for the major part of the
property of either; or
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(j) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any Subsidiary or for the major part of the
property of either and is not discharged within 60 days after such appointment;
or
(k) Bankruptcy, reorganization, arrangement or
insolvency proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against the
Company or any Subsidiary and, if instituted against the company or any
Subsidiary, are consented to or are not dismissed within 60 days after such
institution.
(l) Michael A. Gibbs shall resign or be terminated,
other than for cause and other than as a result of death or disability, as
President of the Company and the Chief Executive Officer of AB Plastics
Corporation, and a successor acceptable to Purchaser shall not have been elected
within 90 days after such resignation or termination; provided, that if no such
successor is elected, an Event of Default shall be deemed to have occurred and
have been continuing from and after the date of such resignation or termination.
(m) Paul J. Iacono shall resign or be terminated,
other than for cause and other than as a result of death or disability, as Chief
Financial Officer and Vice President-Finance of the Company and of AB Plastics
Corporation, and a successor acceptable to Purchaser shall not have been elected
within 90 days after such resignation or termination; provided, that if no such
successor is elected, an Event of Default shall be deemed to have occurred and
have been continuing from and after the date of such resignation or termination.
(n) Any of Michael A. Gibbs, Geoffrey J.F. Gorman, or
any Affiliate of either Mr. Gibbs or Mr. Gorman, shall, without Purchaser's
prior written consent, either (i) sell, exchange, transfer, or otherwise dispose
of any shares of the Company's Common Stock at a price less than $7.50 per share
(subject to adjustment in the event of stock splits, stock dividends,
combinations of shares, recapitalizations, or other similar events occurring
hereafter), or (ii) sell, exchange, transfer, or otherwise dispose of more than
five percent of their respective holdings of the Company's Common Stock in any
calendar year.
9.2 Remedies Upon Default.
(a) If an Event of Default shall occur, and for so
long as such Event of Default continues, the interest rate on the Debentures
shall increase by 5% per annum, that is, to 17.25% per annum, until such Event
of Default is cured.
(b) For so long as an Event of Default shall
continue, Purchaser shall be entitled to appoint an additional representative to
attend, at the Company's expense, all meetings of the Company's Board of
Directors and all committees of the Company's Board of Directors in a nonvoting
observer capacity and, in this respect, shall provide such representative copies
of all notices and meeting agenda in advance of such meetings and shall permit
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such representative to review all documents and other materials provided to
directors at such meetings. The Company shall also provide Purchaser, in
advance, with copies of all actions proposed to be taken by the Board of
Directors in lieu of meeting. Purchaser shall execute a confidentiality and
nondisclosure agreement with respect to any information obtained by or provided
to Purchasers representative.
(c) When any Event of Default has occurred and is
continuing, or if the holder of any Debenture or of any other evidence of
indebtedness of the Company gives any notice or takes any other action with
respect to a claimed default, the Company agrees to give notice within three
Business Days of such event to all holders of the Debentures then outstanding.
9.3 Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of Section 9.1 has occurred and is
continuing, any holder of any Debenture may, and when any Event of Default
described in paragraphs (d) through (i), inclusive, and (l) through (n),
inclusive, of Section 9.1 has occurred and is continuing, the holder or holders
of 50% or more of the principal amount of Debentures at the time outstanding
may, by notice to the Borrowers, declare the entire principal and all interest
accrued on all Debentures to be, and all Debentures shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived. When any Event of
Default described in paragraph (j) or (k) of Section 9.1 has occurred, then all
outstanding Debentures shall immediately become due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived. Upon the Debentures becoming due and payable as a result of
any Event of Default as aforesaid, the Borrowers will forthwith pay to the
holders of the Debentures the entire principal and interest accrued on the
Debentures. No course of dealing on the part of any Debenture holder nor any
delay or failure on the part of any Debenture holder to exercise any right shall
operate as a waiver of such right or otherwise prejudice such holder's rights,
powers and remedies. Each of the Company and the Co Maker further agrees, to the
fullest extent permitted by law, to pay to the holder or holders of the
Debentures all costs and expenses, including reasonable attorneys' fees,
incurred by them in the collection of any Debentures upon any default hereunder
or thereon.
9.4 Joint and Several Obligations. The obligations of the
Company and the Co-Maker under this Agreement, the Debentures, and the other
Operative Documents, are joint and several. Each of the Company and the Co-Maker
shall be fully responsible for payment and performance of such obligations.
10. Amendments, Waivers and Consents.
10.1 Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
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the consent in writing of the holders of at least 50% in aggregate principal
amount of outstanding Debentures; provided that without the written consent of
the holders of all of the Debentures then outstanding, no such waiver,
modification, alteration or amendment shall be effective (i) which will change
the time of payment of the principal of or the interest on any Debenture or
reduce the principal amount thereof or change the rate of interest thereon, (ii)
which will change any of the provisions with respect to optional prepayments, or
(iii) which will change the percentage of holders of the Debentures required to
consent to any such amendment, modification or waiver of any of the provisions
of Section 9 or Section 10.
10.2 Solicitation of Debenture Holders. Neither Borrower
shall, directly or indirectly, pay or cause to be paid any remuneration, whether
by way of supplemental or additional interest, fee or otherwise, to any holder
of the Debentures as consideration for or as an inducement to the entering into
by any holder of the Debentures of any waiver or amendment of any of the terms
and provisions of this Agreement, unless such remuneration is concurrently paid,
on the same terms, ratably to the holders of all of the Debentures then
outstanding.
10.3 Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of the Debentures and shall be
binding upon them, upon each future holder of any Debenture, and upon the
Borrowers, whether or not such Debenture shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.
11. Interpretation of Agreement; Definitions.
11.1 Definitions. As used herein,
"Affiliate" means any person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with, the Company, (ii) which beneficially owns or holds 10% or more of
any class of the Voting Stock of the Company, 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 by the Company or a
Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which banks in California are authorized to close.
"Change in Control" means when any person or entity, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, other than the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its subsidiaries, becomes the
beneficial owner of the Company's securities having 50% or more of the combined
voting power of the then outstanding securities of the Company that may be cast
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for the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of
business).
The term "control" (including the terms "controlling," "controlled by"
and "under common control") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by contract, or
otherwise.
"Default" means any event or condition, the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default as defined in Section 9. 1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer any successor sections.
"Fair Market Value" per share of Common Stock means (i) in the case of
a security listed or admitted to trading on any securities exchange, the last
reported sale price, regular way (as determined in accordance with the practices
of such exchange), on such day, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day (and in the case of a
security traded on more than one national securities exchange, at such price or
such average, upon the exchange on which the volume of trading during the last
calendar year was the greatest), (ii) in the case of a security not then listed
or admitted to trading on any securities exchange, the last reported sale price
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reputable quotation service
designated by the Company, (iii) in the case of a security not then listed or
admitted to trading on any securities exchange and as to which no such reported
sale price or bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reputable quotation
service, or the Wall Street Journal, or if there are no bids and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than 30 days prior to the date in question) for
which prices have been so reported, and (iv) in the case of a security
determined by the Company's Board of Directors as not having an active quoted
market or in the case of other property, such fair market value as shall in good
faith be determined by the Board of Directors.
"Guaranties" by any person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (A) for the purchase or payment of such Indebtedness or obligation, (B) to
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maintain working capital or other balance sheet condition or (C) otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Hazardous Substance" means any hazardous or toxic material, substance
or waste, pollutant or contaminant which is regulated under any statute, law,
ordinance, rule or regulation of any local, state, regional or Federal authority
having jurisdiction over the property of the Company and its Subsidiaries or its
use, including but not limited to any material, substance or waste which is: (i)
defined as a hazardous substance under Section 311 of the Federal Water
Pollution Control Act (33 U.S. C. SS 1317. 1) as amended; (ii) regulated as a
hazardous waste under Section 1004 or Section 3001 of the Federal Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act (42
U.S.C. SS 6901 et seq.) as amended; (iii) defined as a hazardous substance under
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. SS 9601 et seq.) as amended; or (iv) defined or
regulated as a hazardous substance or hazardous waste under any rules or
regulations promulgated under any of the foregoing statutes.
"Indebtedness" of any person means and includes all obligations of such
person which in accordance with GAAP shall be classified upon a balance sheet of
such person as liabilities of such person, and in any event shall include,
without duplication, all (i) obligations of such person for borrowed money or
which have been incurred in connection with the acquisition of property or
assets, (ii) obligations secured by any lien or other charge upon property or
assets owned by such person, even though such person has not assumed or become
liable for the payment of such obligations, (iii) obligations created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such person, notwithstanding the fact that the rights and
remedies of the seller, lender or lessor under such agreement in the case of
default are limited to repossession or sale or property, (iv) capitalized
leases, and (v) Guaranties of obligations of others of the character referred to
in this definition.
"Investments" means all investments, in cash or by delivery of property
made, directly or indirectly in any person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise; provided, however that "Investments"
shall not mean or include routine investments in property to be used or consumed
in the ordinary course of business.
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"Material Adverse Event" means any event or circumstance, or set of
events or circumstances, individually or collectively, that reasonably could be
expected to result in any (i) material adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole (a "Material Adverse Effect"), or (iii)
material default or potential material default under any of the Operative
Documents.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Purchaser of even date herewith.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Senior Credit Agreement," "Senior Lenders," and "Senior Debt" shall
have the meanings assigned by the Subordination Agreement.
"Subordination Agreement" means the Subordination Agreement of even
date herewith among The Sumitomo Bank of California, Manufacturers Bank,
Purchaser and Sirrom Capital Corporation d/b/a Tandem Capital.
The term "subsidiary" means, as to any particular parent corporation,
any corporation of which more than 50% (by number of votes) of the Voting Stock
shall be owned by such parent corporation and/or one or more corporations which
are themselves subsidiaries of such parent corporation. The term "Subsidiary"
shall mean a subsidiary of the Company.
"Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or persons performing similar functions).
"Warrants" means the Initial Warrant and the Contingent Warrants.
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) shall be owned by the Company
and/or one or more of its Subsidiaries.
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11.2 Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
11.3 Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any person, or which such person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such person.
12. Miscellaneous.
12.1 Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Borrowers agree to
pay to Purchaser (i) Purchaser's reasonable out-of-pocket expenses in connection
with the entering into of this Agreement and the consummation of the
transactions contemplated hereby, including but not limited to the reasonable
fees, expenses and disbursements of Purchaser's counsel, and (ii) so long as
Purchaser holds any of the Debentures, all such reasonable expenses relating to
any amendment, waiver or consent pursuant to the provisions hereof (whether or
not the same are actually executed and delivered), including, without
limitation, any amendments, waivers or consents resulting from any work-out,
restructuring or similar proceedings relating to the performance by the Company
or the Co-Maker of its obligations under this Agreement and the Debentures. The
Borrowers also agree to pay and hold Purchaser harmless against any and all
liability with respect to stamp and other taxes, if any, which may be payable in
connection with the execution and delivery of this Agreement or the Debentures,
whether or not any Debentures are then outstanding. The Borrowers agree to
protect and indemnify Purchaser against any liability for any and all brokerage
fees and commissions payable or claimed to be payable to any person as a result
of any actions of the Borrowers or their agents in connection with the
transactions contemplated by this Agreement.
12.2 Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Debenture 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. The rights and remedies of the holder
of any Debenture are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent, given
or extended hereunder, shall extend to or affect any obligation or right not
expressly waived or consented to.
12.3 Notices. All communications provided for hereunder shall
be in writing and shall be delivered personally, or mailed by registered mail,
or by prepaid overnight air courier, or by facsimile communication, in each case
addressed:
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If to Purchaser: Pinecreek Capital Partners, L.P.
18301 Von Karman Avenue, Suite 100
Irvine, California 92612
Facsimile: (714) 225-4629
Attention: John C. Wilbur, Jr., Executive Vice President
with a copy to: O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Facsimile No: (714) 669-6994
Attention: Gary J. Singer, Esq.
If to the Borrowers: Compass Plastics & Technologies, Inc.
15730 South Figueroa Street
Gardena, California 90248
Attention: Chief Financial Officer
Facsimile No.: (310) 523-9859
with a copy to: Stephen A. Weiss, Esq.
Greenberg Traurig
200 Park Avenue, 15th Floor
New York, New York 10166
Facsimile No: (212) 801-6400
or such other address as Purchaser or the subsequent holder of any Debenture
initially issued to Purchaser may designate to the Company in writing, or such
other address as the Company may in writing designate to Purchaser or to a
subsequent holder of the Debenture initially issued to Purchaser; provided,
however, that a notice sent by overnight air courier shall only be effective if
delivered at a street address designated for such purpose by such person and a
notice sent by facsimile communication shall only be effective if made by
confirmed transmission at a facsimile number designated for such purpose by such
person or, in either case, as Purchaser or a subsequent holder of any Debentures
initially issued to Purchaser may designate to the Company in writing or at a
facsimile number herein set forth.
12.4 Assignments. This Agreement, the Debentures and the other
Operative Documents may be endorsed, assigned and/or transferred in whole or in
part by Purchaser, and any such holder and/or assignee of the same shall succeed
to and be possessed of the rights and powers of Purchaser under all of the same
to the extent transferred and assigned; provided, however, that Purchaser shall
not make any such transfer to a competitor of the Company or an Affiliate of any
such competitor without the prior written consent of the Company. Neither
Borrower shall assign any of its rights or delegate any of its duties under this
Agreement or any of the other Operative Documents by operation of law or
otherwise without the prior express written consent of Purchaser, which may be
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withheld in Purchasers sole and unfettered discretion, and if the Company
obtains such consent, this Agreement and such other Operative Documents shall be
binding upon such assignee.
12.5 Survival of Covenants and Representations. All
representations and warranties made by the Borrowers or the Purchaser herein and
in any instruments or certificates delivered pursuant hereto shall survive for a
period of thirteen months following the Closing Date, except the representations
and warranties made in Sections 2.1, 2.2, 2.3, and 2.4 by the Company and the
Co-Maker, and in Sections 3.1, 3.2, 3.3, and 3.4 by Purchaser, which shall
survive until payment in full of the principal amount of, all accrued but unpaid
interest under, and all expenses and other costs required to be paid by the
Borrowers under, the Debentures. All covenants made by the Borrowers and the
Purchaser herein and in any instruments or certificates delivered pursuant
hereto shall survive the closing and the delivery of this Agreement and the
Debentures, until the termination of this Agreement, which shall terminate and
be of no further force or effect upon the payment in full of the principal
amount of, all accrued but unpaid interest under, and all expenses and other
costs required to be paid by the Borrowers under, the Debentures.
12.6 Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Agreement had been executed with the invalid or
unenforceable portion thereof eliminated and it is hereby declared the intention
of the parties hereto that they would have executed the remaining portion of
this Agreement without including therein any such part, parts or portion which
may for any reason, be hereafter declared invalid or unenforceable.
12.7 Governing Law. This Agreement and the Debentures issued
and sold hereunder shall be governed by and construed in accordance with New
York law, without regard to its conflicts of law rules.
12.8 Captions; Counterparts. The descriptive headings of the
various Sections or parts of this Agreement are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.9 Confidentiality. Each party hereto (and each subsequent
holder of a Debenture) agrees that, except with the prior written permission of
the other party hereto, it shall at all times keep confidential and not divulge,
furnish or make accessible to anyone any confidential information, knowledge or
data concerning or relating to the business or financial affairs of the other
party to which such party has been or shall become privy by reason of this
Agreement, discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of the Debenture
purchased hereunder, except as such disclosure may be required by law.
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12.10 Publicity. The Company and Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby. No party shall issue any
press release or otherwise make any public statement without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed.
[rest of page intentionally left blank]
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Debenture
Purchase Agreement to be executed and delivered by their duly authorized
officers as of the date first written above.
COMPASS PLASTICS & TECHNOLOGIES, INC.
By: _______________________________________
Title: _______________________________________
AB PLASTICS CORPORATION
By: _______________________________________
Title: _______________________________________
PINECREEK CAPITAL PARTNERS, L.P.
By: _______________________________________
Title: _______________________________________
39
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> OCT-25-1998 OCT-25-1998
<PERIOD-END> APR-26-1998 APR-26-1998
<CASH> 740 740
<SECURITIES> 0 0
<RECEIVABLES> 8,293 8,293
<ALLOWANCES> 12 12
<INVENTORY> 6,903 6,903
<CURRENT-ASSETS> 16,796 16,796
<PP&E> 26,037 26,037
<DEPRECIATION> 1,771 1,771
<TOTAL-ASSETS> 60,595 60,595
<CURRENT-LIABILITIES> 12,889 12,889
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 13,905 13,905
<TOTAL-LIABILITY-AND-EQUITY> 60,595 60,595
<SALES> 13,119 23,907
<TOTAL-REVENUES> 13,119 23,907
<CGS> 11,772 21,206
<TOTAL-COSTS> 13,199 23,422
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 625 828
<INCOME-PRETAX> (705) (343)
<INCOME-TAX> (282) (137)
<INCOME-CONTINUING> (422) (206)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 58 58
<CHANGES> 0 0
<NET-INCOME> (481) (264)
<EPS-PRIMARY> (0.10) (0.05)
<EPS-DILUTED> (0.10) (0.05)
</TABLE>
