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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 333-33121
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LEINER HEALTH PRODUCTS INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 95-3431709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
901 EAST 233RD STREET, CARSON, CALIFORNIA 90745
(310) 835-8400
(Address and telephone number of principal executive offices)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of June 15, 1998, there were 1,000 shares of the registrant's Common
Stock, par value $0.01, outstanding, none of which were held by non-affiliates.
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LEINER HEALTH PRODUCTS INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
TABLE OF CONTENTS
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PAGE
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<S> <C> <C>
PART I.
Item 1. Business..................................................................................... 4
Item 2. Properties................................................................................... 17
Item 3. Legal Proceedings and Product Liability...................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 19
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 20
Item 6. Selected Financial Data...................................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 23
Item 8. Financial Statements and Supplementary Data.................................................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 30
PART III.
Item 10. Directors and Executive Officers............................................................. 31
Item 11. Executive Compensation....................................................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 36
Item 13. Certain Relationships and Related Transactions............................................... 37
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 39
</TABLE>
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The data contained in this Form 10-K with respect to the Company's relative
market share and competitive position are based on retail sales, and are
approximations based on Company estimates and industry sources, including
FIND/SVP ("Packaged Facts"), Information Resources, Inc. ("IRI Infoscan"),
Multi-Sponsor Survey, Inc. ("Gallup"), Council for Responsible Nutrition ("CRN
Data") and Marketing and Management Information, Inc. ("MMI Data"). The Company
believes that such data are inherently imprecise, but are generally indicative
of its relative market share and competitive position. Market share data are for
the food, drug and mass merchandisers' sector of the vitamin industry ("Mass
Market") in the U.S. only and do not include Canadian market share information
for Vita Health.
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PART I
ITEM 1
BUSINESS
GENERAL
Leiner Health Products Inc. ("Leiner" or the "Company") is the nation's
largest manufacturer of vitamins, minerals, and nutritional supplements and
distributes its products primarily through Mass Market retailers. The Company
has a share of over 20% of all Mass Market vitamin sales in the United States,
and a share of over 45% of the Mass Market private label segment. Leiner's U.S.
vitamin sales have grown at a compound annual rate of more than 18% per year
over the last six years, over one and one half times the U.S. industry growth
rate. Leiner is also one of the nation's largest private label over-the-counter
("OTC") pharmaceuticals manufacturers, with 15.4% of its sales in OTC
pharmaceutical and other products. In January 1997, the Company acquired Vita
Health Products Inc. ("Vita Health"), the second largest private label vitamin
and OTC pharmaceuticals manufacturer in the Canadian market.
The Company sells a full line of vitamin products, including more than 500
products in more than 10,000 stock keeping units ("SKUs"). The Company's
products are sold in tablet and capsule forms, and in varying sizes with
different potencies, flavors and coatings. The Company's vitamin products
include national brand equivalents which compare to the dietary ingredients
contained in CENTRUM-REGISTERED TRADEMARK-, ONE-A-DAY-REGISTERED TRADEMARK-and
GINSANA-REGISTERED TRADEMARK-, natural vitamin products such as vitamins C and E
and folic acid, minerals such as calcium and herbal products such as St. John's
wort, echinacea and ginkgo biloba. The Company's vitamin products are sold under
its customers' store names ("private label products"), as well as under its own
YOUR LIFE-REGISTERED TRADEMARK-brand. The Company estimates that private label
vitamin products account for approximately 33% of total vitamin product sales by
Mass Market retailers in the United States and accounted for approximately 57%
of Leiner's total fiscal 1998 sales (excluding sales by Vita Health). The
Company also markets over 100 different OTC pharmaceutical products in over
2,000 SKUs, including products comparable to most major national brands in the
analgesic, cough and cold remedy and digestive aid categories.
The Company's vitamin products are sold in all 50 states through more than
50,000 retail outlets, including drug store, supermarket, mass merchandising,
and warehouse club chains, as well as in convenience stores and through United
States military outlets worldwide. Leiner is the vitamin category manager for
many leading retailers. The Company's vitamin product customers include 9 of the
country's 10 largest drug store chains (including Walgreens, American Stores,
Eckerd, CVS and Rite Aid), 8 of the 10 largest supermarket chains (including
Safeway, Winn-Dixie, Albertson's, A&P and Lucky Stores), 8 of the 10 largest
mass merchandising chains (including Wal-Mart, Target and Kmart and the two
largest warehouse club chains (Sam's Club and Costco). The Company is also
expanding into channels outside of its core market of food, drug and mass
merchandisers. These new channels include television retailing and contract
manufacturing.
Vita Health is currently the second largest industry participant in Canada
in terms of both private label sales and total sales. Vita Health has built
strong relationships with Canada's largest Mass Market retailers, a Mass Market
customer base that matches well with Leiner's customer base. Vita Health also
has a strong position in the health food channel in Canada, a distribution
channel Leiner is in the process of entering in the United States. Vita Health
sells to more than 500 retail accounts across Canada.
The Company was incorporated in the state of Delaware in 1987. It is a
wholly-owned subsidiary of PLI Holdings Inc. ("PLI Holdings"), a Delaware
corporation, which is itself a wholly-owned subsidiary of Leiner Health Products
Group Inc. ("Leiner Group"). Leiner Group, a Delaware Corporation, was
recapitalized effective June 30, 1997. See "Recapitalization".
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The Company's fiscal year ends on March 31 of each year. References herein
to a "fiscal year" refer to the Company's fiscal year ended March 31 in the
calendar year indicated (e.g., references to fiscal 1998 are references to the
Company's fiscal year ended March 31, 1998).
RECAPITALIZATION
On June 30, 1997, Leiner Group, completed a leveraged recapitalization
transaction (the "Recapitalization"). The Recapitalization was effected pursuant
to a Stock Purchase Agreement and Plan of Merger, dated as of May 31, 1997 (the
"Recapitalization Agreement") among Leiner Group, North Castle Partners I,
L.L.C. ("North Castle"), and LHP Acquisition Corp., a wholly-owned subsidiary of
North Castle (the "Merger Entity"). North Castle, a Delaware limited liability
company, is an investment fund formed by Mr. Charles F. Baird, Jr., to effect
the Recapitalization. Pursuant to the Recapitalization, Leiner Group repurchased
common stock from its existing shareholders in an amount totaling (together with
equity retained by such shareholders) $211.1 million, issued $80.4 million of
new shares of the recapitalized Leiner Group to North Castle, issued $85 million
of Senior Subordinated Notes (the "Notes"), and established a $210 million
senior secured credit facility that provides for both term and revolving credit
borrowings. Immediately upon consummation of the Recapitalization, the
obligations of Leiner Group under the Notes and the Credit Facility were
assigned to and assumed by the Company. The Recapitalization was accounted for
as a recapitalization of Leiner Group which had no impact on the historical
basis of assets and liabilities as reflected in the Company's consolidated
financial statements.
Upon consummation of the Recapitalization, (i) current managers and
employees of the Company who had been existing shareholders had some of their
existing common stock exchanged for cash, but together with Mr. Baird, retained
approximately 8.3% of Leiner Group equity (consisting of approximately 58.6% of
the non-voting Leiner Group common stock and 5.6% of the voting Leiner Group
common stock) and received rights under certain circumstances to receive Leiner
Group common stock ("Equity Rights") equal to approximately 7.4% of Leiner Group
equity, as well as certain warrants to acquire Leiner Group common stock
("Warrants"), (ii) AEA Investors Inc. and certain of its co-investors (the "AEA
Group") and certain former managers of the Company, all of whom had been
existing shareholders, had most of their common stock purchased for cash, but
also retained Leiner Group common stock equal to approximately 10.1% of Leiner
Group equity (consisting of approximately 41.4% of the non-voting Leiner Group
common stock and 8.8% of the voting Leiner Group common stock), as well as
Warrants, and (iii) North Castle acquired the remainder of Leiner Group equity,
primarily through the purchase of newly issued voting Leiner Group common stock
equal to approximately 73.8% of Leiner Group equity for a cash investment of
$80.4 million. In connection with the Recapitalization, existing stock options
held by management shareholders were cashed out, exercised for common stock, or
converted into Equity Rights.
In connection with the Recapitalization, the Company established a
management transaction bonus pool of $5.2 million which was paid by the Company
following consummation of the Recapitalization.
A portion of a minority preferred stock interest in Vita Health was redeemed
in connection with the Recapitalization. The portion that remained outstanding
was redeemed in April 1998 for $1.0 million in cash.
PRODUCTS
The following table sets forth the sales of the Company's vitamin, OTC
pharmaceutical and other product lines from fiscal 1994 through fiscal 1998 (in
millions):
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FISCAL YEARS ENDED MARCH 31,
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1996 1997 1998
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Vitamin products................................................. $ 267.7 $ 321.7 $ 424.7
OTC pharmaceuticals.............................................. 58.8 61.3 61.1
Other products................................................... 11.9 9.8 16.3
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Total.......................................................... $ 338.4 $ 392.8 $ 502.1
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VITAMIN PRODUCTS. The Company sells a full line of vitamin products,
including more than 500 products in more than 10,000 SKUs. The Company's
products are sold in tablet and capsule forms, and in varying sizes with
different potencies, flavors and coatings. The Company's vitamin products
include national brand equivalents which compare to the dietary ingredients
contained in CENTRUM-REGISTERED TRADEMARK-, ONE-A-DAY-REGISTERED TRADEMARK-and
GINSANA-REGISTERED TRADEMARK-, natural vitamin products such as vitamins C and E
and folic acid, minerals such as calcium and herbal products such as St. John's
wort, echinacea and ginkgo biloba. In addition, Leiner's YOUR LIFE-REGISTERED
TRADEMARK-brand is one of the nation's largest broadline vitamin product brands.
Sales of vitamins C and E, in the aggregate, accounted for approximately 36% of
the Company's sales in fiscal 1998 (excluding sales by Vita Health).
Vita Health produces more than 350 different types of vitamins and minerals.
However, the majority of Vita Health's sales in this segment are concentrated in
a few core product categories. The top 5 product categories, which comprise over
one-half of Vita Health's vitamin sales, are vitamin C products, vitamin E
products, multivitamins, herbal products and glucosamine. Vita Health has
extensive experience and expertise with herbal products which is the fastest
growing segment of the United States vitamin market.
OTC PHARMACEUTICALS. The Company markets over 100 different OTC
pharmaceutical products in over 2,000 SKUs, including products comparable to
most major national brands in the analgesic, cough and cold remedy and digestive
aid categories. The Company sells its OTC pharmaceuticals under its customers'
private labels as well as its own broadline brand, PHARMACIST FORMULA-REGISTERED
TRADEMARK-, first introduced in 1989.
Vita Health's OTC pharmaceutical sales are primarily analgesic products and
cough and cold products. In Canada, there are two primary classes of analgesic
products, those with codeine and those without. Vita Health produces both types
of products.
SERVICES; OTHER PRODUCTS. The Company offers drug repackaging services to
major prescription pharmaceutical wholesalers and a major drug store chain. In
addition, the Company performs contract manufacturing services on a limited
basis for selected consumer products companies. In order to leverage further its
existing distribution system and marketing expertise, the Company markets
certain niche products. For example, the Company developed and markets the
BODYCOLOGY-REGISTERED TRADEMARK- line of hair, skin and bath care products.
CUSTOMERS
The Company's vitamin products are sold in all 50 states through more than
50,000 retail outlets, including drug store, supermarket, mass merchandising,
and warehouse club chains, as well as in convenience stores and through the
United States military outlets worldwide. Leiner is the vitamin category manager
for many leading retailers. The Company's vitamin product customers include 9 of
the country's 10 largest drug store chains (including Walgreens, American
Stores, Eckerd, CVS and Rite Aid), 8 of the 10 largest supermarket chains
(including Safeway, Winn-Dixie, Albertson's, A&P and Lucky Stores), 8 of the 10
largest mass merchandising chains (including Wal-Mart, Target and Kmart) and the
two largest warehouse club chains (Sam's Club and Costco). The Company has over
175 active U.S. customers. In fiscal 1998, Wal-Mart Stores, Inc. and Costco
accounted for approximately 26% and 10%, respectively, of the Company's sales.
Each of the Company's other major customers accounted for less than 10% of the
Company's sales for fiscal 1998. The Company's top ten customers in the
aggregate accounted for approximately 67% of the Company's sales for fiscal
1998.
BACKLOG ORDERS
The Company had approximately $19.1 million in backlog orders, believed to
be firm, as of March 31, 1998. Substantially all of these orders will be shipped
in fiscal 1999. The Company had $13.0 million in backlog orders, believed to be
firm, as of March 31, 1997.
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PURCHASED MATERIALS
The Company purchases from third party suppliers certain important
ingredients and products that the Company cannot manufacture. Although the
Company currently has supply arrangements with several suppliers of these
ingredients and products, and the Company's purchased materials are generally
available from numerous sources, an unexpected interruption of supply could
materially adversely affect the Company's results of operations. Two suppliers
provided approximately 27% of the materials purchased during fiscal 1998 by the
Company. No other single supplier accounts for more than 10% of the Company's
material purchases.
COMPETITION
The markets for the Company's products are highly competitive. The Company
competes on the basis of customer service, product quality, pricing and
marketing support. In the Mass Market vitamin product business, the Company
believes that its major U.S. competitors are Pharmavite Corp., Rexall Sundown,
Inc. and NBTY, Inc. (manufacturer of Nature's Bounty vitamin products). In the
OTC pharmaceuticals business, the Company believes its major U.S. competitor is
Perrigo Company.
In the United States, the Company sells substantially all of its vitamin
products to Mass Market and warehouse club retailers. Although the Company does
not currently participate significantly in other U.S. distribution channels such
as health food stores, direct mail and direct sales, the Company's products may
face competition from such alternative channels as more customers utilize these
channels of distribution to obtain vitamin products.
The Company competes with other major private label and broadline brand
manufacturers, certain of which are larger and have access to greater resources
than the Company. Among other factors, competition among private label
manufacturers is based upon price. If one or more manufacturers significantly
reduce their prices in an effort to gain market share, the Company's results of
operations or market position could be adversely affected. However, the Company
believes that it competes favorably with other companies because of its (i) low
manufacturing costs, (ii) sales and marketing strategies, (iii) customer service
(including complexity and speed of delivery) and (iv) reputation of being a
quality supplier of products.
The Company also competes with manufacturers of nationally advertised brand
name products such as American Home Products Corp., Bayer Group and
Bristol-Myers Squibb Co., which are larger and have resources substantially
greater than those of the Company, and are substantially less leveraged than the
Company. In the future, one or more of these companies could seek to compete
more directly with the Company by manufacturing private label products or by
significantly lowering the prices of their national brand products. The Company
believes, however, that the mass-oriented manufacturing and marketing methods
used by national brand manufacturers are less suited to the customized packaging
and marketing requirements of private label customers, which the Company
satisfies by utilizing its packaging and graphics facilities.
EMPLOYEES
As of March 31, 1998, the Company had approximately 1,683 full-time
employees. Approximately 439 employees were engaged in executive or
administrative capacities and approximately 1,244 employees were engaged in
manufacturing, packaging or distribution. In addition, as of March 31, 1998, the
Company employed approximately 835 temporary employees. The large number of
temporary employees gives the Company significant flexibility to adjust staffing
levels in response to seasonal fluctuations in demand. Certain of the Vita
Health employees have voted to be represented by a collective bargaining unit.
The Company and the collective bargaining unit are currently in negotiations.
The Company considers its relations with its employees to be good.
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GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling, advertising
and sale of the Company's products are subject to regulation by one or more
United States and Canadian federal agencies, including the FDA, the FTC, the
CPSC and Health Canada. The activities are also regulated by various agencies of
the states, provinces and localities in which the Company's products are sold.
In addition, the Company manufactures and markets certain of its products in
compliance with the guidelines promulgated by voluntary standard organizations,
such as the USP.
FDA. The United States Food and Drug Administration exercises authority
over three aspects of the Company's business: (i) the labeling and marketing of
dietary supplements, (ii) the labeling and marketing of OTC pharmaceuticals and
(iii) the operation of its manufacturing and packaging facilities.
DIETARY SUPPLEMENTS. The Dietary Supplement Health and Education Act of
1994 ("DSHEA") was enacted on October 25, 1994 and amends the Federal Food, Drug
and Cosmetic Act to (i) define dietary supplements, (ii) expand with certain
limitations the number of products that can be marketed as dietary supplements,
(iii) permit "structure/function" statements for all vitamin products, including
herbal products and other nutritional supplements, and (iv) permit the use of
certain published literature in the sale of vitamin products. Dietary
supplements are regulated as food products under DSHEA, and the FDA is
prohibited from regulating the dietary ingredients in supplements as food
additives, or the supplements as drugs, unless product claims trigger drug
status.
DSHEA provides for specific nutritional labeling requirements for dietary
supplements. The final FDA labeling regulations will be effective March 23,
1999. DSHEA permits substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling, including describing the positive
effects on general well-being from consumption of a dietary ingredient or the
role of a nutrient or dietary ingredient in affecting or maintaining structure
or function of the body. In addition, DSHEA also authorizes the FDA to
promulgate current good manufacturing practices specific to the manufacture of
dietary supplements, to be modeled after food current good manufacturing
practices. The Company currently manufactures its dietary supplement products
pursuant to the more detailed OTC pharmaceutical "Current Good Manufacturing
Practices for Finished Pharmaceutical's" ("cGMP").
The Company cannot determine what effect the FDA's future regulations, when
and if promulgated, would have on its business in the future. Such regulations
could, however, among other things, require expanded documentation of the
properties of certain products, or scientific substantiation regarding
ingredients, product claims or safety. In addition, the Company cannot predict
whether new legislation regulating the Company's activities will be enacted, or
what effect any such legislation would have on the Company's business.
OTC PHARMACEUTICALS. FDA regulation of OTC pharmaceuticals takes two forms.
Most of the Company's OTC pharmaceutical products are governed by FDA monographs
covering well-known ingredients and specifying, among other things, permitted
claims, required warnings and precautions, allowable combinations of ingredients
and dosage levels. Marketing a product governed by a monograph or pending
monograph requires no prior approval of the FDA, only compliance with the
applicable monograph. Monographs may be changed from time to time, requiring
formulation, packaging or labeling changes for an affected product. While such
changes may cause the Company to incur costs to comply with such changes,
disruption of distribution or material obsolescence of inventory due to any such
changes is not likely.
In the future, the Company may desire to market as over-the-counter products
previously "prescription only" pharmaceuticals ("Rx-to-OTC switch products"),
which require FDA approval before the products can be marketed. The marketing of
such products by the Company will require that the Company obtain FDA approvals
or arrange to obtain such products from manufacturers that have obtained FDA
approval. In addition, the Drug Price Competition & Patent Term Restoration Act
of 1984 (the Hatch-
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Waxman Amendments to the Federal Food, Drug, and Cosmetic Act) gives a
three-year period of marketing exclusivity to a company that obtains FDA
approval of an Rx-to-OTC switch product. Unless Leiner establishes relationships
with such companies having exclusive marketing rights, the Company's ability to
market Rx-to-OTC switch products and offer its customers products comparable to
national brand products would be delayed until the expiration of the exclusivity
granted to the company initiating such a switch. There can be no assurance that,
in the event that the Company applies for FDA approvals, the Company would
obtain such approvals to market Rx-to-OTC switch products or, alternatively,
that the Company would be able to obtain such products from other manufacturers.
The Company is also subject to the requirements of the Comprehensive
Methamphetamine Control Act of 1996, a law designed to allow the Drug
Enforcement Administration (DEA) to monitor transactions involving chemicals
that may be used illegally in the production of methamphetamine. The
Methamphetamine Control Act of 1996 establishes certain registration and
recordkeeping requirements for manufacturers of OTC cold, allergy, asthma and
diet medicines that contain ephedrine, pseudoephedrine or phenylpropanolamine.
While certain of the Company's OTC pharmaceutical products contain
pseudoephedrine, none of the Company's products contain ephedrine, a chemical
compound that is distinct from pseudoephedrine. Pseudoephedrine is a common
ingredient in decongestant products manufactured by the Company and other
pharmaceutical companies.
MANUFACTURING AND PACKAGING. All facilities where foods (including dietary
supplements) and pharmaceuticals are manufactured, packed, warehoused, or sold
must comply with the FDA manufacturing standards applicable to that type of
product. All of the Company's products are manufactured according to the cGMP.
The failure of a facility to be in compliance may lead to a breach of
representations made to private label customers or to regulatory action against
the products made in that facility, including seizure, injunction or recall. The
Company believes that its facilities are in compliance in all material respects
with the cGMPs and other applicable requirements for each facility.
CPSC. The United States Consumer Product Safety Commission ("CPSC") has
authority, under the Poison Prevention Packaging Act, to designate those
products, including vitamin products and OTC pharmaceuticals, that require child
resistant closures to help reduce the incidence of poisonings. The CPSC has
adopted regulations requiring numerous OTC pharmaceuticals and iron-containing
dietary supplements to have such closures, and has adopted rules on the testing
of such closures by both children and adults. The Company, working with its
packaging suppliers, believes that it is in compliance with all CPSC
requirements.
FTC. The United States Federal Trade Commission ("FTC") exercises primary
jurisdiction over the advertising and other promotional practices of food and
OTC pharmaceuticals marketers, and has concurrent jurisdiction with the FDA over
the advertising and promotional practices of marketers of dietary supplements.
The FTC has historically applied a different standard to health-related claims
than the FDA; the FTC has applied a "substantiation standard," which is less
restrictive than the standard under the NLEA. The FTC NLEA enforcement policy
uses FDA regulations as a baseline (and safe harbor) and permits (i) nutrient
content descriptions that are reasonable synonyms of FDA-permitted terms, and
(ii) qualified health claims not approved by FDA where adequate substantiation
exists for the qualified or limited claims.
STATE REGULATION. All states regulate foods and drugs under local laws that
parallel federal statutes. Because the NLEA gave the states the authority to
enforce many labeling prohibitions of the Federal Food, Drug, and Cosmetic Act,
after notification to the FDA, the Company and other dietary supplement
manufacturers may be subject to increasing state scrutiny for NLEA compliance,
as well as increasing FDA review. The Company is also subject to California
Proposition 65 and similar state consumer health and safety regulations which
could have a potential impact on the Company's business if any of the Company's
products were ever found not in compliance. The Company is not engaged in any
enforcement or other
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regulatory actions and is not aware of any products which are not in compliance
with California Proposition 65 and other similar state regulations.
USP. The United States Pharmacopoeia Convention, Inc. is a
non-governmental, voluntary standard-setting organization. Its drug standards
are incorporated by reference into the Federal Food, Drug, and Cosmetic Act as
the standards that must be met for the listed drugs, unless compliance with
those standards is specifically disclaimed. USP standards exist for most OTC
pharmaceuticals. The FDA requires USP compliance as part of cGMP.
The USP began adopting standards for vitamin and mineral dietary supplements
in 1994. These standards cover composition (nutrient ingredient potency and
combinations), disintegration, dissolution, manufacturing practices and testing
requirements. These standards are codified in the USP Monographs and the USP
Manufacturing Practices. In 1995, USP compliance included the standards for
disintegration and dissolution. While USP standards for vitamins are voluntary,
and not incorporated into federal law, customers of the Company may demand that
products they are supplied meet these standards. Label claims of compliance with
the USP may expose a company to FDA scrutiny for such claims. In addition, the
FDA may in the future require compliance, or such a requirement may be included
in new dietary supplement legislation. All of the Company's vitamin products
(excluding certain nutritional supplements products for which no USP standards
have been adopted) are formulated to comply with existing USP standards.
CANADIAN REGULATION. In Canada, the Company's products are subject to
federal and provincial law, particularly federal drug legislation. Government
regulation under the Food and Drug Act and the regulations thereunder (the
"Canadian Act") which require regulatory approvals of such products through a
drug identification number ("DIN") or general proprietary number ("GP") by
Health Canada--Health Protection Branch (the "HPB"). All substances sold for
ingestion by humans are regulated either as a food or drug under the Canadian
Act. In addition, certain of the Company's products are subject to government
regulation under the Canadian Controlled Drugs and Substances Act and the
regulations thereunder ("CDSA"). The Canadian Act and the CDSA are enforced by
the HPB.
The Canadian Act governs the processing, formulation, packaging, labeling,
advertising and sale of the Company's products and regulates what may be
represented to the public on labels and in promotional material, in respect of
the properties of the various products. The Canadian Act also provides that any
drugs sold in Canada must have a label affixed thereto which shows certain
information such as its proper scientific or common name, the name and address
of the manufacturer, its lot number, adequate directions for use, a quantitative
list of its medical ingredients and its expiration date. In addition, no person
may sell a drug unless it has been assigned a DIN or GP. DINs and GPs are
obtained through an application to the HPB. Regulations under the Canadian Act
require all manufacturers to pay annual fees for their DINs and GPs. HPB
approval for the sale of the Company's products may be subject to significant
delays despite the Company's best efforts.
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The CDSA governs the manufacture and sale of controlled substances as
defined in the CDSA. The CDSA contains requirements for licenses of the factory,
approved security, a qualified person in charge of the factory and detailed
record keeping in connection with the manufacturing of controlled substances.
Regulations under the Canadian Act set out mandatory and rigorous
procedures, practices and standards for manufacturers. Health Canada performs
inspections of companies in the industry to ensure compliance with the Canadian
Act and the CDSA. For each of the Company's products, the development process,
the manufacturing procedures, the use of equipment, and laboratory practices and
premises must comply with Good Manufacturing Practices and Establishment
Licensing regulations under the Canadian Act.
The Company's herbal products which are being marketed with drug claims or
which contain drug substances require regulatory approval in the form of a DIN
or GP issued by Health Canada. Approvals are based on traditional references and
are approved as Traditional Herbal Medicines. In addition, the Canadian
government has established a panel to review the regulatory framework for
natural products. If the Canadian government implements new or amended
requirements for natural products it may result in additional costs to the
Company for the requisite regulatory approval, delay the entry of some products
onto the market or adversely affect sales of herbal products.
INTELLECTUAL PROPERTY
The Company regards its trademarks and other proprietary rights as valuable
assets and believes they are important in the marketing of the Company's
products. Among the Company's most significant trademarks are YOUR
LIFE-REGISTERED TRADEMARK-, PHARMACIST FORMULA-REGISTERED TRADEMARK-, DAILY
PAK-REGISTERED TRADEMARK-, CENTRAL-VITE-REGISTERED TRADEMARK- and
BODYCOLOGY-REGISTERED TRADEMARK-. The Company has registered its marks in the
United States and more than thirty foreign countries. Leiner now owns 121
trademark registrations in the United States and 101 registrations abroad, as
well as 61 pending applications for registration of trademarks in the United
States and 49 pending application in other countries. The Company intends to
maintain the foreign and domestic registrations of its trademarks so long as
they remain valuable to its business. The Company vigorously polices its marks
and protects them from infringement.
The Company does not currently have any patents on its proprietary
processes. The Company believes that it can better protect its trade secrets by
maintaining the confidentiality of the relevant information.
ENVIRONMENTAL MATTERS
The Company is subject to various United States and Canadian federal, state,
provincial and local environmental laws and regulations. The costs of complying
with such laws and regulations have not been, and are not expected to have a
material adverse effect on the business of the Company.
RISK FACTORS
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS. As a result of the
Recapitalization, the Company is highly leveraged, with indebtedness that is
very substantial in relation to its shareholder's equity. The Credit Facility
(as defined below) and the indenture governing the Notes will permit the Company
to incur or guarantee certain additional indebtedness, subject to certain
limitations. The Company will be required to repay the $144.4 million in term
loans under the Amended Credit Agreement over the seven and one-half year period
following May 15, 1998, with scheduled principal payments of $1.5 million
annually for the first five years, $48.7 million in the sixth year, $66.5
million in the seventh year, and $21.6 million in the final six months. All
outstanding revolving credit borrowings under the Amended Credit Agreement will
become due on June 30, 2003. The Company expects that its working capital needs
will require it to obtain replacement revolving credit facilities at that time.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Financing Arrangements."
11
<PAGE>
The Company's high degree of leverage could have important consequences to
holders of Notes, including but not limited to the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired in the
future; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations and other
purposes, including investments in research and development and capital
spending; (iii) the Company may be substantially more leveraged than certain of
its competitors, which may place the Company at a competitive disadvantage; (iv)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (v) the Company's substantial degree of leverage could make it
more vulnerable in the event of a downturn in general economic conditions or its
business or changing market conditions and regulations.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness will depend on its future financial and operating
performance, which, in turn, will be subject to prevailing economic and
competitive conditions and to certain financial, business, legislative,
regulatory and other factors, many of which are beyond the Company's control.
These factors could include operating difficulties, increased operating costs,
product pricing pressures, the response of competitors, regulatory developments,
and delays in implementing strategic projects. The Company's ability to meet its
debt service and other obligations may depend in significant part on the extent
to which the Company can implement successfully its business strategy. There can
be no assurance that the Company will be able to implement its strategy fully or
that the anticipated results of its strategy will be realized.
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, or seek to obtain additional equity capital,
or to refinance or restructure its debt. There can be no assurance that the
Company's cash flow and capital resources will be sufficient for the payment of
principal of, and premium, if any, and interest on, its indebtedness in the
future, or that any such alternative measures would be successful or would
permit the Company to meet its scheduled debt service obligations. In addition,
because the Company's obligations under the Amended Credit Facility will bear
interest at floating rates, an increase in interest rates could adversely
affect, among other things, the Company's ability to meet its debt service
obligations. The Company entered into an interest protection arrangement
effective July 30, 1997 for a period of three years with respect to $29.5
million of its indebtedness under the Credit Facility that provides a cap of
6.17% on the interest rates payable thereon. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources-- Financing Arrangements."
SUBORDINATION OF NOTES. The Notes are unsecured, senior subordinated
obligations of Leiner, and as such, are subordinated in right of payment to all
existing and future senior debt of Leiner, including indebtedness of Leiner
under the Credit Facility and Leiner's guarantee of indebtedness of Vita Health
under the Credit Facility. The Notes rank PARI PASSU with all senior
subordinated indebtedness of Leiner, if any, and rank senior to all subordinated
indebtedness of Leiner, if any. The Notes are also effectively subordinated to
all secured indebtedness of Leiner to the extent of the value of the assets
securing such indebtedness, and to all existing and future obligations and
liabilities of Leiner's subsidiaries. The obligations of Leiner under the Credit
Facility are secured by substantially all of the assets of Leiner and any future
U.S. subsidiary of Leiner and a pledge of the capital stock of Leiner and any
such subsidiary and 65% of the capital stock of any direct foreign subsidiary of
Leiner. The obligations of Vita Health under the Credit Facility are
additionally secured by substantially all of the assets of Vita Health and its
Canadian parents and subsidiaries.
In the event of bankruptcy, liquidation, dissolution, reorganization or any
similar proceeding regarding Leiner, or any default in payment or acceleration
of any debt thereof, the assets of Leiner will be available to pay obligations
on the Notes only after the senior debt of Leiner has been paid in full, and
12
<PAGE>
there may not be sufficient assets remaining to pay amounts due on all or any of
such Notes. See "Description of the Notes--Subordination."
RESTRICTIVE FINANCING COVENANTS. The Credit Facility contains a number of
covenants that significantly restrict the operations of the Company. In
addition, the Company is required to comply with specified financial ratios and
tests, including minimum net worth requirements, maximum leverage ratios,
minimum fixed charge coverage ratios and minimum EBITDA to cash interest expense
ratios, and certain of these ratios and tests may be more restrictive in future
years. There can be no assurance that the Company will be able to comply with
such covenants or restrictions in the future. The Company's ability to comply
with such covenants and other restrictions may be affected by events beyond its
control, including prevailing economic, financial and industry conditions. The
breach of any such covenants or restrictions could result in a default under the
Credit Facility that would permit the lenders thereunder to declare all amounts
outstanding thereunder to be immediately due and payable, together with accrued
and unpaid interest, and terminate their commitments to make further extensions
of credit thereunder, and the Company could be prohibited from making any
payments on the Notes. In addition, the indenture governing the Notes contains a
number of restrictive covenants relating to the Company. These covenants,
however, are subject to a number of exceptions and limitations, and may not
afford holders of the Notes with protection in the event of a highly-leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company that may adversely affect holders of the Notes.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control (as defined
in the indenture governing the Notes), the Company will be required to make an
offer to purchase all of the outstanding Notes at a price equal to 101% of the
principal amount thereof at the date of purchase plus accrued and unpaid
interest, if any, to the date of purchase. The occurrence of certain of the
events that would constitute a Change of Control under the indenture governing
the Notes would constitute a default under the Credit Facility and might
constitute a default under other indebtedness of the Company. In addition, the
Credit Facility prohibits the purchase of the Notes in the event of a Change of
Control, unless and until such time as the indebtedness under the Credit
Facility is repaid in full. The Company's failure to purchase the Notes in such
instance would result in a default under each of the indenture governing the
Notes and the Credit Facility. The inability to repay the indebtedness under the
Credit Facility, if accelerated, could have material adverse consequences to the
Company and to the holders of the Notes. Future indebtedness of the Company may
also contain prohibitions of certain events or transactions that could
constitute a Change of Control or require such indebtedness to be repurchased
upon a Change of Control. In the event of a Change of Control, there can be no
assurance that the Company would have sufficient assets to satisfy all of its
obligations under the Credit Facility and the Notes.
FRAUDULENT TRANSFER CONSIDERATIONS. The incurrence of the indebtedness
evidenced by the Notes may be subject to review under federal bankruptcy law or
relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is
commenced by or on behalf of unpaid creditors of the Company.
CONTROL OF THE COMPANY. North Castle holds approximately 84% of the issued
and outstanding Leiner Group voting common stock. Pursuant to the terms of the
Leiner Group Stockholders Agreement, dated as of June 30, 1997 (the
"Stockholders Agreement"), and entered among Leiner Group, North Castle, AEA
Group, and certain other shareholders represented by AEA Group in connection
with the Recapitalization, the AEA Group has the power to elect one member of
Leiner Group's Board of Directors and North Castle has the power to elect the
remaining directors of Leiner Group, and through Leiner Group, all the directors
of Leiner. Accordingly, North Castle controls the Company and has the power to
appoint new management and approve any action requiring the approval of the
holders of Group common stock, including adopting amendments to Leiner Group's
certificate of incorporation and approving mergers or sales of substantially all
of the Company's assets. There can be no assurance that the interests of North
Castle will not conflict with the interests of the holders of the Notes. Under
North Castle's operating agreement, Mr. Baird has authority and discretion over
the business, affairs and
13
<PAGE>
operations of North Castle. See "Item 10. Directors and Executive Officers" and
"Item 13. Certain Relationships and Related Transactions."
EFFECT OF RESEARCH AND PUBLICITY ON VITAMIN PRODUCT BUSINESS. The Company
believes the growth experienced in the last several years by the vitamin product
business is based largely on national media attention regarding recent
scientific research suggesting potential health benefits from regular
consumption of certain vitamin products. Various studies published since 1992 by
researchers at major universities have suggested an association between regular
consumption of antioxidant supplements such as vitamins E and C and selenium and
a reduced risk of certain diseases and including heart disease, cancer and
Alzheimer's disease. In addition, certain other studies have reported that
consumption of folic acid (a B vitamin) can aid prevention of heart disease and
neural tube birth defects. Such research has been described in major medical
journals, magazines, newspapers and television programs. However, certain recent
studies relating to certain antioxidants have produced results contrary to the
favorable indications of other prior and subsequent studies. The scientific
research to date with respect to antioxidants and certain other of the Company's
products, including Dehydroepiandrosterone ("DHEA") is not conclusive, and there
can be no assurance of future favorable scientific results and media attention,
or the absence of unfavorable or inconsistent findings. In the event of future
unfavorable scientific results or media attention, the Company's sales of
vitamin products could be materially adversely affected.
POTENTIAL FOR INCREASED GOVERNMENT REGULATION. The manufacturing,
processing, formulation, packaging, labeling, advertising and sale of the
Company's products are subject to regulation by one or more United States and
Canadian federal agencies, including FDA, the FTC, CPSC and Health Canada. The
Company's activities are also regulated by various agencies of the states,
provinces, localities and countries in which the Company's products are sold. In
addition, the Company manufactures and markets certain of its products in
compliance with the guidelines promulgated by voluntary standard organizations,
such as the USP. See "--Government Regulations."
RELIANCE ON CERTAIN CUSTOMERS AND CERTAIN PRODUCTS. The Company has over
175 active U.S. customers. In fiscal 1998, Wal-Mart Stores, Inc. and Costco.
accounted for approximately 26% and 10%, respectively, of the Company's sales.
Each of the Company's other major customers accounted for less than 10% of the
Company's sales for fiscal 1998. The Company's top ten customers in the
aggregate accounted for approximately 67% of the Company's sales for fiscal
1998. Sales of vitamins C and E, in the aggregate, accounted for approximately
34% of the Company's sales in fiscal 1998 (excluding sales by Vita Health). If
one or more of the Company's major customers substantially reduced their volume
of purchases from the Company, or if sales of vitamin C or E were substantially
reduced, the Company's results of operations could be materially adversely
affected.
DISRUPTION OF OPERATIONS. Beginning in fiscal 1994, the Company implemented
a major facilities consolidation, capacity expansion and equipment modernization
program with respect to its western U.S. facilities, whereby the Company
consolidated its western U.S. facilities into a smaller number of larger units
with modern equipment and expanded capacity for the purpose of realizing certain
cost savings and manufacturing efficiencies. The Company believes further cost
reduction opportunities exist with respect to its eastern U.S. facilities and
plans to consolidate its three existing eastern U.S. packaging and distribution
facilities into a new facility in York County, South Carolina, an area just
south of Charlotte, North Carolina. While the Company believes that this program
will reduce the Company's manufacturing and distribution costs, there can be no
assurance that the expected cost reductions will be realized or that this
program will result in improved profit margins. A significant, unexpected
disruption during the expansion of this program to the Company's eastern U.S.
facilities could have a material adverse effect on the Company's results of
operations.
POTENTIAL FOR INCREASED COMPETITION. The market for the Company's products
is highly competitive. The Company competes with other vitamin product and OTC
pharmaceuticals manufacturers. Among other factors, competition among these
manufacturers is based upon price. If one or more manufacturers
14
<PAGE>
significantly reduce their prices in an effort to gain market share, the
Company's results of operations or market position could be adversely affected.
Certain of the Company's competitors, particularly manufacturers of nationally
advertised brand name products, are larger and have resources substantially
greater than those of the Company, and are less leveraged than the Company. In
the future, one or more of these companies could seek to compete more directly
with the Company by manufacturing private label products or by significantly
lowering the prices of their national brand products.
The Company sells substantially all of its vitamin products to Mass Market
and warehouse club retailers. Although the Company does not currently
participate significantly in other channels such as health food stores, direct
mail and direct sales, the Company's products may face competition from such
alternative channels as more customers utilize these channels of distribution to
obtain vitamin products.
RELIANCE ON CERTAIN SUPPLIERS; AVAILABILITY AND COST OF PURCHASED
MATERIALS. The Company purchases from third party suppliers certain important
ingredients and products that the Company cannot manufacture. Although the
Company currently has supply arrangements with several suppliers of these
ingredients and products, and the Company's purchased materials are generally
available from numerous sources, an unexpected interruption of supply could
materially adversely affect the Company's results of operations. See
"--Purchased Materials."
POSSIBILITY OF TRADE DRESS CLAIMS. The Company's packaging of certain of
its branded products identifies nationally branded products to which the
Company's products are comparable. Although the Company designs its packaging to
avoid infringing upon any proprietary rights of national brand marketers and is
not currently the subject of any legal actions regarding infringement, there can
be no assurance that the Company will not be subject to such legal actions in
the future.
EXPOSURE TO PRODUCT LIABILITY CLAIMS. The Company, like other retailers,
distributors and manufacturers of products that are ingested, faces an inherent
risk of exposure to product liability claims in the event that, among other
things, the use of its products results in injury. With respect to product
liability coverage, the Company currently has an aggregate of $81.0 million of
insurance coverage, including primary product liability and umbrella liability
coverage with deductibles of $0.25 million per claim, subject to an annual
aggregate deductible limit of $1 million. There can be no assurance that product
liability insurance will continue to be available at an economically reasonable
cost or that the Company's insurance will be adequate to cover liability the
Company incurs in respect of product liability claims. See also "Item 3. Legal
Proceedings and Product Liability."
RELIANCE ON KEY MANAGEMENT. The operation of the Company requires
managerial and operational expertise. Leiner does not have employment contracts
with any of its executive officers. Leiner has entered severance benefit
agreements with certain members of Leiner senior management. See "Item 11.
Executive Compensation--Severance Arrangements." If, for any reason, key
personnel do not continue to be active in Leiner management, operations could be
adversely affected.
ACQUISITION RELATED RISKS. Part of the Company's business strategy has been
and will continue to be to acquire other businesses that will complement its
existing business. Management is unable to predict whether or when any
prospective acquisition candidates will become available or the likelihood of a
material transaction being completed should any negotiations commence. The
Company's ability to finance acquisitions may be constrained by, among other
things, its high degree of leverage. The Credit Facility and the indenture which
governs the Notes may significantly limit the Company's ability to make
acquisitions and to incur indebtedness in connection with acquisitions. In
addition, acquisitions that the Company may make or in which the Company may
enter will involve risks, including the successful integration and management of
acquired technology, operations and personnel. The integration of acquired
businesses may also lead to the loss of key employees of the acquired companies
and diversion of management attention from ongoing business concerns. There can
be no assurance that any acquisition
15
<PAGE>
will be made, that the Company will be able to obtain additional financing
needed to finance such transactions and, if any acquisitions are so made or
formed, that they will be successful.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS. The Company's continued growth
is dependent in part upon its ability to expand its operations into new markets,
including international markets. The Company may experience difficulty entering
new international markets due to greater regulatory barriers, the necessity of
adapting to new regulatory systems and problems related to entering new markets
with different cultural bases and political systems. Operating in international
markets exposes the Company to certain risks, including, among other things, (i)
changes in or interpretations of foreign import, currency transfer and other
restrictions and regulations that among other things may limit the Company's
ability to sell certain products or repatriate profits to the United States,
(ii) exposure to currency fluctuations, particularly in light of the Company's
substantial interest payment obligations, which must be paid in United States
and Canadian dollars, (iii) the potential imposition of trade or foreign
exchange restrictions or increased tariffs and (iv) economic and political
instability. As the Company continues to expand its international operations,
these and other risks associated with international operations are likely to
increase.
LITIGATION INVOLVING PRODUCTS CONTAINING L-TRYPTOPHAN. The Company has been
named in numerous actions brought in federal or state courts seeking
compensatory and, in some cases, punitive damages for alleged personal injuries
resulting from the ingestion of certain products containing L-Tryptophan. See
"Item 3. Legal Proceedings and Product Liability."
16
<PAGE>
ITEM 2
PROPERTIES
The following table sets forth the location, type of facility, square
footage and ownership interest in each of the Company's principal facilities. In
addition to the facilities shown below, the Company has entered into an
arrangement pursuant to which a new 535,000 square foot facility in Fort Mill,
South Carolina will be purchased by a third party and leased to the Company for
an extended term. The Company also leases certain additional office space
throughout the United States.
<TABLE>
<CAPTION>
APPROX. LEASED DATE OF
SQUARE OR LEASE
LOCATION TYPE OF FACILITY FEET OWNED EXPIRATION
- ----------------------------- ------------------------------------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Carson, CA................... Packaging, distribution and corporate
offices 471,500 Leased 3/31/04(1)
Carson, CA................... Distribution and offices 80,343 Leased 3/31/04
Carson, CA................... Auxiliary warehouse 30,000 Leased Mo.-to-mo.
Garden Grove, CA............. Manufacturing 138,500 Leased 10/31/02
Garden Grove, CA............. Manufacturing 6,960 Leased 5/31/01
Kalamazoo, MI................ Manufacturing 51,250 Owned --
Kalamazoo, MI................ Auxiliary warehouse 10,000 Leased Mo.-to-mo.
Winnipeg, Canada............. Manufacturing, packaging, distribution 100,000 Owned --
West Unity, OH............... Packaging 109,786 Leased 5/31/99(2)
West Unity, OH............... Distribution 66,000 Leased 5/31/99(3)
Madison, WI.................. Packaging and distribution 95,500 Owned --
Madison, WI.................. Auxiliary warehouse 40,000 Leased Mo.-to-mo.
Sherburne, NY................ Packaging and distribution 10,300 Owned --
Sherburne, NY................ Auxiliary warehouse 13,600 Leased Mo.-to-mo.
Chicago, IL.................. Not in use; held for sale 379,000 Owned --
Fort Mill, SC................ Manufacturing, packaging and distribution
(for short-term use) 121,767 Leased 5/31/98
</TABLE>
- ------------------------
(1) The Company has the option to extend by 10 years.
(2) The Company has opted to cancel this lease, effective December 19, 1998.
(3) The Company has opted to cancel this lease, effective November 5, 1998.
The Company believes that its facilities and equipment generally are well
maintained and in good operating condittion.
Leiner's active manufacturing and distribution facilities consist of
approximately 1.0 million square feet of owned or leased plant and office
facilities in six locations and five states. The Company also recently added
Vita Health's site in Canada and announced the construction of a new plant in
South Carolina. Combined, the Company is the largest manufacturer in the North
American vitamin products industry and is capable of packaging over 18 billion
doses each year. In April 1995, Leiner was the first major vitamin product
manufacturer to be certified as being in compliance with USP's vitamin
manufacturing standards, which became effective in January 1995. The Company's
U.S. facilities were audited by an independent quality assurance laboratory and
received the laboratory's highest categorical rating. All of
17
<PAGE>
the Company's U.S. manufacturing facilities also have been audited by the FDA
and have been found to be in compliance with the FDA's cGMP.
Leiner has two U.S. manufacturing facilities, which are located in Garden
Grove, California and Kalamazoo, Michigan. The primary manufacturing facility
for the Company's vitamin products is its 138,500 square foot Garden Grove
plant. The primary manufacturing facility for the Company's OTC pharmaceuticals
is the Company's 51,250 square foot Kalamazoo plant. In the event of a
catastrophic casualty to one of the Company's primary vitamin or OTC tableting
facilities, the Company has the ability to shift production to other facilities.
The Company operates 45 tableting machines in its Garden Grove, California
facility and 23 tableting machines in its Kalamazoo, Michigan facility. The
Company currently operates four packaging and distribution facilities, which are
located in Carson, California; West Unity, Ohio; Madison, Wisconsin; and
Sherburne, New York. These facilities are equipped with a total of 35 packaging
lines, and, as with tableting, products can be shifted between facilities in the
event such a need arises.
The Company is in the process of establishing a new 535,000 square foot
regional manufacturing and distribution center in Fort Mill, South Carolina. The
center will serve the Company's retail customers throughout the eastern United
States and will employ approximately 700 employees when it becomes fully
operational within the next three years. Construction of the facility has begun.
The Company has begun training the staff required for initial operations at a
temporary 121,767 square foot facility adjacent to the permanent site of the
Fort Mill center. Occupancy of the permanent site is expected by late summer of
1998. Within the first year of operation at the permanent site, the Company
plans to hire up to 420 employees to work at the new center. The majority of
these employees will be recruited from the local labor force with a smaller
percentage relocating from the Company's other facilities. As the new facility
becomes operational, the West Unity, Ohio facility will be closed. The Company
has established accounting reserves in connection with the anticipated closure
of the West Unity facility, which the Company believes are adequate.
Vita Health currently tablets, bottles and packages its products in a
modern, 100,000 square foot facility in Manitoba. The facility contains 80,000
square feet of manufacturing and distribution space and 20,000 square feet of
office space.
ITEM 3
LEGAL PROCEEDINGS AND PRODUCT LIABILITY
The Company is currently engaged in various legal actions and governmental
proceedings, and, although ultimate liability cannot be determined at the
present time, the Company is currently of the opinion that the amount of any
such liability from these other actions and proceedings, when taking into
consideration the Company's product liability coverage, will not have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability coverage, the Company
currently has an aggregate of $81 million of insurance coverage, including
primary products liability and umbrella liability coverage with deductibles of
$0.25 million per claim subject to an annual, aggregate deductible limit of $1
million.
The Company has been named in numerous actions brought in federal or state
courts seeking compensatory and, in some cases, punitive damages for alleged
personal injuries resulting from the ingestion of certain products containing
L-Tryptophan. As of May 5, 1998, the Company and/or certain of its customers,
many of whom have tendered their defense to the Company, had been named in 668
lawsuits of which 660 have been settled. The Company's supplier of bulk
L-Tryptophan has agreed to assume the
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<PAGE>
defense of all claims (including any future claims that may be made) and pay all
settlements and judgments, other than for certain punitive damages, against the
Company arising out of the ingestion of these L-Tryptophan products. To date,
such supplier has funded all settlements and paid all legal fees and expenses
incurred by the Company related to these matters. No punitive damages have been
awarded or paid in the 660 cases that have been settled. Of the remaining 8
cases, management does not expect that the Company will be required to make any
material payments in connection with their resolution by virtue of the
Agreement, or, in the event that the supplier ceases to honor the Agreement, by
virtue of the Company's product liability insurance, subject to deductibles with
respect to the 8 currently pending claims not to exceed $1.3 million in
aggregate. Accordingly, no provision has been made in the Company's consolidated
financial statements for any loss that may result from these remaining actions.
The Company is subject to other legal proceedings and claims which arise in
the normal course of business. While the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
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<PAGE>
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no trading market for the Company's Common Stock. All of the
outstanding shares of the Company's Common Stock are held by PLI Holdings.
Except in connection with the consummation of the Recapitalization, the Company
did not pay any dividends in fiscal 1998.
ITEM 6
SELECTED FINANCIAL DATA
The following table presents selected historical financial data derived from
the consolidated financial statements of the Company. This data should be read
in conjunction with Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operation, and Item 8, Financial Statements and
Supplementary Data.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997(1) 1998
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $ 303.6 $ 314.7 $ 338.4 $ 392.8 $ 502.1
Cost of sales.................................................... 226.0 236.6 253.3 288.6 368.6
--------- --------- --------- --------- ---------
Gross profit..................................................... 77.6 78.1 85.1 104.2 133.5
Operating expenses............................................... 59.5 59.7 62.6 72.7 92.1
Expenses related to recapitalization of parent(2)................ -- -- -- -- 32.8
Amortization of goodwill......................................... 1.6 1.6 1.6 1.5 1.7
Closure of facilities and impairment of long-lived
assets(3)(4)................................................... -- -- 4.7 1.4 1.2
Management reorganization(5)..................................... -- -- -- 1.0 --
Other charges(6)................................................. 2.4 0.5 0.5 0.9 1.3
--------- --------- --------- --------- ---------
Operating income................................................. 14.1 16.3 15.8 26.7 4.4
Other expenses................................................... -- -- -- -- 0.1
Interest expense, net............................................ 7.1 9.0 9.9 8.3 19.5
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item......... 7.0 7.3 5.9 18.4 (15.1)
Provision for income taxes before extraordinary item............. 3.6 3.5 4.7 8.0 1.2
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item.......................... 3.4 3.8 1.2 10.4 (16.3)
Extraordinary loss, net of taxes................................. -- -- -- 2.8 1.1
--------- --------- --------- --------- ---------
Net income (loss)................................................ $ 3.4 $ 3.8 $ 1.2 $ 7.6 $ (17.4)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................................................. $ 63.8 $ 61.7 $ 72.3 $ 79.4 $ 106.1
Total assets..................................................... 244.6 257.4 251.3 284.6 365.8
Total debt....................................................... 98.5 106.7 104.2 105.4 258.8
Minority interest in subsidiary.................................. -- -- -- 4.7 1.0
Total common shareholder's equity (deficit)...................... 67.7 71.5 72.7 80.2 (29.9)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------------
1994 1995 1996 1997(1) 1998
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin..................................................... 25.6% 24.8% 25.2% 26.5% 26.6%
EBITDA(7)........................................................ $ 23.4 $ 27.0 $ 32.9 $ 38.1 $ 27.3
EBITDA margin(7)................................................. 7.7% 8.6% 9.7% 9.7% 5.4%
Depreciation and amortization(8)................................. $ 7.2 $ 10.5 $ 12.3 $ 12.3 $ 13.3
Capital expenditures............................................. 15.0 16.7 3.5 3.5 14.4
Cash flows from operating activities............................. (17.1) 13.1 12.7 23.2 (18.4)
Cash flows from investing activities............................. (18.3) (21.9) (8.7) (8.5) (18.9)
Cash flows from financing activities............................. 36.9 7.3 (2.6) (13.8) 36.1
Ratio of total debt to EBITDA(7)................................. 4.2x 4.0x 3.2x 2.8x 9.5x
Ratio of EBITDA to interest expense(7)........................... 3.3 3.1 3.4 4.7 1.5
Ratio of earnings to fixed charges(9)............................ 1.8 1.7 1.5 2.9 --
</TABLE>
- ------------------------
(1) On January 30, 1997, the Company purchased Vita Health. The Vita Health
acquisition was accounted for under the purchase method of accounting.
Consequently, the results of operations of Vita Health were included in the
consolidated financial results of the Company for two months ended March 31,
1997.
(2) Represents non-recurring charges relating to the Recapitalization,
consisting of (x) a compensation charge incurred by the Company for the
in-the-money value of existing stock options of $15.6 million which were (i)
converted into an equivalent value of Equity Rights at the date of the
Recapitalization, (ii) paid out in cash, or (iii) exercised for common stock
(or a combination thereof), (y) $5.2 million in transaction bonuses which
were paid to members of the Company's management subsequent to the
Recapitalization, and (z) expenses aggregating $12.0 million incurred by
Leiner Group in connection with its capital raising activities. These
non-recurring charges contributed significantly to the Company's net loss of
$17.4 million for fiscal 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Fiscal
1998 Compared to Fiscal 1997."
(3) During fiscal 1996, the Company decided to significantly reduce the size of
its OTC liquid pharmaceuticals manufacturing business. Accordingly, the
Company determined that certain long-lived assets with a carrying amount of
$8.3 million were impaired and wrote them down by $4.7 million to their
estimated fair value. During fiscal 1997, the Company closed the
manufacturing facility and out-sourced the production to a third party. The
costs incurred of $1.4 million include (i) the write-off of fixed assets of
$0.8 million and (ii) closure costs including salaries in conjunction with
the facility closing of $0.6 million. The expense does not include an
additional charge to cost of sales of $0.5 million for the write-off of
certain liquid OTC inventory which was no longer being manufactured by the
Company.
(4) During fiscal 1998, the Company announced the closure of its West Unity,
Ohio facility. Accordingly, the Company has reserved $1.2 million for
closure costs of which $0.7 million is related to severance costs and $0.5
million is related to other closure costs.
(5) During fiscal 1997, the Company reorganized the management team. Expenses of
$1.0 million include severance expense for the previous Chief Financial
Officer, Vice President of Product Development and Vice President of
Corporate Development and include the hiring and relocation expenses for the
new Chief Financial Officer and other corporate officers.
(6) Other charges for the fiscal years ended March 31, 1994 through March 31,
1998 include management fees paid to related parties. Other charges also
include costs related to the original acquisition of Leiner by the AEA Group
and compensation expense arising from the sale of shares of common stock to
management in connection with the acquisition of Leiner by the AEA Group in
the fiscal year ended March 31, 1993, the write-off of deferred charges
associated with the refinancing of the Company's revolving credit facility
in the fiscal year ended March 31, 1994 and expenses incurred in
21
<PAGE>
connection with the withdrawn initial public offering in the fiscal year
ended March 31, 1997. Other charges also include, in the fiscal years ended
March 31, 1994 through March 31, 1997, non-cash compensation expense arising
from the granting of stock options.
(7) For purposes of calculating the ratio of EBITDA to interest expense,
interest expense excludes the amortization of deferred financing fees, which
is included in interest expense in the income statement in the consolidated
financial statements.
"EBITDA," as presented, represents earnings before interest expense, income
taxes, depreciation and amortization and other non-cash charges, consisting
of (i) the write off of deferred financing charges, net of income taxes,
included as an extraordinary item in the statements of operations for fiscal
1997 and fiscal 1998, (ii) non-cash stock compensation charges, including
those recorded in connection with the Recapitalization (see Note 2), (iii)
expenses related to the impairment and closure of the OTC liquid
pharmaceuticals manufacturing facility in fiscal 1996 and 1997 (see Note 3),
(iv) expenses related to the closure of the West Unity, Ohio facility in
fiscal 1998 (see Note 4), and (v) other non-cash charges in fiscal 1994 and
fiscal 1997.
EBITDA is calculated as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ----------
Net income (loss)...................................... $ 3,417 $ 3,813 $ 1,166 $ 7,638 $ (17,417)
Add back:
Interest expense, net................................ 7,144 9,010 9,924 8,281 19,494
Income taxes......................................... 3,573 3,524 4,686 8,028 1,196
Depreciation and amortization(8)..................... 7,247 10,514 12,288 12,309 13,349
Extraordinary item................................... -- -- -- 295 1,109
Compensation related to stock options................ 264 132 132 99 8,300
Closure of facilities and impairment of long-lived
asset.............................................. -- -- 4,730 1,416 1,221
Other non-cash charges............................... 1,753 -- -- 18 --
--------- --------- --------- --------- ----------
Subtotal........................................... 19,981 23,180 31,760 30,446 44,669
--------- --------- --------- --------- ----------
EBITDA............................................. $ 23,398 $ 26,993 $ 32,926 $ 38,084 $ 27,252(a)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
----------------------------
(a) Excluding the Recapitalization-related expenses, EBITDA would have been
$51.8 million for fiscal 1998.
Although EBITDA (as well as related EBITDA ratios) is a non-GAAP
measurement, EBITDA, EBITDA margin, the ratio of total debt to EBITDA and
the ratio of EBITDA to interest expense are included because management
understands that such information is considered by certain investors to be
an additional basis for evaluating the Company's ability to pay interest,
repay debt and make capital expenditures. EBITDA should not be considered an
alternative to measures of operating performance as determined in accordance
with generally accepted accounting principles, including net income as a
measure of the Company's operating results and cash flows as a measure of
the Company's liquidity. Because EBITDA is not calculated identically by all
companies, the presentation herein may not be comparable to other similarly
titled measures of other companies.
(8) Depreciation and amortization as presented does not include the amortization
of deferred financing fees. In the cash flow statement in the consolidated
financial statements, the amortization of deferred financing fees is
included in depreciation and amortization.
(9) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing fees, whether capitalized or
expensed, plus one-third of rental expense under operating leases (the
portion that has been deemed by the Company to be representative of an
interest factor). Earnings were inadequate to cover fixed charges by $15.0
million for the year ended March 31, 1998.
22
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of the Company contained elsewhere in this report. The Company's
fiscal year ends on March 31 of each year. References herein to a "fiscal" year
refer to the Company's fiscal year ended March 31 in the calendar year indicated
(e.g., references to fiscal 1998 are references to the Company's fiscal year
ended March 31, 1998).
GENERAL
CURRENT TRENDS. The Company believes that overall trends in the vitamin
industry are the most significant trends affecting the Company's financial
performance. For the 52 week period ended March 29, 1998, sales for the U.S.
Mass Market increased over 24% versus the comparable period in the prior year.
According to industry sources, between 1992 and 1997, sales for the Mass Market
grew at a compound annual rate of approximately 12% to $2.5 billion, as the
percentage of American adults regularly using vitamins grew from 35% to 43%.
Between 1996 and 2005, the 50 to 64 age group is projected to be the fastest
growing segment of the United States population. Gallup polling data shows that
vitamin usage increases significantly with age, with 53% of individuals over age
50 regularly using vitamins, compared with 38% of younger adults.
Increasing vitamin usage among the general population is linked to three
major factors. First, research expenditures devoted to the positive effects of
vitamin products have increased dramatically. Such research has been described
in major medical journals and reported in the popular media. Second, the
national trend towards improved fitness, greater self-care and preventive
medicine has increased the general population's focus on nutritional products
consumption. Finally, the more favorable regulatory environment resulting from
the DSHEA has generated increased new product introductions and more effective
point of sale communication of the health benefits of vitamins to consumers.
However, as has been the case in the past, adverse scientific research or
publicity concerning the health benefits of vitamin consumption can materially
impact the growth of the vitamin market.
Beginning in fiscal 1996 and continuing through fiscal 1998, the retail
drugstore industry experienced several major consolidations. The Company
provides private label vitamin products to the 9 of the 10 largest drugstore
chains in the United States and believes it has strong relationships with the
leading drugstore chains. Consequently, management believes the Company is well
positioned to benefit from this consolidation trend due to (i) its strong
relationships with the acquiring companies in the largest consolidations and
(ii) the anticipated reduction in the number of vendors as the consolidated
companies streamline their purchasing. A number of the Company's customers made
significant acquisitions or were acquired during this period, with CVS
Corporation acquiring Revco D.S., Inc. and Arbor Drugs, Inc. and Rite Aid
Corporation acquiring Thrifty-Payless Inc., Harco, Inc. and Katz & Besthoff,
Incorporated. The Company believes that the consolidation of major drugstore
chains has had a positive effect on its sales and that the increased purchasing
scale of the consolidated retailers increases the relative importance of each of
these customers to the Company's financial performance.
RECAPITALIZATION ACCOUNTING; FINANCIAL STATEMENT PRESENTATION; PARENT
COMPANY. The Recapitalization was accounted for as a recapitalization of Leiner
Group, which had no impact on the historical basis of assets and liabilities as
reflected in the consolidated financial statements of Leiner Group or the
Company. The Recapitalization involved significant changes to the Company's
capital structure, which resulted in higher reported interest expense. As a
result, operating results for the periods subsequent to the Recapitalization
Date are not comparable in all material respects to earlier periods. Other than
with respect to redeemable preferred stock of Leiner Group, which was redeemed
in connection with the
23
<PAGE>
Recapitalization, the consolidated financial statements of Leiner Group and
Leiner for the periods discussed below are not materially different.
SEASONALITY
Leiner's business is seasonal, as increased vitamin usage corresponds with
the cough, cold and flu season. A significant portion of the Company's sales and
a more significant portion of the Company's operating income, therefore, occurs
in the second half of the fiscal year as reflected in the table below:
<TABLE>
<CAPTION>
NET SALES OPERATING INCOME (LOSS)
----------- -----------------------
<S> <C> <C>
Fiscal 1998
First quarter........................................... $ 94.1 $ (28.2)
Second quarter.......................................... 112.2 5.3
Third quarter........................................... 132.5 11.5
Fourth quarter.......................................... 163.3 15.8
----------- ------
$ 502.1 $ 4.4(1)
----------- ------
----------- ------
Fiscal 1997
First quarter........................................... $ 70.6 $ 2.4
Second quarter.......................................... 85.6 1.1
Third quarter........................................... 104.3 9.3
Fourth quarter.......................................... 132.3 13.9
----------- ------
$ 392.8 $ 26.7(2)
----------- ------
----------- ------
Fiscal 1996
First quarter........................................... $ 62.7 $ 1.5
Second quarter.......................................... 78.7 2.6
Third quarter........................................... 94.8 5.9
Fourth quarter.......................................... 102.2 5.8
----------- ------
$ 338.4 $ 15.8(3)
----------- ------
----------- ------
</TABLE>
- ------------------------
(1) Includes expenses of $15.6 million related to stock option compensation,
$5.2 million of management bonuses and expenses incurred by Leiner Group in
connection with its capital raising activities of $12.0 million, all of
which were incurred in connection with the Recapitalization. Without these
expenses, operating income would have been $4.1 million for the first
quarter of fiscal 1998 and $37.2 million for fiscal 1998. See Note 3 of
Notes to Consolidated Financial Statements.
(2) Includes expenses incurred in connection with the closure of the OTC liquid
pharmaceuticals manufacturing facility, a management reorganization,
non-cash stock compensation expense and the preparation of a registration
statement in connection with a withdrawn initial public offering. See Note 5
of Notes to Consolidated Financial Statements.
(3) Includes charges for long-lived asset impairment of $4.7 million recorded in
the fourth quarter of fiscal 1996 and non-cash stock compensation expense.
See Note 5 of Notes to Consolidated Financial Statements.
24
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of net sales for the fiscal years ended March 31,
1998, 1997 and 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------
FOR THE FISCAL YEARS ENDED
MARCH 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales.............................................................................. 100.0% 100.0% 100.0%
Cost of sales.......................................................................... 73.4 73.5 74.8
--------- --------- ---------
Gross profit........................................................................... 26.6 26.5 25.2
Marketing, selling and distribution expenses........................................... 12.5 13.1 13.1
General and administrative expenses.................................................... 5.9 5.4 5.4
Expenses related to recapitalization of parent......................................... 6.5 -- --
Amortization of goodwill............................................................... 0.3 0.4 0.5
Closure of facilities and impairment of long-lived asset............................... 0.2 0.3 1.4
Management reorganization.............................................................. -- 0.3 --
Other charges.......................................................................... 0.3 0.2 0.1
--------- --------- ---------
Operating income....................................................................... 0.9 6.8 4.7
Other expenses......................................................................... -- -- --
Interest expense, net.................................................................. 3.9 2.1 2.9
--------- --------- ---------
Income (loss) before income taxes and extraordinary item............................... (3.0) 4.7 1.7
Provision for income taxes before extraordinary item................................... 0.2 2 1.4
--------- --------- ---------
Income (loss) before extraordinary item................................................ (3.2) 2.6 0.3
Extraordinary loss, net of income taxes................................................ 0.2 0.7 --
--------- --------- ---------
Net income (loss)...................................................................... (3.5)% 1.9% 0.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased by $109.3 million, or 27.8%, over fiscal
1997, from $392.8 million to $502.1 million. Sales from Vita Health, which was
acquired in January 1997, accounted for $27.9 million of this increase.
Excluding Vita Health sales, the Company's net sales increased $81.4 million, or
21.0%, over fiscal 1997 due primarily to sales growth in the vitamin market.
Excluding Vita Health sales, vitamin product sales increased by $87.1 million,
or 27.3%, compared to the prior year. Management estimates that the overall U.S.
Mass Market grew by over 24% during the 52 week period ended March 29, 1998
compared to the comparable prior year period. Strong demand for herbal products
and supplements has pushed the vitamin sales volume higher in the current year.
Additionally, an increase in the volume of multi-vitamin sales also contributed
to the vitamin product sales increase. Sales of OTC pharmaceuticals, excluding
Vita Health, decreased by $7.2 million, or 12.0%, compared to the prior year.
This decrease in sales was due to strong competitive pressure and lost
distribution at two customers. It is also consistent with low sales growth in
the OTC market generally.
Gross profit margin for fiscal 1998 was 26.6% versus 26.5% in the year ago
period. Gross profit increased $29.3 million, or 28.1%, from $104.2 million in
fiscal 1997 to $133.5 million in fiscal 1998. Excluding Vita Health, the
increase in gross profit was $21.4 million, or 20.8%. The increase in gross
profit is primarily attributed to the higher sales volume.
Marketing, selling and distribution expenses together with general and
administrative expenses (collectively, "Operating Expenses") increased $19.4
million, or 26.7%, in fiscal 1998 when compared to fiscal 1997. Of this
increase, Vita Health accounted for $5.2 million. Operating Expenses for fiscal
1998 totaled $92.1 million, representing 18.4% of net sales, showing a slight
improvement over the prior year in
25
<PAGE>
which Operating Expenses totaled $72.7 million or 18.5% of net sales. Fiscal
1998 marketing expenses were lower as a percentage of net sales versus fiscal
1997 because of the change in the timing and the reduction of advertising and
promotional expenditures. General and administrative expenses for fiscal 1998
are higher versus fiscal 1997 as a percentage of net sales primarily due to the
Company building an infrastructure to pursue alternative market channels.
In fiscal 1998, the Company recorded compensation expenses related to the
in-the-money value of stock options issued to certain management personnel of
$15.6 million, management bonuses of $5.2 million, and expenses incurred by
Leiner Group in connection with its capital raising activities of $12.0 million,
all of which related to the Recapitalization.
Goodwill amortization of $1.7 million in fiscal 1998 and $1.5 million in
fiscal 1997 related to the goodwill arising from the acquisitions of Leiner,
XCEL Laboratories, Inc. and Vita Health.
During fiscal 1998, the Company announced its plans to close its West Unity,
Ohio facility in the second quarter of fiscal 1999. As a result, the Company
reserved $1.2 million primarily for severance and relocation costs related to
the closure in fiscal 1998. In fiscal 1997, the Company recorded a charge to its
operations in connection with the closure of its OTC liquid pharmaceuticals
manufacturing facility.
In fiscal 1997, the Company reorganized its management team. Expenses of
$1.0 million were incurred relating to severance for the previous Chief
Financial Officer, Vice President of Product Development and Vice President of
Corporate Development, and include hiring and relocation expenses for the new
Chief Financial Officer and other corporate officers.
Other charges for fiscal 1998 were $1.3 million versus $0.9 million in
fiscal 1997. The increase was due primarily to increased management fees as a
result of a consulting agreement entered into in connection with the
Recapitalization. See "Item 13. Certain Relationships and Related Transactions."
Primarily due to the impact of the Recapitalization-related expenses, the
Company had operating income of only $4.4 million for fiscal 1998. Without these
Recapitalization-related expenses, the operating income would have been $37.2
million representing an increase of $10.5 million, or 39.3%, over the prior
fiscal year.
Net interest expense increased by $11.2 million during fiscal 1998, compared
to fiscal 1997. Net interest expense during fiscal 1998 was $19.5 million,
compared to $8.3 million for fiscal 1997. This was due to an increase in the
indebtedness of the Company, as well as changes in the debt structure and
interest rates arising as a result of the Recapitalization and taking effect at
the end of the first quarter of fiscal 1998.
The provision for income taxes for fiscal 1998 was $1.2 million, which
compares to $8.0 million for fiscal 1997. The Company's effective tax rate is 8%
for fiscal 1998 in spite of the recorded net loss before taxes primarily because
of the nondeductability of goodwill amortization, certain Recapitalization
expenses and certain accruals.
The extraordinary loss recorded in fiscal 1998 represented the write off of
$1.9 million of deferred financing charges which had been incurred by the
Company when it entered into a credit facility on January 30, 1997. The income
tax effect of that charge was a benefit of $0.8 million.
Primarily as a result of the previously discussed factors, a net loss of
$17.4 million was recorded in fiscal 1998 compared to net income of $7.6 million
recorded in fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased by $54.4 million, or 16.1%, to $392.8 million for fiscal
1997 from $338.4 million for fiscal 1996. Net sales for fiscal 1997 include $4.6
million of sales for Vita Health, which was acquired in January 1997. Vitamin
product sales, including Vita Health, increased by $54.0 million, or 20.2%, to
26
<PAGE>
$321.7 million for fiscal 1997 from $267.7 million for fiscal 1996. The increase
was principally attributable to unit sales increases and selective price
increases in most major types of vitamin products including vitamin E, the
growth of the Company's herbal product line introduced in fiscal 1996 and fiscal
1997, including products such as echinacea and ginkgo biloba, and the Company's
introduction of new nutritional supplements, including products such as DHEA and
shark cartilage, as well as the added sales from Vita Health.
OTC pharmaceutical sales increased by $2.5 million, or 4.3%, to $61.3
million for fiscal 1997 from $58.8 million for fiscal 1996. The increase was
principally due to market growth and the acquisition of Vita Health.
Gross profit increased $19.1 million, or 22.4%, to $104.2 million for fiscal
1997 from $85.1 million for fiscal 1996. The gross margin also improved to 26.5%
in fiscal 1997 from 25.2% in fiscal 1996. The increase in the gross profit
margin was principally due to a decrease in the Company's manufacturing costs
from the investment in manufacturing equipment and facility consolidations
during the last four fiscal years and increased sales of higher margin new
products and the Company's YOUR LIFE-REGISTERED TRADEMARK- brand.
Operating Expenses increased $10.1 million, or 16.1%, to $72.7 million for
fiscal 1997 from $62.6 million in fiscal 1996. Expressed as a percentage of
sales, Operating Expenses remained essentially flat at 18.5% in fiscal 1997 and
fiscal 1996. The dollar increase in Operating Expenses was partially driven by
the Company's investment of approximately $2.7 million in a national radio
advertising campaign (versus $1.1 million in 1996), and an increase in other
promotional expenses.
During fiscal 1997, the Company closed its OTC liquid pharmaceuticals
manufacturing facility and out-sourced the production to a third party. As a
result, the Company incurred costs in fiscal 1997 of $1.4 million comprised of
(i) the write-off of fixed assets of $0.8 million and (ii) closure costs
including salaries in conjunction with the closing of $0.6 million. An
additional expense of $0.5 million for the write-off of certain liquid OTC
inventory which was no longer being manufactured by the Company was also
incurred and is included in cost of goods sold. The closure decision was made in
fiscal 1997 based on an evaluation of the OTC liquids pharmaceutical business,
as a result of which it was determined that it was more cost effective to
out-source this production to a third party. As a result of an earlier decision
in fiscal 1996 to reduce production, the Company recognized a long-lived asset
impairment charge of $4.7 million in fiscal 1996.
In fiscal 1997, the Company reorganized its management team. Expenses of
$1.0 million were incurred relating to severance for the previous Chief
Financial Officer, Vice President of Product Development and Vice President of
Corporate Development, and include hiring and relocation expenses for the new
Chief Financial Officer and other corporate officers.
Goodwill amortization of $1.5 million in fiscal 1997 and $1.6 million in
fiscal 1996 related to the goodwill arising from the acquisitions of Leiner,
XCEL and Vita Health. Other charges of $0.9 million for fiscal 1997 included
management fees paid to AEA, the write-off of expenses incurred in connection
with Leiner Group's withdrawn initial public offering and compensation expense
arising from the grant of stock options to certain members of management in
fiscal 1994. Other charges of $0.5 million for fiscal 1996 included management
fees paid to AEA and stock compensation expense.
Primarily as a result of the factors discussed above, operating income
increased by $10.9 million to $26.7 million for fiscal 1997 from $15.8 million
for fiscal 1996.
Net interest expense decreased by $1.6 million to $8.3 million in fiscal
1997 from $9.9 million in fiscal 1996. The decrease was principally due to a
reduction in the Company's outstanding indebtedness prior to the Vita Health
Acquisition. Additionally, the Company refinanced all of its outstanding
indebtedness in January 1997, which reduced the Company's average interest cost.
The interest rates on the majority of the Company's then existing debt were
based upon variable rates that are a spread above either LIBOR or prime rates.
27
<PAGE>
The Company's effective income tax rate of approximately 44% for fiscal 1997
was higher than the combined state and federal rate of 40% primarily because of
the nondeductibility of goodwill amortization.
Primarily as a result of the factors discussed above, income before
extraordinary item for fiscal 1997 increased by $9.2 million to $10.4 million
for fiscal 1997 from $1.2 million for fiscal 1996.
The extraordinary item for fiscal 1997 of $2.8 million, net of taxes, was a
result of the Company's refinancing on January 30, 1997. See Note 8 to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's cash has historically been used to fund capital
expenditures, working capital requirements and debt service. As a result of the
Recapitalization effective at the end of the first quarter of fiscal 1998, the
Company's liquidity requirements have significantly increased, primarily due to
significantly increased interest expense obligations. Interest expense,
excluding amortization of deferred financing fees, is estimated to be $26.6
million per year, associated with borrowings of $171.6 million under the Amended
Credit Agreement (as defined below), $85.0 million under the Notes, and $3.9
million under capitalized lease obligations. In addition, the Company is
required to repay the $144.4 million in term loans under the Amended Credit
Agreement over the seven and one-half year period following May 15, 1998, with
scheduled principal payments of $1.5 million for the first five years, $48.7
million in the sixth year, $66.5 million in the seventh year, and $21.6 million
in the final six months. The Company is also required to apply certain asset
sale proceeds, as well as 50% of its excess cash flow (as defined in the Amended
Credit Agreement) unless a leverage ratio test is met, to prepay the borrowings
under the Amended Credit Agreement. All outstanding revolving credit borrowings
under the Amended Credit Agreement will become due on June 30, 2003. The Company
incurred a non-cash, one-time charge of approximately $1.9 million related to
the write-off of existing deferred financing fees during fiscal 1998, as a
result of the Recapitalization.
CASH FLOW. During fiscal 1998, net cash used in operating activities
totaled $18.5 million. This resulted from the net loss of $17.4 million, offset
by non-cash charges to income of $20.1 million, including $8.3 million related
to stock option compensation expense incurred in connection with the
Recapitalization, plus a net change in operating assets and liabilities of $21.2
million. The increase in inventories of $51.2 million from March 31, 1997 to
March 31, 1998 was partially offset by the increase in accounts payable of $31.8
million for the same period. Management has made a strategic decision to
increase inventories in order to take advantage of certain opportunities to
increase market share. The increase of $12.0 million in accounts receivable as
of March 31, 1998 when compared to March 31, 1997 reflects the $31.0 million
increase in sales during the fourth quarter of fiscal 1998 when compared to the
comparable period in the prior year, partially offset by the timing of the cash
receipts for those sales at the end of fiscal 1998. The change from March 31,
1997 to March 31, 1998 in the amount of bank checks outstanding, net of cash on
deposit, was due primarily to differences in the amount of the last check runs
of the two years. Customer allowances payable increased at March 31, 1998
compared to the prior year-end primarily due to the higher sales dollars
resulting in higher volume rebates due to certain customers. Deferred income
taxes receivable increased by $4.7 million primarily as a result of the
Recapitalization.
Net cash used in investing activities was $18.9 million in fiscal 1998. This
was primarily due to the net capital expenditures of $14.4 million. The capital
expenditures included the investment that the Company is making in its
information systems and in expanding its capacity at its Garden Grove tableting
plant, as well as in its new manufacturing and distribution facility in South
Carolina.
Net cash provided by financing activities was $36.1 million in fiscal 1998.
This was due primarily to the financing transactions and related indebtedness
incurred in connection with the Recapitalization, offset by repayments of
existing indebtedness and, to a lesser extent, an increase in deferred financing
charges resulting from $11.9 million of deferred financing charges related to
the Credit Facility and Notes.
28
<PAGE>
FINANCING ARRANGEMENTS. On May 15, 1998, the Company entered into an
Amended and Restated Credit Agreement ("Amended Credit Agreement"). The Amended
Credit Agreement provides for two U.S. term loans due December 30, 2004 and
December 30, 2005 in the amounts of $68,000,000 and $65,000,000, respectively, a
Canadian denominated term loan due December 30, 2004 in the amount of
approximately $12,000,000, and a revolving credit facility in the amount of
$125,000,000 (the "New Revolving Facility") (collectively, the "Credit
Facility") made available in U.S. dollars to the Company with a portion
denominated in Canadian dollars made available to Vita Health. The unpaid
principal amount outstanding on the New Revolving Facility is due and payable on
June 30, 2003. Amounts outstanding under the Company's credit facility in place
at March 31, 1998 were refinanced with the proceeds from the Amended Credit
Agreement. As of June 15, 1998 the Company's unused availability under the
Amended Credit Agreement was approximately $67.3 million.
The New Revolving Credit Facility includes letter of credit and swingline
facilities. Borrowings under the Credit Facility bear interest at floating rates
that are based on LIBOR or on the applicable alternate base rate (as defined),
and accordingly the Company's financial condition and performance is and will
continue to be affected by changes in interest rates. The Company has entered
into an interest protection arrangement effective July 30, 1997 with respect to
$29.4 million of its indebtedness under the Credit Facility that provides a cap
of 6.17% on LIBOR rates plus applicable margin on the interest rates payable
thereon. The Credit Facility imposes certain restrictions on the Company,
including restrictions on its ability to incur additional debt, enter into
sale-leaseback transactions, incur contingent liabilities, pay dividends or make
distributions, incur or grant liens, sell or otherwise dispose of assets, make
investments or capital expenditures, repurchase or prepay the Notes or other
subordinated debt, or engage in certain other activities. The Company must also
comply with certain financial ratios and tests, including a minimum net worth
requirement, a maximum leverage ratio, a minimum interest coverage ratio and a
minimum cash flow coverage ratio.
The Notes may be required to be purchased by the Company upon a Change of
Control (as defined) and in certain circumstances with the proceeds of asset
sales. The Notes are subordinated to the indebtedness under the Amended Credit
Agreement. The indenture governing the Notes imposes certain restrictions on the
Company and its subsidiaries, including restrictions on its ability to incur
additional debt, make dividends, distributions or investments, sell or otherwise
dispose of assets, or engage in certain other activities.
A portion of the outstanding borrowings under the Credit Facility, amounting
to approximately U.S. $14.5 million as of March 31, 1998, is denominated in
Canadian dollars. All other outstanding borrowings under the Credit Facility,
and all of the borrowings under the Notes, are denominated in U.S. dollars.
At March 31, 1998, borrowings under the Credit Facility bore interest at a
weighted average rate of 7.8% per annum. The Notes bear interest at a rate of
9.625% per annum.
The Company is in the process of establishing a new packaging and
distribution facility in York County, South Carolina. As this new facility
becomes operational, other facilities located in the midwestern United States
may be closed. The Company expects to incur expenses estimated at approximately
$1.9 million annually through fiscal year 1999 in connection with the
establishment of the new facility and the closure of the midwestern U.S.
facilities. The Company will lease this new facility under a prearranged,
assigned purchase agreement to a third party that will provide the financing for
its construction, at an estimated annual lease expense, net of lease costs for
the facilities currently expected to be closed, of $1.4 million.
The Company currently believes that cash flow from operating activities,
together with revolving credit borrowings available under the Amended Credit
Agreement, will be sufficient to fund the Company's currently anticipated
working capital, capital spending and debt service requirements until the
maturity of the Revolving Credit Facility (June 30, 2003), but there can be no
assurance in this regard. The Company expects that its working capital needs
will require it to obtain new revolving credit facilities at the
29
<PAGE>
time that the Revolving Credit Facility matures, whether by extending, renewing,
replacing or otherwise refinancing the Revolving Credit Facility. No assurance
can be given that any such extension, renewal, replacement or refinancing can be
successfully accomplished.
YEAR 2000 COMPLIANCE
The Company is in the process of modifying, upgrading or replacing its
computer software applications and systems to accommodate the "year 2000" dating
changes necessary to permit correct recording of year dates for 2000 and later
years. The Company does not expect that the cost of its year 2000 compliance
program will be material to its financial condition or results of operations.
The Company believes that it will be able to achieve compliance by December,
1998, and does not currently anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance. The
Company has begun a comprehensive inventory of, and is currently gathering
information concerning the compliance status of its suppliers and customers. In
the event that any of the Company's significant suppliers or customers do not
successfully and timely achieve year 2000 compliance, the Company's business or
operations could be adversely affected.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain of the statements contained in this report (other than the financial
statements and other statements of historical fact) are forward-looking
statements, including statements regarding, without limitation, (i) the
Company's growth strategies; (ii) trends in the Company's business; and (iii)
the Company's future liquidity requirements and capital resources.
Forward-looking statements are made based upon Management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with Management's expectations or that the effect of
future developments on the Company will be those anticipated by Management. The
important factors described elsewhere in this report (including, without
limitation, those factors discussed in "Item 1. Business--Risk Factors", could
affect (and in some cases have affected) the Company's actual results and could
cause such results to differ materially from estimates or expectations reflected
in such forward-looking statements. In light of these factors, there can be no
assurance that events anticipated by the forward-looking statements contained in
this report will in fact transpire.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of Management's discussion and analysis of
results of operations and financial condition contained in its periodic reports,
the Company does not intend to review or revise any particular forward-looking
statement referenced in this report in light of future events.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, including an index
thereto and the report of Ernst & Young LLP, the Company's independent auditors,
begin on page F-1.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
30
<PAGE>
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS
Management of the business of Leiner is vested in its Board of Directors
(the "Board"). Currently, Leiner does not pay any compensation for services as a
director on its Board. The Board is currently comprised of Messrs. Baird,
Kaminski, Bensussen and Towne. The Board of Directors of Leiner Group, the
Company's indirect corporate parent, is currently comprised of Mr. Baird, who
was appointed Chairman of such Board following the Recapitalization, Messrs.
Kaminski and Bensussen who already were members of such Board prior to the
Recapitalization, and Messrs. Barry Twomey, Bruce Gorchow and Alan Colner, who
were appointed as members of such Board in September 1997, and Mr. John Heine,
who was appointed as a member of such Board in December 1997. Until the
formation of North Castle, Mr. Baird was a Managing Director of AEA. Pursuant to
the terms of the Stockholders Agreement, the AEA Group has the right to elect
one member of the Board of Leiner Group and North Castle has the right to elect
the remaining directors.
The following table sets forth with respect to each of the directors and
executive officers of the Company, their respective years of employment with the
Company, ages and positions.
<TABLE>
<CAPTION>
YEARS WITH
NAME COMPANY AGE POSITION
- ------------------------------ --------------- --- ---------------------------------------------------------------
<S> <C> <C> <C>
Robert M. Kaminski............ 20 47 Chief Executive Officer and Director
Gale K. Bensussen............. 24 51 President and Director
Kevin J. Lanigan.............. 25 51 Executive Vice President and Chief Operations Officer
William B. Towne.............. 2 54 Executive Vice President, Chief Financial Officer, Director,
Treasurer and Secretary
Stanley J. Kahn............... 18 45 Executive Vice President - Sales
Giffen H. Ott................. 5 37 Senior Vice President - Operations
Scott C. Rexinger............. 10 52 Senior Vice President - Product Marketing & Development
Robert J. LaFerriere.......... 1 49 Senior Vice President - Marketing
Steven E. Brunette............ 1 48 General Counsel
Charles F. Baird, Jr.......... 1 45 Director
</TABLE>
Robert M. Kaminski has been the Chief Executive Officer of Leiner since May
1992, and a Director of Leiner since June 1992. He has been Chief Executive
Officer of Leiner Group since March 1994 and Vice Chairman of Leiner Group since
July 1996. From 1988 to 1992, Mr. Kaminski was Chief Operating Officer of the
Predecessor Company and from 1982 to 1988, he was Vice President - Sales of the
Predecessor Company. Mr. Kaminski joined the Predecessor Company in 1978.
Gale K. Bensussen has been a Director of Leiner since June 1992 and
President of Leiner since May 1992. He has been a Director of Leiner Group since
June 1992 and President of Leiner Group since March 1994. Mr. Bensussen was
Senior Vice President - Marketing and Corporate Development of the Predecessor
Company from May 1991 to May 1992. From July 1988 to May 1991, Mr. Bensussen was
Senior Vice President - Sales and Marketing of the Predecessor Company. Mr.
Bensussen joined the Predecessor Company in 1974.
Kevin J. Lanigan became Executive Vice President and Chief Operations
Officer of Leiner in May 1992 and of Leiner Group in March 1994. From 1986 to
1992, Mr. Lanigan was Senior Vice President-
31
<PAGE>
Operations Planning of the Predecessor Company and, from 1979 to 1986, was Vice
President - Operations. Before joining the Predecessor Company in 1973, he held
various engineering positions in the aerospace industry.
William B. Towne became Executive Vice President and Chief Financial Officer
of Leiner and Leiner Group in June 1996, Treasurer of Leiner in June 1996 and
Secretary of Leiner and Leiner Group in October 1997. Mr. Towne has been a
Director of Leiner since June 1996. From 1995 to 1996, Mr. Towne served as
Executive Vice President, Finance and Chief Financial Officer at L. Galoob Toys,
Inc. From 1990 to 1995, Mr. Towne served as Executive Vice President, Chief
Financial Officer for Forstmann & Co., Inc. (which entered into Chapter 11
bankruptcy proceedings in October 1995). From 1982 to 1990, Mr. Towne worked for
Tambrands, Inc. where he rose from Manager of Forecast and Planning to Chief
Financial Officer of its International Division.
Stanley J. Kahn became Executive Vice President-Sales of Leiner in May 1992
and of Leiner Group in March 1994. Mr. Kahn became Executive Vice President -
Sales of Leiner Group in April 1997. From September 1989 to 1992, Mr. Kahn was
Vice President - Sales of the Predecessor Company and, from July 1988 to
September 1989, was Vice President - Business Development. Mr. Kahn was National
Key Account Manager from 1985 to 1988. Mr. Kahn joined the Predecessor Company
in 1980 as Regional Sales Manager.
Giffen H. Ott became Senior Vice President - Operations of Leiner in April
1997. Mr. Ott became Vice President - Operations in September 1995 after joining
Leiner in March 1993 as Vice President of Manufacturing Development. Prior to
joining Leiner Mr. Ott worked as a Manager with Bain & Company, the
international management consulting firm, where the engagements he led included
an evaluation of the Company's market position and operations on behalf of AEA.
Scott C. Rexinger became Senior Vice President - Product Marketing &
Development of Leiner in June 1996. From May 1992 to June 1996, Mr. Rexinger was
Vice President, Product Marketing, and from April 1991 to May 1992, he was
Director, New Category Development. Mr. Rexinger was Group Marketing Manager,
New Products and Brands from August 1988 to April 1991, and Marketing Manager,
Brands from November 1987 to August 1988. Prior to joining the Company, Mr.
Rexinger held various marketing positions in the consumer packaged goods
industry.
Robert J. LaFerriere became Senior Vice President - Marketing of Leiner in
February 1997 and was a consultant to Leiner from 1996 to 1997. From 1992 to
1996, Mr. LaFerriere was President and Chief Executive Officer of Slim Fast
Foods and was a Vice President, then Senior Vice President - Purchasing, at
Thrifty Drug and Discount Stores from 1984 until 1990.
Steven E. Brunette became General Counsel to the Company in January 1998,
and is responsible for all legal affairs of the Company. Prior to joining
Leiner, Mr. Brunette served 19 years in the Legal Department of Hunt-Wesson,
Inc., a major U.S. manufacturer of food products, where he assumed increasing
responsibilities and served as that company's Assistant General Counsel.
Charles F. Baird, Jr. has been a Director of Leiner since October 1997 and
was elected Chairman in June 1998. He is the managing member of Baird Investment
Group, LLC, the managing member of North Castle. From 1989 until May 1997, Mr.
Baird served as a Managing Director of AEA. From 1979 to 1989, Mr. Baird worked
as a management consultant with Bain & Company.
32
<PAGE>
ITEM 11
EXECUTIVE COMPENSATION
The following table sets forth the compensation of each of the Company's
chief executive officer and the four most highly paid executive officers (other
than the chief executive officer) (collectively, the "named executive officers")
for the fiscal year ended March 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION(1) SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) OPTIONS (#)(3) COMPENSATION(4)
- ------------------------------------------------ ---------- ------------ ------------------- ----------------
<S> <C> <C> <C> <C>
Robert M. Kaminski ............................. $ 442,212 $ 2,581,375 22,822 $ 63,977
Chief Executive Officer
Gale K. Bensussen .............................. 291,346 2,334,375 14,833 9,045
President
William B. Towne ............................... 266,346 706,250 10,156 6,227
Executive Vice President
Kevin J. Lanigan ............................... 243,077 325,000 6,989 9,039
Executive Vice President
Stanley J. Kahn ................................ 270,673 450,000 5,989 8,758
Executive Vice President
</TABLE>
- ------------------------
(1) The compensation described in this table does not include medical and group
life insurance received by the named executive officers which are available
generally to all salaried employees of the Company and certain perquisites
and other personal benefits received by the named executive officers, the
value of which does not exceed the lesser of $50,000 or 10% of any such
officer's total salary and bonus disclosed in this table.
(2) Includes a transaction bonus for the Recapitalization completed June 30,
1997.
(3) Options are for Leiner Group common stock.
(4) Represents Company contributions to its defined contribution retirement
plans and the dollar value of term life and income replacement insurance
premiums paid on behalf of the executive.
33
<PAGE>
The following table sets forth the stock option grants to each of the named
executive officers for the fiscal year ended March 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES
------------------------------------------------------------------ OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS GRANTED FOR OPTION TERM(2)
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME OPTIONS GRANTED IN FISCAL YEAR PRICE ($/SH) DATE 5% 10%
- ------------------------------- --------------- --------------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Kaminski............. 18,822 17% $ 100 6/30/07 $ 94,110 $ 188,220
4,000 4 100 11/1/07 20,000 40,000
Gale K. Bensussen.............. 12,833 11 100 6/30/07 64,165 128,330
2,000 2 100 11/1/07 10,000 20,000
William B. Towne............... 8,556 8 100 6/30/07 42,780 85,560
1,600 1 100 11/1/07 8,000 16,000
Kevin J. Lanigan............... 5,989 5 100 6/30/07 29,945 59,890
1,000 1 100 11/1/07 5,000 10,000
Stanley J. Kahn................ 5,989 5 100 6/30/07 29,945 59,890
</TABLE>
- ------------------------
(1) All options are for Leiner Group common stock and they generally vest on a
pro rata basis at a rate of 25% per year, with 25% immediate vesting on the
date of grant.
(2) Sets forth potential option gains based on assumed annualized rates of stock
price appreciation from the exercise price at the date of grant of 5% and
10% (compounded annually) over the full term of the grant with appreciation
determined as of the expiration date. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission, and do not represent the Company's estimate or projection of
future Common Stock prices.
The following table sets forth the stock option exercises for the fiscal
year ended March 31, 1998 and the stock option values as of March 31, 1998, in
each case, for each of the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND OPTION VALUES AS OF MARCH 31, 1998(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END(2)
SHARES ACQUIRED VALUE ---------------------------- --------------------------
NAME ON EXERCISE(3) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- ------------ ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Kaminski............ 24,067 $ 2,406,711 5,706 17,116 $ 227,955 $ 683,784
Gale K. Bensussen............. 18,484 1,848,438 3,708 11,125 148,135 444,444
William B. Towne.............. 4,812 481,272 2,539 7,617 101,433 304,299
Kevin J. Lanigan.............. 4,938 1,243,853 1,747 5,242 69,793 209,418
Stanley J. Kahn............... 5,576 1,549,489 1,497 4,492 59,805 179,455
</TABLE>
- ------------------------
(1) All options are for Leiner Group common stock.
(2) Sets forth values for "in-the-money" options that represent the positive
spread between the respective exercise prices of outstanding stock options
and the value of the Company's common stock as of March 31, 1998.
34
<PAGE>
(3) In connection with the Recapitalization, all of these options were either
exchanged for Equity Rights or cashed out. The Equity Rights represent the
right to receive Recapitalized Common Stock upon the occurrence of certain
events, including the termination of the holder's employment with the
Company, a public offering or a change of control. See "The
Recapitalization."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of Leiner Group established a Compensation Committee
to review all compensation arrangements for executive officers of Leiner Group
and its subsidiaries. The individuals serving on the Leiner Group Compensation
Committee during the fiscal year ended March 31, 1998 were Mr. Baird, Mr. Colner
and Mr. Heine.
SEVERANCE ARRANGEMENTS
In November 1991, the Predecessor Company entered into certain severance
agreements with certain members of Leiner's senior management, pursuant to which
Leiner will pay severance benefits if the individual's employment is terminated
by Leiner other than for cause or if the individual resigns his or her
employment with Leiner for good reason. In May 1997, Leiner entered into a
substantially similar agreement with William B. Towne.
The severance benefits that the Company has agreed to provide to each of
Robert M. Kaminski, Gale K. Bensussen, William B. Towne and Stanley J. Kahn
include (a) a lump-sum severance payment equal to the sum of (i) one year's base
salary, plus (ii) any annual individual performance bonus or targeted
commission, both as in effect at the time of the termination or resignation; (b)
outplacement assistance at the Company's expense, up to a maximum cost to the
Company of $20,000; and (c) any rights under applicable Company plans or
programs, including but not limited to stock option and incentive plans, as may
be determined pursuant to the terms of such plans or programs. The severance
benefits provided to Kevin J. Lanigan include a lump-sum severance payment equal
to three times the sum of one year's base salary plus any annual individual
performance bonus or targeted commission, both as in effect at the time of
termination or resignation, as well as the benefits described in clauses (b) and
(c) above, subject to certain limitations to the extent that the Company
determines that the foregoing benefits would not be deductible by the Company
because such payments constitute an "excess parachute payment" (as defined in
section 280G of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code").
In March 1997, the Company entered into a non-competition and retirement
agreement with Mr. David F. Brubaker, former Chairman of Leiner, pursuant to
which, among other things, the Company has agreed to pay Mr. Brubaker an amount
equal to approximately $1 million spread across several installments through
February 2000. The agreement provides that under certain circumstances all of
the Company's payment obligations to Mr. Brubaker would accelerate.
STOCK OPTION PLAN
Leiner Group has authorized options for issuance to members of management
and employees ("Management Options") representing the right to acquire an
additional 10% of the Group Common Stock on a fully-diluted basis immediately
after the Recapitalization (giving effect to the exercise of such options but
without giving effect to the exercise of the Warrants referred to under "The
Recapitalization" below), exercisable at a price equal to the greater of the
purchase price paid by North Castle or the fair market value of such shares at
the time of grant. A total of 88,300 of these Management Options were granted as
of June 30, 1997, 22,556 of these Management Options were granted as of November
1, 1997, 2,950 of these Management Options were granted as of December 31, 1997
and 9,966 of these Management Options were granted as of June 11, 1998.
Generally, options vest on a pro rata basis at a rate of 25% per year, with 25%
immediate vesting on the date of grant. It is expected that the remaining
Management Options will be granted in the ordinary course of business.
35
<PAGE>
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the shares of common stock of Leiner are owned by PLI Holdings and
all of the shares of common stock of PLI Holdings are owned by Leiner Group.
The following table sets forth information regarding beneficial ownership of
common stock of Leiner Group as of June 17, 1998, by (i) each person who is
known by the Company to beneficially own more than 5% of voting Group Common
Stock, (ii) each director of Leiner Group, (iii) each named executive officer of
the Company listed on the Summary Compensation Table above and (iv) by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
VOTING GROUP NON-VOTING GROUP
COMMON STOCK COMMON STOCK PERCENTAGE OF CLASS
BENEFICIALLY BENEFICIALLY --------------------------
NAME OWNED OWNED VOTING NON-VOTING
- ------------------------------------------------------ ----------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
North Castle Partners I, L.L.C.(1).................... 808,998 -- 83.9% --
Baird Investment Group, L.L.C.(2)..................... 808,998 -- 83.9% --
Charles F. Baird, Jr.................................. 833,868(3) -- 86.5% --
AEA Investors Inc..................................... 83,131(4) 26,739(4) 8.6% 41.4%
Alan Colner........................................... -- -- -- --
Bruce Gorchow......................................... -- -- -- --
John Heine............................................ 1,000 188 0.1% 0.3%
Barry Twomey.......................................... -- -- -- --
Robert M. Kaminski.................................... 4,146(5) 10,412 0.4% 13.9%
Gale K. Bensussen..................................... 8,490(5) 6,916 0.9% 9.7%
William B. Towne...................................... 250(5) 4,678 0.0% 6.8%
Kevin J. Lanigan...................................... 1,000(5) 19,826(5) 0.1% 29.2%
Stanley J. Kahn....................................... 500(5) 7,239(5) 0.1% 10.7%
Executive officers and directors as a group
(14 persons)........................................ 853,275(5) 62,377(5) 88.5% 62.2%
</TABLE>
- ------------------------
(1) The address for North Castle is 2 Greenwich Plaza, Greenwich, CT 06830.
(2) North Castle is an investment fund formed as a limited liability company.
Baird Investment Group, L.L.C. ("Baird Investment") is the sole managing
member of North Castle. Mr. Baird is the sole managing member of Baird
Investment. The address for Baird Investment is 2 Greenwich Plaza,
Greenwich, CT 06830.
(3) Includes 24,870 shares of voting Leiner Group common stock owned by Mr.
Baird and the shares of Leiner Group common stock owned by North Castle
which Mr. Baird may be deemed to have beneficial ownership of by virtue of
his status as the managing member of Baird Investment. Mr. Baird expressly
disclaims such beneficial ownership. Does not include 3,255 shares of voting
Leiner Group common stock held by a trust in favor of Mr. Baird's children.
Mr. Baird expressly disclaims beneficial ownership of such shares.
(4) Pursuant to an agreement between AEA and the other members of the AEA Group,
AEA has voting power over shares of Leiner Group common stock held by the
members of the AEA Group, and accordingly may be deemed to beneficially own
such shares.
(5) Does not reflect Equity Rights owned by Messrs. Kaminski, Bensussen, Towne,
Lanigan and Kahn reflecting the right to receive 24,067 shares, 18,484
shares, 4,812 shares, 4,938 shares and 5,576 shares of Leiner Group common
stock, respectively, as such Equity Rights are not exercisable within 60
days of the date hereof.
36
<PAGE>
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT. On the Recapitalization Closing Date, Leiner Group
and the stockholders of Leiner Group entered into the Stockholders Agreement,
which contains, among other terms and conditions, provisions relating to
corporate governance, certain restrictions with respect to transfer of
Recapitalized Common Stock by certain parties thereunder, certain rights and
obligations with respect to transfers of Recapitalized Common Stock and certain
registration rights granted by the Company with respect to shares of
Recapitalized Common Stock. The Stockholders Agreement gives the AEA Group the
power to elect one member of Leiner Group's Board of Directors and, so long as
North Castle owns at least 40% of all outstanding Leiner Group equity, gives
North Castle the power to elect the remaining directors of Leiner Group, and
through Leiner Group, all the directors of Leiner. If North Castle's ownership
of Leiner Group equity falls below 40%, it may elect the number of directors
that is proportionate to its shareholdings. Accordingly, North Castle controls
the Company and has the power to appoint new management and approve any action
requiring the approval of the holders of Leiner Group common stock, including
adopting amendments to Leiner Group's certificate of incorporation and approving
mergers or sales of substantially all of the Company's assets.
The Stockholders Agreement also restricts the ability of existing
shareholders to transfer their Leiner Group equity to third parties prior to
June 30, 1998, and gives certain of these shareholders a right of first refusal
after that date. These restrictions either do not apply or change if there is a
public offering, or if North Castle sells more than 5% of all outstanding Leiner
Group equity. If North Castle seeks to sell more than 5% of the outstanding
Leiner Group equity, other existing shareholders have the right to sell their
shares at the same time. The Agreement also gives North Castle rights to require
Leiner Group to register Leiner Group equity under the Securities Act, subject
to certain limitations and conditions.
MANAGEMENT AGREEMENTS. Following its acquisition of Leiner on May 4, 1992,
AEA entered into a management agreement with Leiner Group, pursuant to which AEA
provided management, consulting and financial services to the Company for an
annual fee of $0.35 million plus expenses. In connection with the Vita Health
Acquisition, the Company paid to AEA an additional transaction fee of $0.3
million for services in arranging, structuring, and negotiating the terms of the
Vita Health Acquisition and related refinancing, and reimbursed it for certain
related expenses. AEA received a transaction fee of $3.5 million for similar
services rendered in connection with the Recapitalization.
Upon consummation of the Recapitalization, Leiner Group's management
agreement with AEA was terminated, and Leiner Group and Leiner entered into a
consulting agreement with North Castle Partners, L.L.C. (the "Sponsor"), an
affiliate of North Castle, to provide the Company with certain business,
financial and managerial advisory services. Mr. Baird acts as the managing
member of the Sponsor through Baird Investment. In exchange for such services,
Leiner Group and Leiner have agreed to pay the Sponsor an annual fee of $1.5
million, payable semi-annually in advance, plus the Sponsor's reasonable out-of-
pocket expenses, and to indemnify the Sponsor and certain affiliates against
certain liabilities. This fee may be reduced upon completion of an initial
public offering of Leiner's shares. The agreement also terminates on June 30,
2007, unless Baird Investment Group ceases to be the managing member of North
Castle or North Castle terminates before that date. Leiner Group and Leiner have
also paid the Sponsor a transaction fee of $3.5 million for services relating to
arranging, structuring and financing the Recapitalization, and reimbursed the
Sponsor's related out-of-pocket expenses.
MANAGEMENT. As part of the Recapitalization, the current managers and
employees of the Company were afforded the opportunity to choose the amount of
their existing equity they wished to retain in Leiner Group in the form of
Leiner Group equity. Managers and employees who retained their equity in Leiner
Group will, as a result of the increased leverage on the Company incurred as
part of the Recapitalization, acquired a greater percentage equity ownership.
Under the Stockholders Agreement, current managers
37
<PAGE>
have the right, upon their death or permanent disability, to require Leiner
Group to purchase their Leiner Group common stock for its then fair market
value.
In connection with the Recapitalization, the Company paid senior managers
transaction bonuses of $5.2 million in the aggregate. In addition, Leiner Group
established a new stock option plan which provides for the Board of Leiner Group
to grant Management Options to acquire 122,222 shares of Leiner Group common
stock. A total of 88,300 of these Management Options were granted as of June 30,
1997 and an additional 22,556, 2,950 and 9,966 of these Management Options were
granted on November 1, 1997, December 31, 1997 and June 11, 1998, respectively,
in each case subject to a vesting schedule.
The Board of Leiner Group and management of the Company instituted a stock
purchase plan pursuant to which certain managers and employees of the Company
were afforded the opportunity to purchase Leiner Group common stock. The gross
proceeds of such offering was $1.9 million.
On June 25, 1997, Baird Investment, the managing member of North Castle,
entered into separate agreements with three of the principal investors in North
Castle, Electra Fleming Inc. ("Electra"), Moore Capital Management, Inc.
("Moore") and PPM America, Inc. ("PPM"). As part of these agreements, Baird
Group caused North Castle to exercise its rights under the Stockholders
Agreement to nominate one person designated by Electra, Moore and PPM to serve
on the Board of Directors of Leiner Group. In connection with these agreements,
Leiner Group paid Electra, Moore and PPM a one-time board representation fee of
$100,000, $75,000 and $75,000, respectively.
38
<PAGE>
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. FINANCIAL STATEMENTS. The following financial statements of the
Company are included in a separate section of this Annual Report on Form
10-K commencing on the pages referenced below:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Index to Consolidated Financial Statements....................................................... F-1
Report of Independent Auditors................................................................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997........................................ F-3
Consolidated Statements of Operations for the years ended March 31, 1998, 1997 and 1996.......... F-4
Consolidated Statements of Shareholder's Equity (Deficit) for the years ended March 31, 1998,
1997 and 1996.................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1998, 1997 and 1996.......... F-6
Notes to Consolidated Financial Statements....................................................... F-7
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule of the Company is included in a separate section of this Annual
Report on Form 10-K commencing on the page referenced below. All other
schedules have been omitted because they are not applicable, not required,
or the information is included in the Consolidated Financial Statements or
notes thereto.
<TABLE>
<S> <C>
Schedule II--Consolidated Valuation and Qualifying Accounts................... S-1
</TABLE>
3. LIST OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
2.1 Stock Purchase Agreement and Agreement and Plan of Filed as Exhibit 2.1 to the Registration Statement
Merger, dated as of May 31, 1997, by and among on Form S-4 (Registration No. 333-33121) of Leiner
Leiner Group, North Castle Partners I, L.L.C. and Health Products Inc. under the Securities Act of
LHP Acquisition Corp. 1933, as amended (the "Registration Statement on
Form S-4"), and incorporated herein by reference.
2.2 Amendment No. 1 to Stock Purchase Agreement and Filed as Exhibit 2.2 to the Registration Statement
Agreement and Plan of Merger, dated as of June 30, on Form S-4 and incorporated herein by reference.
1997, by and among Leiner Group, North Castle
Partners I, L.L.C. and LHP Acquisition Corp.
3.1 Amended and Restated Certificate of Incorporation Filed as Exhibit 3.1 to the Registration Statement
of Leiner Health Products Inc. ("LHP"). on Form S-4 and incorporated herein by reference.
3.2 Amended and Restated By-Laws of LHP (formerly known Filed as Exhibit 3.2 to the Registration Statement
as Amended and Restated By-Laws of LHP Funding on Form S-4 and incorporated herein by reference.
Corp.).
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
4.1 Indenture, dated as of June 30, 1997, between Filed as Exhibit 4.1 to the Registration Statement
Leiner Group and United States Trust Company of New on Form S-4 and incorporated herein by reference.
York (the "Trustee").
4.2 First Supplemental Indenture, dated as of June 30, Filed as Exhibit 4.2 to the Registration Statement
1997, among Leiner Group, LHP and the Trustee. on Form S-4 and incorporated herein by reference.
4.3 Purchase Agreement, dated as of June 19, 1997, Filed as Exhibit 4.3 to the Registration Statement
among Leiner Group, LHP, Merrill Lynch & Co., on Form S-4 and incorporated herein by reference.
Salomon Brothers Inc and Scotia Capital Markets
(USA) Inc. (the "Initial Purchasers").
4.4 Registration Rights Agreement, dated as of June 30, Filed as Exhibit 4.4 to the Registration Statement
1997, among Leiner Group, LHP and the Initial on Form S-4 and incorporated herein by reference.
Purchasers.
4.5 Amended and Restated Credit Agreement, dated as of Filed as an exhibit hereto.
May 15, 1998 (the "Credit Agreement"), among LHP,
Vita Health Products Inc. (formerly Vita Health
Company (1985) Ltd.), a Canadian corporation ("Vita
Health"), the banks and other financial
institutions party thereto, as lenders, The Bank of
Nova Scotia, as U.S. Agent and Canadian Agent (the
"Agents"), Merrill Lynch Capital Corporation, as
documentation agent, and Salomon Brothers Holding
Company Inc, as syndication agent.
4.6 Affirmation and Consent, dated May 15, 1998, by PLI Filed as an exhibit hereto.
Holdings Inc., VH Holdings Inc., 64,804 Manitoba
Ltd. and Westcan Pharmaceuticals Ltd. to the Bank
of Nova Scotia as U.S. Agent under the Credit
Agreement and each of the lenders party to the
Credit Agreement.
4.7 Assumption Agreement, dated as of June 30, 1997, Filed as Exhibit 4.7 to the Registration Statement
between Leiner Group and LHP and accepted and on Form S-4 and incorporated herein by reference.
acknowledged by the Agents on behalf of the lenders
that are party to the Credit Agreement.
4.8 U.S. Borrower Security Agreement, dated as of June Filed as Exhibit 4.8 to the Registration Statement
30, 1997, between LHP and The Bank of Nova Scotia, on Form S-4 and incorporated herein by reference.
as collateral agent.
4.9 U.S. Borrower Pledge Agreement, dated as of June Filed as Exhibit 4.9 to the Registration Statement
30, 1997, made by LHP in favor of the Agents for on Form S-4 and incorporated herein by reference.
the secured parties, as defined therein.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
4.10 Parent Pledge Agreement, dated as of June 30, 1997, Filed as Exhibit 4.10 to the Registration Statement
made by PLI Holdings Inc. in favor of the Agents on Form S-4 and incorporated herein by reference.
for the secured parties, as defined therein.
4.11 Canadian Holdings Pledge Agreement, dated as of Filed as Exhibit 4.11 to the Registration Statement
June 30, 1997, made by VH Holdings Inc. in favor of on Form S-4 and incorporated herein by reference.
The Bank of Nova Scotia, as agent for each of the
secured parties, as defined therein.
4.12 Canadian Borrower Pledge Agreement, dated as of Filed as Exhibit 4.12 to the Registration Statement
June 30, 1997, made by Vita Health in favor of The on Form S-4 and incorporated herein by reference.
Bank of Nova Scotia, as agent for each of the
secured parties, as defined therein.
4.13 U.S. Borrower Guaranty, dated as of June 30, 1997, Filed as Exhibit 4.13 to the Registration Statement
made by LHP in favor of the Agents for the secured on Form S-4 and incorporated herein by reference.
parties, as defined therein.
4.14 Parent Guaranty, dated as of June 30, 1997, made by Filed as Exhibit 4.14 to the Registration Statement
PLI Holdings in favor of the Agents for the secured on Form S-4 and incorporated herein by reference.
parties, as defined therein.
4.15 Canadian Holdings Guaranty, dated as of June 30, Filed as Exhibit 4.15 to the Registration Statement
1997, made by VH Holdings Inc. in favor of The Bank on Form S-4 and incorporated herein by reference.
of Nova Scotia as agent for the secured parties, as
defined therein.
4.16 Canadian Subsidiary Guaranties, each dated as of Filed as Exhibit 4.16 to the Registration Statement
June 30, 1997, made by each of 64804 Manitoba Ltd. on Form S-4 and incorporated herein by reference.
and Westcan Pharmaceuticals Ltd. in favor of The
Bank of Nova Scotia as agent for the secured
parties, as defined therein.
4.17 Canadian Borrower Debenture, each dated as of June Filed as Exhibit 4.17 to the Registration Statement
30, 1997, made by Vita Health in favor of The Bank on Form S-4 and incorporated herein by reference.
of Nova Scotia on its own behalf and as agent for
the Canadian secured parties as defined therein in
the amount of $75,000,000.
4.18 Canadian Holdings Debenture, dated as of June 30, Filed as Exhibit 4.18 to the Registration Statement
1997, made by VH Holdings Inc. in favor of The Bank on Form S-4 and incorporated herein by reference.
of Nova Scotia, on its own behalf and as agent for
the Canadian secured parties, as defined therein in
the amount of $75,000,000.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
4.19 Canadian Subsidiary Debenture, dated as of June 30, Filed as Exhibit 4.19 to the Registration Statement
1997, made by 64804 Manitoba Ltd. in favor of The on Form S-4 and incorporated herein by reference.
Bank of Nova Scotia, on its own behalf and as agent
for the Canadian secured parties, as defined
therein in the amount of $75,000,000.
4.20 Canadian Subsidiary Debenture, dated as of June 30, Filed as Exhibit 4.20 to the Registration Statement
1997, made by Westcan Pharmaceuticals Ltd. in favor on Form S-4 and incorporated herein by reference.
of The Bank of Nova Scotia, on its own behalf and
as agent for the Canadian secured parties, as
defined therein in the amount of $75,000,000.
4.21 Mortgage, Assignment of Leases and Rents, Security Filed as Exhibit 4.21 to the Registration Statement
Agreement and Fixture Filing, dated as of June 30, on Form S-4 and incorporated herein by reference.
1997 from LHP, as Mortgagor, to The Bank of Nova
Scotia, as agent, relating to the property located
at 3532 West 47th Place, Chicago, Illinois, as
amended by the First Amendment to the Mortgage,
Assignment of Leases and Rents, Security Agreement
and Fixture Filing dated as of July 31, 1997.
4.22 Mortgage, Assignment of Leases and Rents, Security Filed as Exhibit 4.22 to the Registration Statement
Agreement and Fixture Filing, dated as of August on Form S-4 and incorporated herein by reference.
20, 1997 from LHP, as Mortgagor, to The Bank of
Nova Scotia, as agent, relating to the property
located at 3308 Covington, Kalamazoo, Michigan.
4.23 Mortgage, Assignment of Leases and Rents, Security Filed as Exhibit 4.23 to the Registration Statement
Agreement and Fixture Filing, dated as of June 30, on Form S-4 and incorporated herein by reference.
1997 from LHP, as Mortgagor, to The Bank of Nova
Scotia, as agent, relating to the property located
at 2300 Badger Lane, Madison, Wisconsin.
4.24 Leasehold Deed of Trust, Assignment of Leases and Filed as Exhibit 4.24 to the Registration Statement
Rents, Security Agreement and Fixture Filing, dated on Form S-4 and incorporated herein by reference.
June 30, 1997 from LHP, as Trustor, in favor of
Lawyers Title Company of California as Trustee, for
the benefit of The Bank of Nova Scotia, as agent,
relating to the property located at 7366 Orangewood
Avenue, Garden Grove, California.
4.25 Trademark Security Agreement, dated as of June 30, Filed as Exhibit 4.25 to the Registration Statement
1997, between LHP and The Bank of Nova Scotia as on Form S-4 and incorporated herein by reference.
collateral agent for the secured parties.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.1 Consulting Agreement, dated as of June 30, 1997, Filed as Exhibit 10.1 to the Registration Statement
among Leiner Group, LHP and North Castle. on Form S-4 and incorporated herein by reference.
10.2 Restated Standard Indemnity Agreement, dated Filed as Exhibit 10.2 to the Registration Statement
September 1, 1992 between Showa Denko America Inc. on Form S-4 and incorporated herein by reference.
and LHP Holdings Corp. (now LHP).
10.3 Guaranty Agreement, dated September 1, 1992, Filed as Exhibit 10.3 to the Registration Statement
between Showa Denko K.K. and LHP Holdings Corp. on Form S-4 and incorporated herein by reference.
(now LHP).
10.4 Leiner Group Stock Option Plan (formerly known as Filed as Exhibit 10.4 to the Registration Statement
PLI Investors Inc. Stock Option Plan). on Form S-4 and incorporated herein by reference.
10.5 First Amendment to the Leiner Group Stock Option Filed as Exhibit 10.5 to the Registration Statement
Plan, effective as of June 30, 1997. on Form S-4 and incorporated herein by reference.
10.6 Leiner Group Stock Incentive Plan, adopted and Filed as Exhibit 10.6 to the Registration Statement
effective as of June 30, 1997. on Form S-4 and incorporated herein by reference.
10.7 Lease, dated as of March 12, 1984, by and between Filed as Exhibit 10.7 to the Registration Statement
R&R Properties ("R&R") and Trupak, Inc. ("Trupak"), on Form S-4 and incorporated herein by reference.
as amended by the First Amendment, dated as of
August 1, 1986 between R&R and Trupak, the Second
Amendment, dated as of June 19, 1989 between R&R
and Trupak, the Third Amendment, dated as of August
3, 1992 between R&R and P. Leiner Nutritional
Products Inc. (successor to merger to Trupak, Inc.
("P. Leiner"), the Fourth Amendment, dated as of
August 2, 1994 between R&R and LHP (successor to P.
Leiner), and the Fifth Amendment, dated May 20,
1996 between R&R and LHP, related to a premise
located in West Unity, Ohio.
10.8 Lease Agreement, dated August 2, 1994, between Filed as Exhibit 10.8 to the Registration Statement
Square Feet Unlimited ("Square Feet Unlimited") and on Form S-4 and incorporated herein by reference.
LHP, relating to a premise in West Unity, Ohio, as
amended by the First Amendment of Lease, dated May
20, 1996, between Square Feet Unlimited and LHP.
10.9 Lease, dated as of October 4, 1993, by and between Filed as Exhibit 10.9 to the Registration Statement
Watson Land Company ("Watson") and LHP, related to on Form S-4 and incorporated herein by reference.
a premise located at 810 East 233rd Street, Carson,
California.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.10 Lease, dated as of October 4, 1993, by and between Filed as Exhibit 10.10 to the Registration
Watson and LHP, related to a premise located at 901 Statement on Form S-4 and incorporated herein by
East 233rd Street, Carson, California. reference.
10.11 Sublease, dated as of October 8, 1993 by and Filed as Exhibit 10.11 to the Registration
between Teledyne, Inc. and LHP, related to a Statement on Form S-4 and incorporated herein by
premise located at 901 East 233rd Street, Carson, reference.
California.
10.12 Standard Industrial Lease, dated February 19, 1988 Filed as Exhibit 10.12 to the Registration
between Richard F. Burns, J. Grant Monahan and Statement on Form S-4 and incorporated herein by
Lawrence W. Doyle, as Trustees of AEW #113 Trust reference.
established under Declaration of Trust dated
January 19, 1988 and Vita-Fresh Vitamin Co. Inc.
and Vital Industries, Inc., as amended by the First
Lease Amendment, dated as of June 12, 1997, between
Sierra Pacific California LP and LHP, related to a
premise located in Garden Grove, California.
10.13 Lease, dated May 1, 1997 between Crescent Filed as Exhibit 10.13 to the Registration
Resources, Inc. and LHP, related to a premise Statement on Form S-4 and incorporated herein by
located in York County, South Carolina. reference.
10.14 Severance Benefit Agreement, dated as of November Filed as Exhibit 10.14 to the Registration
21, 1991, by and between LHP and Robert M. Statement on Form S-4 and incorporated herein by
Kaminski. reference.
10.15 Severance Benefit Agreement, dated as of November Filed as Exhibit 10.15 to the Registration
21, 1991, by and between LHP and Gale K. Bensussen. Statement on Form S-4 and incorporated herein by
reference.
10.16 Severance Benefit Agreement, dated as of May 30, Filed as Exhibit 10.16 to the Registration
1997, by and between LHP and William B. Towne. Statement on Form S-4 and incorporated herein by
reference.
10.17 Severance Benefit Agreement, dated as of November Filed as Exhibit 10.17 to the Registration
21, 1991, by and between LHP and Kevin J. Lanigan. Statement on Form S-4 and incorporated herein by
reference.
10.18 Severance Benefit Agreement, dated as of November Filed as Exhibit 10.18 to the Registration
21, 1991, by and between LHP and Stanley J. Kahn. Statement on Form S-4 and incorporated herein by
reference.
10.19 Net Lease, dated as of October 14, 1997, by and Filed as Exhibit 10.19 to the Registration
between MIT Unsecured, L.P. and LHP, related to a Statement on Form S-4 and incorporated herein by
premise located in York County, South Carolina. reference.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION CROSS REFERENCE
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.20 Stockholders Agreement, dated as of June 30, 1997, Filed as Exhibit 10.1 to the Quarterly Report on
among Leiner Health Products Group, Inc., North Form 10-Q of Leiner Health Products Inc. for the
Castle Partners I, L.L.C., AEA Investors Inc., and Quarter Ended December 31, 1997, and incorporated
each other person who is or becomes a party herein by reference.
thereto.
10.21 Stock Purchase Plan of Leiner Health Products Group Filed as Exhibit 10.2 to the Quarterly Report on
Inc. as adopted by the Board of Directors of Leiner Form 10-Q of Leiner Health Products Inc. for the
Health Products Group Inc. on November 17, 1997. Quarter Ended December 31, 1997, and incorporated
herein by reference.
12.1 Computation of Ratio of Earnings to Fixed Charges. Filed as an exhibit hereto.
12.2 Computation of EBITDA to Interest Expense. Filed as an exhibit hereto.
21 List of Subsidiaries of the Registrant. Filed as an exhibit hereto.
27 Financial Data Schedule--March 31, 1998 Filed as an exhibit hereto.
</TABLE>
(b) Reports on Form 8-K: None.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, Leiner Health Products Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Carson, State of California, on the 29th day of June, 1998.
<TABLE>
<S> <C> <C>
LEINER HEALTH PRODUCTS INC.
By: /s/ WILLIAM B. TOWNE
-----------------------------------------
Name: William B. Towne
Title: Executive Vice President,
Chief Financial Officer,
Director, Treasurer and Secretary
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ ROBERT M. KAMINSKI Chief Executive Officer,
- ------------------------------ Director (Principal June 29, 1998
Robert M. Kaminski Executive Officer)
Executive Vice President,
/s/ WILLIAM B. TOWNE Chief Financial Officer,
- ------------------------------ Director, Treasurer and June 29, 1998
William B. Towne Secretary (Principal
Accounting Officer)
Executive Vice President,
/s/ WILLIAM B. TOWNE Chief Financial Officer,
- ------------------------------ Director, Treasurer and June 29, 1998
William B. Towne Secretary (Principal
Financial Officer)
/s/ GALE K. BENSUSSEN
- ------------------------------ President and Director June 29, 1998
Gale K. Bensussen
</TABLE>
46
<PAGE>
LEINER HEALTH PRODUCTS INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements:
Report of Independent Auditors..................................................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997.......................... F-3
Consolidated Statements of Operations for the years ended March 31, 1998, 1997 and
1996............................................................................. F-4
Consolidated Statements of Shareholder's Equity (Deficit) for the years ended March
31, 1998, 1997 and 1996.......................................................... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1998, 1997 and
1996............................................................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Leiner Health Products Inc.
We have audited the accompanying consolidated balance sheets of Leiner
Health Products Inc. as of March 31, 1998 and 1997, and the related consolidated
statements of operations, shareholder's equity (deficit) and cash flows for each
of the three years in the period ended March 31, 1998. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Leiner Health
Products Inc. at March 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/S/ Ernst & Young LLP
Orange County, California
May 15, 1998
F-2
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 1,026 $ 2,066
Accounts receivable, net of allowances of $4,713 and $3,840 at March 31, 1998 and 1997,
respectively.......................................................................... 89,358 77,436
Inventories............................................................................. 137,853 86,823
Deferred income taxes................................................................... 8,578 3,838
Prepaid expenses and other current assets............................................... 2,298 2,639
---------- ----------
Total current assets.................................................................. 239,113 172,802
Property, plant and equipment, less accumulated depreciation and amortization............. 48,899 42,367
Goodwill, less accumulated amortization of $8,790 and $7,131 at March 31, 1998 and 1997,
respectively............................................................................ 56,412 58,035
Deferred financing charges................................................................ 11,465 1,875
Other noncurrent assets................................................................... 9,937 9,485
---------- ----------
Total assets.......................................................................... $ 365,826 $ 284,564
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Bank checks outstanding, less cash on deposit........................................... $ 3,730 $ 10,410
Current portion of long-term debt....................................................... 1,733 3,148
Accounts payable........................................................................ 93,226 61,623
Customer allowances payable............................................................. 14,063 6,632
Accrued compensation and benefits....................................................... 10,132 6,233
Accrued interest expense................................................................ 3,116 870
Income taxes payable.................................................................... 3,349 1,818
Other accrued expenses.................................................................. 3,709 2,665
---------- ----------
Total current liabilities............................................................. 133,058 93,399
Long-term debt............................................................................ 257,059 102,290
Deferred income taxes..................................................................... 2,600 2,582
Other noncurrent liabilities.............................................................. 1,997 1,425
Commitments and contingent liabilities
Minority interest in subsidiary........................................................... 1,028 4,718
Shareholder's equity (deficit):
Common stock, $1 par value: 1,000 shares authorized, issued and outstanding at March 31,
1998 and 1997......................................................................... 1 1
Capital in excess of par value.......................................................... 1,825 62,966
Cumulative translation adjustment....................................................... (138) (173)
Retained earnings (deficit), net of charges from recapitalization of Parent of $31,543
and $0 at March 31, 1998 and 1997, respectively....................................... (31,604) 17,356
---------- ----------
Total shareholder's equity (deficit).................................................. (29,916) 80,150
---------- ----------
Total liabilities and shareholder's equity (deficit).................................. $ 365,826 $ 284,564
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
Net sales.................................................................... $ 502,110 $ 392,786 $ 338,417
Cost of sales................................................................ 368,599 288,579 253,272
---------- ---------- ----------
Gross profit................................................................. 133,511 104,207 85,145
Marketing, selling and distribution expenses................................. 62,626 51,477 44,228
General and administrative expenses.......................................... 29,462 21,219 18,344
Expenses related to recapitalization of parent............................... 32,808 -- --
Amortization of goodwill..................................................... 1,663 1,514 1,585
Closure of facilities and impairment of long-lived asset..................... 1,221 1,416 4,730
Management reorganization.................................................... -- 1,000 --
Other charges................................................................ 1,285 878 482
---------- ---------- ----------
Operating income............................................................. 4,446 26,703 15,776
Other expenses............................................................... 64 -- --
Interest expense, net........................................................ 19,494 8,281 9,924
---------- ---------- ----------
Income (loss) before income taxes and extraordinary item..................... (15,112) 18,422 5,852
Provision for income taxes before extraordinary item......................... 1,196 8,028 4,686
---------- ---------- ----------
Income (loss) before extraordinary item...................................... (16,308) 10,394 1,166
Extraordinary loss on the early extinguishment of debt, net of income taxes
of $761 and $1,833 for the years ended March 31, 1998 and 1997,
respectively............................................................... 1,109 2,756 --
---------- ---------- ----------
Net income (loss)............................................................ $ (17,417) $ 7,638 $ 1,166
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL TOTAL
COMMON STOCK IN EXCESS CUMULATIVE RETAINED SHAREHOLDER'S
-------------------------- OF PAR TRANSLATION EARNINGS EQUITY
SHARES AMOUNT VALUE ADJUSTMENT (DEFICIT) (DEFICIT)
----------- ------------- ----------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995............. 1,000 $ 1 $ 62,966 $ -- $ 8,552 $ 71,519
Net income............................ -- -- -- -- 1,166 1,166
--
----- ----------- ----- -------- -------------
Balance at March 31, 1996............. 1,000 1 62,966 -- 9,718 72,685
Net income............................ -- -- -- -- 7,638 7,638
Translation adjustment................ -- -- -- (173) -- (173)
--
----- ----------- ----- -------- -------------
Balance at March 31, 1997............. 1,000 1 62,966 (173) 17,356 80,150
Net loss.............................. -- -- -- -- (17,417) (17,417)
Recapitalization of parent............ -- -- (62,966) -- (31,543) (94,509)
Capital contribution from parent...... -- -- 1,825 -- -- 1,825
Translation adjustment................ -- -- -- 35 -- 35
--
----- ----------- ----- -------- -------------
Balance at March 31, 1998............. 1,000 $ 1 $ 1,825 $ (138) $ (31,604) $ (29,916)
--
--
----- ----------- ----- -------- -------------
----- ----------- ----- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LEINER HEALTH PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................................. $ (17,417) $ 7,638 $ 1,166
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation................................................................ 7,294 5,146 5,103
Amortization................................................................ 7,386 7,454 7,393
Stock option compensation expense........................................... 8,300 99 132
Deferred income taxes....................................................... (4,722) 270 3,364
Extraordinary loss on the early extinguishment of debt...................... 1,870 4,589 --
Translation adjustment...................................................... (35) 173 --
Charge for long-lived asset impairment...................................... -- -- 4,730
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable....................................................... (11,992) (7,371) 4,742
Inventories............................................................... (51,205) (8,694) (7,818)
Bank checks outstanding, less cash on deposit............................. (6,654) 7,979 (9,900)
Accounts payable.......................................................... 31,766 5,418 4,756
Customer allowances payable............................................... 7,431 1,161 260
Accrued compensation and benefits......................................... 4,232 1,484 (925)
Other accrued expenses.................................................... 2,840 (1,956) (1,252)
Income taxes payable/receivable........................................... 1,215 1,246 691
Other..................................................................... 1,236 (1,469) 261
----------- ---------- ---------
Net cash provided by (used in) operating activities........................... (18,455) 23,167 12,703
INVESTING ACTIVITIES
Additions to property, plant and equipment, net............................... (14,427) (3,540) (3,468)
Acquisition of business, net of cash acquired................................. -- (2,420) --
Increase in other noncurrent assets........................................... (4,513) (2,542) (5,192)
----------- ---------- ---------
Net cash used in investing activities......................................... (18,940) (8,502) (8,660)
FINANCING ACTIVITIES
Net borrowings (payments) under former bank line of credit.................... (100,405) 47,247 78
Borrowings under new bank revolving credit facility........................... 65,316 -- --
Borrowings under new bank term credit facility................................ 85,000 -- --
Payments under new bank term credit facility.................................. (638) -- --
Capital contribution from parent.............................................. 1,825 -- --
Repurchase of minority interest............................................... (3,599) -- --
Increase in deferred financing charges........................................ (10,238) (1,721) (143)
Repayment of senior notes, including prepayment penalty....................... -- (49,097) --
Increase in other long-term debt.............................................. -- 2,270 1,305
Payments on other long-term debt.............................................. (1,143) (12,493) (3,872)
----------- ---------- ---------
Net cash provided by (used in) financing activities........................... 36,118 (13,794) (2,632)
Effect of exchange rate changes............................................... 237 (216) --
----------- ---------- ---------
Net increase (decrease) in cash and cash equivalents.......................... (1,040) 655 1,411
Cash and cash equivalents at beginning of year................................ 2,066 1,411 --
----------- ---------- ---------
Cash and cash equivalents at end of year...................................... $ 1,026 $ 2,066 $ 1,411
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND OPERATIONS
Leiner Health Products Inc. (the "Company") is primarily involved in a
single business segment, the manufacture and distribution of vitamins,
over-the-counter drugs and other health and beauty aid products to mass market
retailers and through other channels, primarily in the United States and Canada.
The Company is a wholly owned subsidiary of PLI Holdings Inc. ("PLI Holdings"),
which operates solely as a holding company and which is itself a wholly owned
subsidiary of Leiner Health Products Group Inc. ("Leiner Group"). These
consolidated financial statements include the accounts of the Company and its
subsidiaries, including VH Holdings Inc., a holding company which owns Vita
Health Products, Inc. ("Vita Health").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its direct and indirect subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
periods. Actual results could differ from those estimates. Significant estimates
made in preparing the consolidated financial statements include the allowance
for uncollectible accounts, product returns, sales allowances and inventory
reserves.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt, which have been determined
based on borrowing rates currently available to the Company for loans with
similar terms or maturity, approximate the carrying amounts in the consolidated
financial statements.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided using
the straight-line method, at rates designed to distribute
F-7
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the cost of assets over their estimated service lives or, for leasehold
improvements, the shorter of their estimated service lives or their remaining
lease terms.
OTHER ASSETS
Goodwill, representing the excess of the purchase price over the fair values
of the net assets of acquired entities, is being amortized over the period of
expected benefit ranging from 35 to 40 years. Deferred financing charges are
being amortized based on the principal balance outstanding using the effective
interest method. Other intangible assets are being amortized over the period of
expected benefit of 15 years. Incentives provided to customers to secure
long-term sales agreements (primarily cash advances and credit memos to be
applied against purchases under the contract) are amortized over the terms of
the agreements or as related sales are recognized. Amounts deferred under such
agreements totaled $6,528,000 and $6,388,000 as of March 31, 1998 and 1997,
respectively.
LONG-LIVED ASSETS
During the fiscal year ended March 31, 1996, the Company adopted Statement
of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS No. 121),
which requires long-lived assets and certain intangibles held and used by the
Company to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability test is to be performed at the lowest level at
which undiscounted net cash flows can be directly attributable to long-lived
assets. Goodwill that is not associated with specific assets that are impaired
is assessed for impairment when impairment indicators are present and reduced to
its estimated fair value if less than its carrying value. See Note 5 for
disclosure regarding the effect of adoption of SFAS No. 121 on the Company's
consolidated financial statements.
FOREIGN CURRENCY TRANSLATION
The Company translates the foreign currency financial statements of its
Canadian subsidiary by translating balance sheet accounts at the year-end
exchange rates and income statement accounts at the weighted monthly average
exchange rate for the year. Translation gains and losses are recorded in
shareholder's equity, and realized gains and losses are reflected in income.
Transaction gains and losses were immaterial.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
Provisions are made currently for estimated returns and allowances.
STOCK-BASED COMPENSATION
The Company has elected to account for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees", and related interpretations. Under the
provisions of APB 25, compensation expense is measured at the grant date for the
difference between the fair value of the stock, less the exercise price.
F-8
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the
years ended March 31, 1998, 1997 and 1996 was $8,150,000, $11,257,000 and
$8,731,000, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standard Board ("FASB") issued
Statement No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130), which
establishes standards for the reporting and display of comprehensive income and
its components in financial statements. Comprehensive income generally
represents all changes in shareholders' equity except those resulting from
investments by and/or distributions to shareholders. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997 and requires restatement of
earlier periods presented. The Company plans to adopt SFAS No. 130 in fiscal
1999, and does not expect adoption to have a material impact on the company's
financial position, results of operations or cash flows.
Also in June 1997, the FASB issued Statement No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS No. 131), which requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographical areas of operations, and
major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented. The
Company plans to adopt SFAS No. 131 in fiscal 1999 and does not expect adoption
to significantly change its reportable segments.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform with the 1998 presentation.
3. RECAPITALIZATION
On June 30, 1997, Leiner Group completed a leveraged recapitalization
transaction ("Recapitalization"). This transaction was effected through receipt
of an equity investment from North Castle Partners I, L.L.C. ("North Castle"),
an investment fund formed by Mr. Charles F. Baird, Jr. to effect the
Recapitalization. Pursuant to the Recapitalization, Leiner Group repurchased
common stock from its existing shareholders in an amount totaling (together with
equity retained by such shareholders) $211,100,000, issued $80,400,000 of new
shares of the recapitalized Leiner Group to North Castle, issued $85,000,000 of
Senior Subordinated Notes (the "Notes"), and established a $210,000,000 senior
secured credit facility (the "Credit Facility") that provides for both term and
revolving credit borrowings. Immediately upon consummation of the
Recapitalization, the obligations of Leiner Group under the Notes and the Credit
Facility were assigned to and assumed by the Company. The Recapitalization was
accounted for as a recapitalization of Leiner Group which had no impact on the
historical basis of assets and liabilities as reflected in the Company's
consolidated financial statements.
In connection with the Recapitalization, the Company wrote off $1,109,000 of
deferred financing charges, net of income taxes of $761,000, as an extraordinary
loss on the early extinguishment of debt in the year ended March 31, 1998.
Additionally in connection with the Recapitalization, the Company
F-9
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RECAPITALIZATION (CONTINUED)
incurred expenses of $32,808,000 consisting of $11,954,000 related to Leiner
Group's capital raising activities, transaction bonuses granted to certain
management personnel in the aggregate amount of approximately $5,199,000 and
compensation expense related to the in-the-money value of stock options of
approximately $15,655,000. The compensation expense represented the excess of
the fair market value of the underlying common stock over the exercise price of
the options canceled in connection with the Recapitalization.
The assumption of debt and the transfer of excess funds from Leiner Group
related to the Recapitalization totaled approximately $102,809,000 and consisted
of the following (in thousands):
<TABLE>
<S> <C> <C>
Assumption of debt from Leiner Group:
New Credit Facility................................. $(149,736)
Notes............................................... (85,000) $(234,736)
---------
Excess funds transferred from Leiner Group............ 131,927
---------
$(102,809)
---------
---------
</TABLE>
Of this amount, $8,300,000 is reflected in expenses related to
Recapitalization of parent in the accompanying Consolidated Statement of
Operations, with the remainder first applied against capital in excess of par
value until that was exhausted and then against retained earnings (deficit).
4. ACQUISITION
On January 30, 1997, the Company acquired all of the outstanding capital
stock of G. S. Investments Ltd. which owned, among other companies, Vita Health.
Vita Health is headquartered in Winnipeg, Manitoba, Canada and primarily
manufactures and distributes vitamins and over-the-counter drugs. The results of
operations of Vita Health are included in the accompanying consolidated
statements of operations since the date of acquisition. The total cost of the
acquisition, including direct acquisition costs of $1,151,000, was approximately
$16,030,000, represented by $2,420,000 of cash, $4,718,000 of preferred stock of
a subsidiary and $8,892,000 of liabilities assumed. The acquisition has been
accounted for as a purchase and, accordingly, the excess of cost over the fair
value of net assets acquired of $7,172,000 has been included in goodwill, and is
being amortized over its expected benefit period of 35 years.
As part of the acquisition purchase price, the Company issued approximately
46,037 shares of Class A preferred stock and approximately 17,511 shares of
Class B preferred stock in VH Holdings Inc., a subsidiary of the Company. The
Class A preferred stock had an aggregate redemption value of approximately
$3,418,000 and the Class B preferred stock had an aggregate redemption value of
approximately $1,300,000. The preferred stock does not accrue dividends and has
no voting rights. A portion of the minority preferred stock interest in VH
Holdings Inc., aggregating $3,690,000, was redeemed in connection with the
Recapitalization. The remaining portion of outstanding preferred stock was
redeemed for cash of $1,028,000 in April 1998. This minority preferred stock has
been classified as minority interest in subsidiary in the accompanying
consolidated balance sheets.
5. CLOSURE OF FACILITIES, LONG-LIVED ASSET IMPAIRMENT AND MANAGEMENT
REORGANIZATION
During the year ended March 31, 1998, the Company's Board of Directors
approved a plan to close the West Unity, Ohio facility during the summer of
1998. Estimated closure costs of $1,221,000 were
F-10
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CLOSURE OF FACILITIES, LONG-LIVED ASSET IMPAIRMENT AND MANAGEMENT
REORGANIZATION (CONTINUED)
recorded in the year ended March 31, 1998, of which $754,000 related to
severance costs and $467,000 related to other closure costs.
Because of declining sales and continued operating losses during the year
ended March 31, 1996, the Company decided to significantly reduce the size of
its over-the-counter (OTC) liquids pharmaceutical manufacturing business.
Accordingly, the Company evaluated, based on the criteria prescribed by SFAS No.
121, the ongoing value of the plant, equipment and related goodwill that arose
as part of the XCEL acquisition in May 1992. Goodwill of $7,784,000 was
allocated based on the relative estimated fair value of the long-lived assets at
the date of acquisition. Based on its evaluation, the Company determined that
assets with a carrying amount of $8,256,000 were impaired and wrote them down by
$4,730,000 to their fair value. Fair value was based on independent appraisals
of the plant and equipment. This asset impairment charge was provided for as of
March 31, 1996 and is reflected in the consolidated balance sheet as a reduction
in the carrying amount of goodwill.
During the year ended March 31, 1997, the Company closed its OTC liquids
pharmaceutical manufacturing facility and out-sourced this production to a third
party. The costs incurred of $1,416,000 included the write-off of fixed assets
($826,000) and closure costs ($590,000). In addition, an inventory write-down of
$499,000 was made and is included in cost of sales.
During the year ended March 31, 1997, the Company reorganized the management
team. Expenses of $1,000,000 include severance expense for the previous Chief
Financial Officer, Vice President of Product Development and Vice President of
Corporate Development and include the hiring and relocation expenses for the new
Chief Financial Officer and other corporate officers.
6. COMPOSITION OF CERTAIN BALANCE SHEET ITEMS
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C> <C>
1998 1997
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Inventories:
Raw materials, bulk vitamins and packaging
materials....................................... $ 83,475 $ 51,488
Work-in-process................................... 9,832 5,849
Finished products................................. 44,546 29,486
---------- ----------
$ 137,853 $ 86,823
---------- ----------
---------- ----------
Property, plant and equipment:
<CAPTION>
DEPRECIABLE LIVES
-----------------
(YEARS)
<S> <C> <C> <C>
Land.............................................. -- $ 729 $ 734
Buildings and improvements........................ 31-40 5,143 5,206
Leasehold improvements............................ 7-40 11,013 10,549
Machinery and equipment........................... 3-20 54,318 42,194
Furniture and fixtures............................ 3-10 4,783 3,425
---------- ----------
75,986 62,108
Less accumulated depreciation and amortization.... (27,087) (19,741)
---------- ----------
$ 48,899 $ 42,367
---------- ----------
---------- ----------
</TABLE>
F-11
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest.................................................... $ 17,990 $ 11,248 $ 9,532
Income taxes, net of refunds received....................... 2,942 5,603 616
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Credit Facility:
Revolving facility.................................................. $ 85,513 $ 35,600
Term facility....................................................... 84,363 64,778
---------- ----------
Total credit facility............................................... 169,876 100,378
Capital lease obligations............................................. 3,916 5,060
Senior subordinated notes............................................. 85,000 --
---------- ----------
258,792 105,438
Less current portion.................................................. (1,733) (3,148)
---------- ----------
Total long-term debt................................................ $ 257,059 $ 102,290
---------- ----------
---------- ----------
</TABLE>
CREDIT FACILITY
The Credit Facility consists of two term loans ("Term Facility") due
December 30, 2004 and December 30, 2005 in the amounts of $45,000,000 and
$40,000,000, respectively, and a revolving credit facility in the amount of
$125,000,000 (the "Revolving Facility"), made available in U.S. dollars to the
Company (such portion, the "U.S. Revolving Facility") with a portion denominated
in Canadian dollars made available to Vita Health (such portion, the "Canadian
Revolving Facility"). The unpaid principal amount outstanding on the Revolving
Facility is due and payable on June 30, 2003. The Term Facility requires
quarterly amortization payments of approximately 1% per annum over the next six
years. Amortization payments scheduled during the period April 1, 1998 through
March 31, 1999 total $850,000. Borrowings under the Credit Facility bear
interest at floating rates that are based on the lender's base rate (8.5% at
March 31, 1998), the lender's Canadian prime rate (6.75% at March 31, 1998),
LIBOR (5.69% at March 31, 1998) or the lender's banker's acceptance rate (4.77%
at March 31, 1998), as the case may be, plus an "applicable margin" that is
itself based on the Company's leverage ratio. The leverage ratio is defined
generally as the ratio of total funded indebtedness to the consolidated EBITDA
and varies as follows: (a) for revolving credit borrowings, from 0.75% to 2.5%
for LIBOR- or banker's acceptance-based loans and from zero to 1.5% for
alternate base rate- or Canadian prime rate-based loans, and (b) for loans under
the Term Facility, from 2.375% to 2.875% or 2.5% to 3.0% for LIBOR-based loans
and from 1.375% to 1.875% or 1.5% to 2.0% for alternate base rate-based loans.
As of March 31, 1998, the Company's interest rates were 7.92% for U.S.
borrowings and 6.81% for Canadian borrowings under the Credit
F-12
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
Facility. In addition to certain agent and up-front fees, the Credit Facility
requires a commitment fee of up to 0.5% of the average daily unused portion of
the revolving credit facility based on the Company's leverage ratio.
The obligations of the Company under the U.S. Revolving Facility and Term
Facility are guaranteed by the direct parent of the Company, PLI Holdings, and
by any direct or indirect U.S. subsidiaries of the Company. The obligations of
Vita Health under the Canadian Revolving Facility are guaranteed by the Company,
PLI Holdings, the Company's direct or indirect U.S. subsidiaries and direct or
indirect subsidiaries of Vita Health. The Credit Facility also is secured by
substantially all the assets of the Company and any of its direct or indirect
U.S. subsidiaries, all of the stock of the Company and any such direct or
indirect U.S. subsidiaries, and 65% of the common stock of any direct non-U.S.
subsidiaries of the Company and its U.S. subsidiaries. The Canadian Revolving
Facility is also secured by substantially all assets of Vita Health, its direct
and indirect Canadian parents and any direct or indirect non-U.S. subsidiaries
of the Company, and all of the common stock of any such direct or indirect
non-U.S. subsidiaries. The Revolving Facility also allows the Company to issue
up to $35,000,000 in letters of credit in lieu of borrowing on the Revolving
Facility. As of March 31, 1998, the Company had $5,979,000 of letters of credit
outstanding, and had $33,508,000 available for borrowing under the Revolving
Facility.
On May 15, 1998, the Company entered into an Amended and Restated Credit
Agreement (the "Amended Credit Agreement"). The Amended Credit Agreement
consists of two U.S. term loans due December 30, 2004 and December 30, 2005 in
the amounts of $68,000,000 and $65,000,000, respectively, a Canadian denominated
term loan due December 30, 2004 in the amount of approximately $12,000,000, and
a revolving credit facility in the amount of $125,000,000 (the "New Revolving
Facility") made available in U.S. dollars to the company with a portion
denominated in Canadian dollars made available to Vita Health. The unpaid
principal amount outstanding on the New Revolving Facility is due and payable on
June 30, 2003. Amounts outstanding under the Credit Facility in place at March
31, 1998 were refinanced with the proceeds from the Amended Credit Agreement.
The terms, conditions and restrictions of the Amended Credit Facility are
consistent with the terms, conditions and restorations of the Credit Facility
discussed above.
On July 30, 1997, the Company entered into an interest protection
arrangement covering $29,460,000 of its borrowings under the Credit Facility.
Under this arrangement, the Company obtained a fixed interest rate of 6.17% on
LIBOR, instead of the fluctuating rate as described above and pays a fee of
approximately $15,800 per annum. That fee is charged to interest expense as
incurred and payments received as a result of the cap are accrued as a reduction
of interest expense on the floating-rate borrowings under the Credit Facility.
The agreement expires July 30, 2000.
SENIOR SUBORDINATED NOTES
The Company assumed the Notes issued by Leiner Group upon the consummation
of the Recapitalization. The Notes accrue interest at the rate of 9 5/8% per
annum and are due on June 30, 2007. Interest on the Notes is payable
semiannually on January 1 and July 1 of each year.
F-13
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
CAPITAL LEASE OBLIGATIONS
The capital lease obligations are payable in variable monthly installments
through January 2002, bear interest at effective rates ranging from 6.8% to
10.3% and are secured by equipment with a net book value of approximately
$4,321,000 and $5,088,000 at March 31, 1998 and 1997, respectively.
COVENANTS AND MINIMUM PAYMENTS
Provisions of certain of the Company's credit agreements include terms,
among others, that require the Company to maintain certain financial ratios and
tests, including those that relate to the maintenance of specified levels of
cash flow and shareholder's equity. Furthermore, the agreements restrict
indebtedness and expenditures for dividend distributions, certain capital
expenditures and investments. A change of control, as defined, will constitute a
default under the Amended Credit Agreement. As of March 31, 1998, the Company
was in compliance with the covenants and conditions of the Amended Credit
Agreement. Due to restrictions in the Amended Credit Agreement, none of the
retained earnings (deficit) are available for dividends.
Principal payments on long-term debt through fiscal 2003 and thereafter are
(in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 1,733
2000.............................................................................. 2,402
2001.............................................................................. 2,321
2002.............................................................................. 861
2003.............................................................................. 850
Thereafter........................................................................ 250,625
----------
Total........................................................................... $ 258,792
----------
----------
</TABLE>
RETIREMENT OF DEBT
In connection with the establishment of the Credit Facility on June 30, 1997
described above, the previous borrowings were retired and the unamortized debt
issuance costs of $1,870,000 were written off and included in the consolidated
statement of operations as an extraordinary loss on the early extinguishment of
debt in the year ended March 31, 1998.
In connection with a new credit agreement on the previous January 30, 1997,
borrowings were retired and the unamortized debt issuance costs of $492,000 were
written off and included in the consolidated statement of operations as an
extraordinary loss on the early extinguishment of debt in the year ended March
31, 1997. In addition, certain senior notes were prepaid in full on January 30,
1997, along with accrued interest and a prepayment charge of $4,097,000 which is
included in the consolidated statement of operations as an extraordinary loss on
the early extinguishment of debt in the year ended March 31, 1997.
F-14
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The Company is included in the consolidated Federal income tax return of
Leiner Group. Under a tax sharing agreement, the Federal income tax provision is
computed on a consolidated return basis and provides that the Company, by
participating in the consolidated filing, shall be liable and make payment to
Leiner Group for its proportionate share of the total tax liability. The
agreement also provides that the Company shall receive benefit to the extent
that its losses and other credits result in a reduction of the consolidated tax
liability. In the event that a combined or consolidated state, local or foreign
tax return is filed, the tax sharing arrangement for the Federal provision shall
apply in a similar manner in computing the state, local and foreign tax
liability or benefit.
Deferred income taxes are computed using the liability method and reflect
the effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Valuation allowances are established, when necessary, to reduce
deferred tax assets to estimated realizable amounts. The provision for income
taxes reflects the taxes to be paid for the period and the change during the
period in the deferred tax assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities
are (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Deferred tax assets:
Compensation accruals.................................................. $ 4,125 $ 405
Allowances for doubtful accounts and sales returns..................... 1,773 1,392
Inventory obsolescence reserves........................................ 1,604 863
Inventory capitalization............................................... 656 634
Other.................................................................. 420 544
--------- ---------
Total deferred tax assets................................................ 8,578 3,838
Deferred tax liabilities:
Fixed assets book versus tax basis difference.......................... (2,600) (2,582)
--------- ---------
Deferred tax assets, net of deferred tax liabilities..................... $ 5,978 $ 1,256
--------- ---------
--------- ---------
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate before extraordinary item:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----- ----- -----
Tax at U.S. statutory rates.............................................. (35)% 35% 35%
Recapitalization expense................................................. 28 -- --
Tax contingency reserve.................................................. 10 -- --
Goodwill amortization.................................................... 3 3 9
Higher effective income taxes of other countries......................... 2 -- --
State income taxes, net of federal tax benefit........................... -- 6 8
Charge for long-lived asset impairment................................... -- -- 28
-- -- --
8% 44% 80%
-- -- --
-- -- --
</TABLE>
F-15
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
United States and foreign income (loss) before taxes and extraordinary item
are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
U.S.......................................................... $ (17,171) $ 17,971 $ 5,852
Foreign...................................................... 2,059 451 --
---------- --------- ---------
$ (15,112) $ 18,422 $ 5,852
---------- --------- ---------
---------- --------- ---------
</TABLE>
Significant components of the provision for income taxes are (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current:
Federal...................................................... $ 4,344 $ 6,622 $ 1,176
State........................................................ 592 954 146
Foreign...................................................... 982 182 --
--------- --------- ---------
Total current.............................................. 5,918 7,758 1,322
Deferred:
Federal...................................................... (4,071) (131) 2,846
State........................................................ (681) 401 518
Foreign...................................................... 30 -- --
--------- --------- ---------
Total deferred............................................. (4,722) 270 3,364
--------- --------- ---------
Provision for income taxes before extraordinary item..... 1,196 8,028 4,686
Tax benefit from extraordinary loss:
Federal...................................................... (663) (1,833) --
Foreign...................................................... (98) -- --
--------- --------- ---------
Total tax benefit from extraordinary loss.................. (761) (1,833) --
--------- --------- ---------
Total provision for income taxes......................... $ 435 $ 6,195 $ 4,686
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. EMPLOYEE BENEFITS
STOCK OPTION PLAN
Leiner Group's Stock Option Plan, as amended in 1996, provides for the
issuance of nonqualified stock options to certain key employees and directors to
purchase up to 122,222 shares of Leiner Group's common stock. Options granted
are at exercise prices as determined by Leiner Group's Board of Directors, but
not less than $100 per share. Options generally vest on a pro rata basis at a
rate of 25% per year, with 25% immediate vesting on the date of grant, and
expire no later than ten years from the date of grant.
F-16
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFITS (CONTINUED)
Pro forma information regarding net income (loss) is required by SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which also requires that the
information be determined as if Leiner Group accounted for its employee stock
options granted subsequent to March 31, 1995 under the fair value method for
that Statement. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because Leiner Group's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
In calculating pro forma information regarding net income (loss), the fair
value of the stock options granted during the years presented was determined
using the Black-Scholes option pricing model and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Risk free interest rate.................................................. 5.8% 6.0% 6.0%
Expected option life..................................................... 9.3 6.0 6.0
Volatility............................................................... 0.0 0.0 0.0
Dividend yield........................................................... 0.0 0.0 0.0
</TABLE>
The pro forma net income (loss) for the years ended March 31, 1998, 1997 and
1996 was $(18,571,000), $7,377,000 and $1,101,000, respectively.
Activity under the Stock Option Plan for the years ended March 31, 1998,
1997 and 1996 is set forth below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------
<S> <C> <C> <C> <C>
SHARES WEIGHTED
AVAILABLE NUMBER PRICE AVERAGE
FOR GRANT OF SHARES PER SHARE EXERCISE PRICE
---------- ---------- ---------- ---------------
Balance at March 31, 1995...................................... -- 81,552 $ 100 $ 100
Common shares reserved for issuance............................ 18,448 -- -- --
Options granted................................................ (18,448) 18,448 125-145 137
---------- ---------- ---------- -----
Balance at March 31, 1996...................................... -- 100,000 100-145 107
Common shares reserved for issuance............................ 75,000 -- -- --
Options granted................................................ (6,074) 6,074 175 175
Options canceled............................................... 6,074 (6,074) 100-145 107
---------- ---------- ---------- -----
Balance at March 31, 1997...................................... 75,000 100,000 100-175 111
Common shares reserved for issuance............................ 122,222 -- -- --
Common shares canceled for issuance............................ (75,000) -- -- --
Options granted................................................ (113,806) 113,806 100 100
Options exercised.............................................. -- (100,000) 100-175 111
Options canceled............................................... 3,288 (3,288) 100 100
---------- ---------- ---------- -----
Balance at March 31, 1998...................................... 11,704 110,518 $ 100 $ 100
---------- ---------- ---------- -----
---------- ---------- ---------- -----
</TABLE>
F-17
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFITS (CONTINUED)
Options exercisable at March 31, 1998, 1997 and 1996 were 27,992, 86,721 and
83,147, respectively. The weighted-average fair value of options granted during
the years ended March 31, 1998, 1997 and 1996 were $41, $52 and $40,
respectively. The weighted average remaining contractual life was 9.3 years as
of March 31, 1998.
CONTRIBUTORY RETIREMENT PLANS
The Company has contributory retirement plans that cover substantially all
of the Company's employees who meet minimum service requirements. The Company's
contributions to the plans are discretionary and are determined and funded
annually by Leiner Group's Board of Directors. The Company's contributions
totaled $1,304,000, $1,109,000 and $1,011,000 for the plan years ended March 31,
1998, 1997 and 1996, respectively.
11. RELATED PARTY TRANSACTIONS
Under a Management Agreement dated as of May 4, 1992 by and between the
Company and AEA Investors Inc. ("AEA"), one of the Company's shareholders, the
Company paid AEA management fees of $350,000 during each of the two years ended
March 31, 1997 and $88,000 in the year ended March 31, 1998 in exchange for
advisory and consulting services rendered in connection with certain financial,
management and other matters relating to the business and operations of the
Company. The annual management fees were included in other charges in the
accompanying consolidated statements of operations.
Upon consummation of the Recapitalization, Leiner Group's management
agreement with AEA was terminated, and Leiner Group and the Company entered into
a consulting agreement with North Castle Partners, L.L.C. (the "Sponsor"), an
affiliate of North Castle, to provide the Company with certain business,
financial and managerial advisory services. Mr. Baird acts as the managing
member of the Sponsor through Baird Investment Group, L.L.C. ("Baird
Investment"). In exchange for such services, Leiner Group and the Company have
agreed to pay the Sponsor an annual fee of $1,500,000, payable semi-annually in
advance, plus the Sponsor's reasonable out-of-pocket expenses. This fee may be
reduced upon completion of an initial public offering of Leiner Group's shares.
The agreement also terminates on June 30, 2007, unless Baird Investment ceases
to be the managing member of North Castle, or upon the earliest of June 30, 2007
or the date that North Castle terminates before that date. During the year ended
March 31, 1998, the management fee and expenses paid to the sponsor, totaling
$1,197,000 were included in other charges in the accompanying Statement of
Operations. Leiner Group and the Company have also paid the Sponsor a
transaction fee of $3,500,000 for services relating to arranging, structuring
and financing the Recapitalization, and reimbursed the Sponsor's related
out-of-pocket expenses.
12. COMMITMENTS
The Company leases certain real estate for its manufacturing facilities,
warehouses, corporate and sales offices, as well as certain equipment under
operating leases (noncancelable) that expire at various dates through March 2004
and contain renewal options. Total rents charged to operations were $5,244,000,
$4,755,000 and $4,679,000 for the years ended March 31, 1998, 1997 and 1996,
respectively.
F-18
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS (CONTINUED)
Minimum future obligations on noncancelable operating leases in effect at
March 31, 1998 are (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1999............................................................................... $ 6,611
2000............................................................................... 6,096
2001............................................................................... 5,857
2002............................................................................... 5,200
2003............................................................................... 4,243
Thereafter......................................................................... 27,704
---------
Total minimum lease payments....................................................... $ 55,711
---------
---------
</TABLE>
13. CONTINGENT LIABILITIES
L-TRYPTOPHAN
The Company has been named in numerous actions brought in federal or state
courts seeking compensatory and, in some cases, punitive damages for alleged
personal injuries resulting from the ingestion of certain products containing
L-Tryptophan. As of May 5, 1998, the Company and/or certain of its customers,
many of whom have tendered their defense to the Company, had been named in 668
lawsuits of which 660 have been settled.
The Company has entered into an agreement (the Agreement) with the Company's
supplier of bulk L-Tryptophan, under which the supplier has agreed to assume the
defense of all claims and to pay all settlements and judgments, other than for
certain punitive damages, against the Company arising out of the ingestion of
L-Tryptophan products. To date, the supplier has funded all settlements and paid
all legal fees and expenses incurred by the Company related to these matters. No
punitive damages have been awarded or paid in any settlement.
Of the remaining 8 cases, management does not expect that the Company will
be required to make any material payments in connection with their resolution by
virtue of the Agreement, or, in the event that the supplier ceases to honor the
Agreement, by virtue of the Company's product liability insurance, subject to
deductibles not to exceed $1,250,000 in the aggregate. Accordingly, no provision
has been made in the Company's consolidated financial statements for any loss
that may result from these remaining actions.
OTHER
In August 1997, the Food and Drug Administration ("FDA") announced a
proposal to ban the use of phenolthalein in laxatives. The FDA reportedly took
this action in response to certain studies which concluded that the
administration of very high doses of yellow phenolthalein could cause cancer in
laboratory animals. The reports concerning these studies state that the dosages
administered substantially exceeded the dosages commonly used by human beings.
In response, the Company voluntarily discontinued production of its laxative
product containing yellow phenolthalein and notified its customers that they may
return this product. Management does not expect that the Company will be
required to make any material payments related to this action. The Company
reformulated this product and started shipping the reformulated version in
November 1997.
F-19
<PAGE>
LEINER HEALTH PRODUCTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. CONTINGENT LIABILITIES (CONTINUED)
The Company is subject to other legal proceedings and claims which arise in
the normal course of business. While the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
14. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to a geographically diverse customer base in the
drugstore, supermarket and discount chain industries. The Company performs
ongoing credit evaluations of its customers and maintains reserves for potential
losses. For the years ended March 31, 1998, 1997 and 1996, two customers
represented approximately 26% and 10%, 27% and 12%, and 21% and 13%,
respectively, of net sales.
F-20
<PAGE>
SCHEDULE II
LEINER HEALTH PRODUCTS INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO COST BALANCE AT
OF PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
----------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended March 31, 1996:
Accounts receivable allowance.......................... $ 3,316 $ 4,443 $ 5,220 $ 2,539
Inventory valuation reserve............................ 4,409 2,320 2,828 3,901
Year ended March 31, 1997:
Accounts receivable allowance.......................... $ 2,539 $ 6,761 $ 5,460 $ 3,840
Inventory valuation reserve............................ 3,901 4,687 3,837 4,751
Year ended March 31, 1998:
Accounts receivable allowance.......................... $ 3,840 $ 8,278 $ 7,405 $ 4,713
Inventory valuation reserve............................ 4,751 7,278 3,433 8,596
</TABLE>
S-1
<PAGE>
EXHIBIT 4.5
[EXECUTION COPY]
AMENDED AND RESTATED
CREDIT AGREEMENT,
dated as of May 15, 1998,
among
LEINER HEALTH PRODUCTS INC.,
as the U.S. Borrower,
VITA HEALTH PRODUCTS INC.,
as the Canadian Borrower,
VARIOUS FINANCIAL INSTITUTIONS,
as the U.S. Lenders
and the Canadian Lenders,
THE BANK OF NOVA SCOTIA,
as the U.S. Agent
for the U.S. Lenders,
THE BANK OF NOVA SCOTIA,
as the Canadian Agent
for the Canadian Lenders,
MERRILL LYNCH CAPITAL CORPORATION,
as Documentation Agent,
and
SALOMON BROTHERS HOLDING COMPANY INC,
as Syndication Agent.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<C> <S> <C>
1.1. DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 58
1.3. Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
1.4. Accounting and Financial Determinations. . . . . . . . . . . . . . . . . 58
ARTICLE II
U.S. COMMITMENTS AND BORROWING
2.1. U.S. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
2.1.1. U.S. Revolving Loan Commitment and U.S. Swing Line Loan
Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
2.1.2. U.S. Letter of Credit Commitment . . . . . . . . . . . . . . . . . . . . 60
2.1.3. U.S. Term Loan Commitment. . . . . . . . . . . . . . . . . . . . . . . . 60
2.1.4. U.S. Lenders Not Permitted or Required to Make Loans . . . . . . . . . . 61
2.1.5. U.S. Issuer Not Permitted or Required to Issue U.S. Letters
of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
2.2. Reduction of the U.S. Commitment Amounts; Reallocation . . . . . . . . . 62
2.2.1. Optional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.2.2. Mandatory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.2.3. Reallocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
2.3. Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 64
2.3.1. Borrowings of other than U.S. Swing Line Loans . . . . . . . . . . . . . 64
2.3.2. U.S. Swing Line Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 64
2.4. Continuation and Conversion Elections. . . . . . . . . . . . . . . . . . 66
2.5. Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
2.6. U.S. Register; U.S. Notes. . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE III
CANADIAN COMMITMENTS, BORROWING AND CANADIAN BAs
3.1. Canadian Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.1.1. Canadian Revolving Loan Commitment and Canadian Swing Line
Loan Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.1.2. Canadian Letter of Credit Commitment . . . . . . . . . . . . . . . . . . 69
3.1.3. Canadian Term Loan Commitment. . . . . . . . . . . . . . . . . . . . . . 69
-i-
<PAGE>
3.1.4. Canadian Lenders Not Permitted or Required to Make Loans . . . . . . . . 70
3.1.5. Canadian Issuer Not Permitted or Required to Issue Canadian
Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3.2. Reduction of the Canadian Commitment Amounts; Reallocation . . . . . . . 71
3.2.1. Optional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.2.2. Reallocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.3. Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.3.1. Borrowings of Other than Canadian Swing Line Loans . . . . . . . . . . . 72
3.3.2. Canadian Swing Line Loans. . . . . . . . . . . . . . . . . . . . . . . . 72
3.4. Continuation and Conversion Elections. . . . . . . . . . . . . . . . . . 74
3.4.1. Converting Canadian Prime Rate Loans to Canadian BAs . . . . . . . . . . 74
3.4.2. Converting Canadian BAs to Canadian Prime Rate Loans . . . . . . . . . . 74
3.5. Canadian BAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
3.5.1. Funding of Canadian BAs. . . . . . . . . . . . . . . . . . . . . . . . . 75
3.5.2. Acceptance Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
3.5.3. Presigned Draft Forms. . . . . . . . . . . . . . . . . . . . . . . . . . 75
3.5.4. Bill S-9.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
3.6. Special Provisions Relating to Acceptance Notes. . . . . . . . . . . . . 76
3.7. Canadian Register; Canadian Notes. . . . . . . . . . . . . . . . . . . . 77
ARTICLE IV
U.S. AND CANADIAN LETTER OF CREDIT SUBFACILITIES
4.1. Issuance Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.1.1. Other Lenders' Participation . . . . . . . . . . . . . . . . . . . . . . 79
4.1.2. Disbursements; Conversion to Loans . . . . . . . . . . . . . . . . . . . 80
4.1.3. Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.1.4. Deemed Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.1.5. Nature of Reimbursement Obligations. . . . . . . . . . . . . . . . . . . 82
ARTICLE V
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
5.1. Repayments and Prepayments; Application. . . . . . . . . . . . . . . . . 82
5.1.1. Repayments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . 82
5.1.2. Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
5.2. Interest Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . 89
5.2.1. Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
5.2.2. Post-Maturity Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . 90
5.2.3. Payment Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
5.2.4. Interest Act Provision . . . . . . . . . . . . . . . . . . . . . . . . . 91
5.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
-ii-
<PAGE>
5.3.1. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
5.3.2. Agents' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
5.3.3. Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE VI
CERTAIN LIBO RATE, CANADIAN BA AND OTHER PROVISIONS
6.1. LIBO Rate Lending Unlawful . . . . . . . . . . . . . . . . . . . . . . . 93
6.2. Deposits Unavailable; Circumstances Making Canadian BAs
Unavailable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
6.3. Increased Loan Costs, etc. . . . . . . . . . . . . . . . . . . . . . . . 94
6.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
6.5. Increased Capital Costs. . . . . . . . . . . . . . . . . . . . . . . . . 95
6.6. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
6.7. Payments, Computations, etc. . . . . . . . . . . . . . . . . . . . . . . 99
6.8. Sharing of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .100
6.9. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
6.10. Lender's Duty to Mitigate. . . . . . . . . . . . . . . . . . . . . . . .101
6.11. Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . . . . .102
ARTICLE VII
CONDITIONS TO CREDIT EXTENSIONS
7.1. Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
7.1.1. Resolutions, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . .103
7.1.2. Delivery of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . .104
7.1.3. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . .104
7.1.4. Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . .104
7.1.5. Affirmation and Consent. . . . . . . . . . . . . . . . . . . . . . . . .104
7.1.6. Closing Fees, Expenses, etc. . . . . . . . . . . . . . . . . . . . . . .104
7.1.7. Opinions of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . .104
7.2. All Credit Extensions. . . . . . . . . . . . . . . . . . . . . . . . . .105
7.2.1. Compliance with Warranties, No Default, etc. . . . . . . . . . . . . . .105
7.2.2. Credit Extension Request, etc. . . . . . . . . . . . . . . . . . . . . .106
7.2.3. Satisfactory Legal Form. . . . . . . . . . . . . . . . . . . . . . . . .106
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . .106
8.2. Due Authorization, Non-Contravention, etc. . . . . . . . . . . . . . . .106
8.3. Government Approval, Regulation, etc.. . . . . . . . . . . . . . . . . .107
-iii-
<PAGE>
8.4. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
8.5. Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . .108
8.6. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . .108
8.7. Litigation, Labor Controversies, etc.. . . . . . . . . . . . . . . . . .108
8.8. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
8.9. Ownership of Properties. . . . . . . . . . . . . . . . . . . . . . . . .109
8.10. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
8.11. Pension and Welfare Plans. . . . . . . . . . . . . . . . . . . . . . . .109
8.12. Environmental Warranties . . . . . . . . . . . . . . . . . . . . . . . .110
8.13. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . .111
8.14. Regulations U and X. . . . . . . . . . . . . . . . . . . . . . . . . . .111
8.15. Accuracy of Information. . . . . . . . . . . . . . . . . . . . . . . . .112
8.16. Senior Indebtedness, etc.. . . . . . . . . . . . . . . . . . . . . . . .112
ARTICLE IX
COVENANTS
9.1. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . .113
9.1.1. Financial Information, Reports, Notices, etc.. . . . . . . . . . . . . .113
9.1.2. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . .116
9.1.3. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . .116
9.1.4. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
9.1.5. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . .117
9.1.6. Environmental Covenant . . . . . . . . . . . . . . . . . . . . . . . . .118
9.1.7. Future Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . .118
9.1.8. Process Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120
9.1.9. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .120
9.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . .121
9.2.1. Business Activities. . . . . . . . . . . . . . . . . . . . . . . . . . .121
9.2.2. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
9.2.3. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124
9.2.4. Financial Condition and Operations . . . . . . . . . . . . . . . . . . .126
9.2.5. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
9.2.6. Restricted Payments, etc.. . . . . . . . . . . . . . . . . . . . . . . .130
9.2.7. Stock of Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . .132
9.2.8. Rental Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .132
9.2.9. Take or Pay Contracts. . . . . . . . . . . . . . . . . . . . . . . . . .132
9.2.10. Consolidation, Merger, etc.. . . . . . . . . . . . . . . . . . . . . . .132
9.2.11. Permitted Dispositions.. . . . . . . . . . . . . . . . . . . . . . . . .133
9.2.12. Modification of Certain Agreements . . . . . . . . . . . . . . . . . . .134
9.2.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . .135
9.2.14. Negative Pledges, Restrictive Agreements, etc. . . . . . . . . . . . . .136
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<PAGE>
9.2.15. Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . .137
9.2.16. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . .137
ARTICLE X
EVENTS OF DEFAULT
10.1. Listing of Events of Default . . . . . . . . . . . . . . . . . . . . . .139
10.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . .139
10.1.2. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . .139
10.1.3. Non-Performance of Certain Covenants and Obligations . . . . . . . . . .139
10.1.4. Non-Performance of Other Covenants and Obligations . . . . . . . . . . .139
10.1.5. Default on Other Indebtedness. . . . . . . . . . . . . . . . . . . . . .139
10.1.6. Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
10.1.7. Pension Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
10.1.8. Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . .140
10.1.9. Bankruptcy, Insolvency, etc. . . . . . . . . . . . . . . . . . . . . . .140
10.1.10. Impairment of Security, etc. . . . . . . . . . . . . . . . . . . . . . .141
10.1.11. Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . .141
10.1.12. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
10.1.13. Termination of Receivables Facility. . . . . . . . . . . . . . . . . . .142
10.2. Action if Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . .142
10.3. Action if Other Event of Default . . . . . . . . . . . . . . . . . . . .142
ARTICLE XI
THE AGENTS
11.1. Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143
11.2. Funding Reliance, etc. . . . . . . . . . . . . . . . . . . . . . . . . .143
11.3. Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144
11.4. Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144
11.5. Loans by the Agents. . . . . . . . . . . . . . . . . . . . . . . . . . .145
11.6. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . .145
11.7. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. Waivers, Amendments, etc.. . . . . . . . . . . . . . . . . . . . . . . .145
12.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147
12.3. Payment of Costs and Expenses. . . . . . . . . . . . . . . . . . . . . .147
12.4. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . .148
12.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149
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<PAGE>
12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150
12.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150
12.8. Execution in Counterparts, Effectiveness, etc. . . . . . . . . . . . . .150
12.9. Governing Law; Entire Agreement. . . . . . . . . . . . . . . . . . . . .150
12.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . .150
12.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
12.11.1. Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
12.11.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153
12.12. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .155
12.13. Execution on Behalf of Corporation . . . . . . . . . . . . . . . . . . .155
12.14. Forum Selection and Consent to Jurisdiction. . . . . . . . . . . . . . .155
12.15. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . .156
12.16. Acknowledgments and Representations by Lenders . . . . . . . . . . . . .156
12.17. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . .157
</TABLE>
-vi-
<PAGE>
SCHEDULE I - Disclosure Schedule to Credit Agreement
SCHEDULE II - Percentages; Administrative Information
EXHIBIT A-1 - Form of U.S. Revolving Note
EXHIBIT A-2 - Form of Canadian Revolving Note
EXHIBIT A-3 - Form of Term B Note
EXHIBIT A-4 - Form of Term C Note
EXHIBIT A-5 - Form of U.S. Swing Line Note
EXHIBIT A-6 - Form of Canadian Swing Line Note
EXHIBIT A-7 - Form of Acceptance Note
EXHIBIT A-8 - Form of Canadian Term Note
EXHIBIT B-1 - Form of U.S. Borrowing Request
EXHIBIT B-2 - Form of Canadian Borrowing Request
EXHIBIT B-3 - Form of U.S. Issuance Request
EXHIBIT B-4 - Form of Canadian Issuance Request
EXHIBIT C-1 - Form of U.S. Continuation/Conversion Notice
EXHIBIT C-2 - Form of Canadian Continuation/Conversion Notice
EXHIBIT D - Form of Lender Assignment Agreement
EXHIBIT E - Form of Compliance Certificate
-vii-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 15, 1998, is
among LEINER HEALTH PRODUCTS INC., a Delaware corporation (the "U.S. BORROWER"),
VITA HEALTH PRODUCTS INC., a Manitoba corporation (the "CANADIAN BORROWER", and
together with the U.S. Borrower, the "BORROWERS"), the various financial
institutions as are or may become parties hereto which extend a Commitment (such
term and other capitalized terms being used herein with the meanings provided in
SECTION 1.1) under the U.S. Facility (collectively, the "U.S. LENDERS"), the
various financial institutions as are or may become parties hereto which extend
a Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS"), THE BANK OF NOVA SCOTIA
("SCOTIABANK"), as agent for the U.S. Lenders under the U.S. Facility (in such
capacity, the "U.S. AGENT"), Scotiabank, currently acting through its executive
offices in Toronto, Ontario, as agent for the Canadian Lenders under the
Canadian Facility (in such capacity, the "CANADIAN AGENT", and together with the
U.S. Agent, collectively, the "AGENTS"), MERRILL LYNCH CAPITAL CORPORATION, as
Documentation Agent, and SALOMON BROTHERS HOLDING COMPANY INC, as Syndication
Agent.
W I T N E S S E T H:
WHEREAS, the U.S. Borrower and its various Subsidiaries are engaged in the
business of manufacturing and marketing, labeling, packaging and distributing at
wholesale and retail vitamins, minerals, nutritional supplements, health foods,
over-the-counter drugs and other pharmaceutical, health and beauty aid or
related items;
WHEREAS, pursuant to the Credit Agreement, dated as of June 30, 1997 (as
amended (including the amendments described below), supplemented, amended and
restated or otherwise modified prior to the date hereof, the "EXISTING CREDIT
AGREEMENT"), among Leiner Health Products Group Inc. (and subsequently assumed
by the U.S. Borrower), the Canadian Borrower, certain financial institutions
from time to time party thereto (the "EXISTING LENDERS"), Scotiabank as agent
for the U.S. Lenders under the U.S. Facility, and as agent for the Canadian
Lenders under the Canadian Facility, Merrill Lynch Capital Corporation, as
documentation agent, and Salomon Brothers Holding Company Inc., as syndication
agent, the Existing Lenders made and remain committed to make credit extensions
to the Borrowers on terms set forth therein;
WHEREAS, by amendments to the Existing Credit Agreement, dated as of
September 29, 1997 and December 3, 1997 (collectively, the "AMENDMENTS"), made
among the same parties as are parties to the Existing Credit Agreement, certain
terms and provisions of the Existing Credit Agreement were amended as therein
contained (the Amendments being incorporated herein);
<PAGE>
WHEREAS, the Borrowers have requested that the Existing Credit Agreement be
amended and restated in its entirety to become effective and binding on the
Borrowers pursuant to the terms of this Agreement, and the Lenders have agreed
(subject to the terms of this Agreement) to amend and restate the Existing
Credit Agreement in its entirety to read as set forth in this Agreement, and it
has been agreed by the parties to the Existing Credit Agreement that the
commitments which the Existing Lenders have agreed to extend to the Borrowers
under the Existing Credit Agreement shall be extended or advanced upon the
amended and restated terms and conditions contained in this Agreement with the
intent that the terms of this Agreement shall supersede the terms of the
Existing Credit Agreement (which shall hereafter have no further effect upon the
parties thereto, other than for accrued fees and expenses and indemnification
provisions, accrued and owing under the terms of the Existing Credit Agreement
on or prior to the date hereof or arising (in the case of an indemnification)
under the terms of the Existing Credit Agreement); PROVIDED, that any Rate
Protection Agreements with any one or more Existing Lenders (or their respective
Affiliates) shall continue unamended and in full force and effect;
WHEREAS, (a) LHP Acquisition Corp., a Delaware corporation, is currently
controlled by North Castle Partners I, L.L.C., a Delaware limited liability
company ("NORTH CASTLE"), (b) the U.S. Borrower is a direct, wholly-owned
Subsidiary of PLI Holdings Inc., a Delaware corporation ("PARENT"), (c) Parent
is a direct, wholly-owned Subsidiary of Leiner Health Products Group Inc.
("LHPG"), (d) the Canadian Borrower is a direct, wholly-owned Subsidiary of VH
Holdings Inc., a Manitoba corporation ("CANADIAN HOLDINGS") and (e) Canadian
Holdings is a direct, wholly-owned Subsidiary of the U.S. Borrower;
WHEREAS, the Borrowers desire to amend and restate in its entirety the
Existing Credit Agreement to, among other things, continue the Existing Loans as
Loans under this Agreement, and to obtain
(a) from the U.S. Lenders, an Incremental Term B Loan Commitment and
an Incremental Term C Loan Commitment pursuant to which Borrowings of
Incremental Term Loans, in a maximum aggregate principal amount not to
exceed $23,000,000 (in the case of Incremental Term B Loans) and
$25,000,000 (in the case of Incremental Term C Loans), will be made to the
U.S. Borrower in a single Borrowing to occur on the Closing Date;
(b) from the U.S. RL Lenders, a U.S. Revolving Loan Commitment (to
include availability for U.S. Revolving Loans, U.S. Swing Line Loans and
U.S. Letters of Credit) pursuant to which Borrowings of U.S. Revolving
Loans and U.S. Swing Line Loans, in a maximum aggregate principal amount
(together with all U.S. Letter of Credit Outstandings) not to exceed the
then existing U.S. Revolving Loan Commitment Amount, will be made to the
U.S. Borrower from time to time on and subsequent to the Closing Date but
prior to the U.S. Revolving Loan Commitment Termination Date;
-2-
<PAGE>
(c) from the U.S. Issuers (and participated in by the U.S. RL
Lenders), a U.S. Letter of Credit Commitment pursuant to which the U.S.
Issuers will issue U.S. Letters of Credit for the account of the U.S.
Borrower and, subject to SECTION 2.1.2, its U.S. Subsidiaries from time to
time on and subsequent to the Closing Date but prior to the U.S. Revolving
Loan Commitment Termination Date in a maximum aggregate Stated Amount at
any one time outstanding not to exceed $35,000,000 (PROVIDED that the
aggregate outstanding principal amount of U.S. Revolving Loans, Swing Line
Loans and U.S. Letter of Credit Outstandings at any time shall not exceed
the then existing U.S. Revolving Loan Commitment Amount);
(d) from the U.S. Swing Line Lender (and participated in by the U.S.
RL Lenders), a U.S. Swing Line Loan Commitment pursuant to which Borrowings
of U.S. Swing Line Loans in an aggregate outstanding principal amount not
to exceed $15,000,000 will be made to the U.S. Borrower on and subsequent
to the Closing Date but prior to the U.S. Revolving Loan Commitment
Termination Date (PROVIDED that the aggregate outstanding principal amount
of such U.S. Swing Line Loans, U.S. Revolving Loans and U.S. Letter of
Credit Outstandings at any time shall not exceed the then existing U.S.
Revolving Loan Commitment Amount);
(e) from the Canadian Lenders, a Canadian Term Loan Commitment
pursuant to which Borrowings of Canadian Term Loans, in a maximum aggregate
principal amount not to exceed Cdn $17,200,000, will be made to the
Canadian Borrower in a single Borrowing to occur on the Closing Date;
(f) from the Canadian RL Lenders, a Canadian Revolving Loan
Commitment (to include availability for Canadian Revolving Loans, Canadian
Swing Line Loans and Canadian Letters of Credit) pursuant to which
Borrowings of Canadian Revolving Loans and Canadian Swing Line Loans, in a
maximum aggregate principal amount (together with all Canadian Letter of
Credit Outstandings) not to exceed the then existing Canadian Revolving
Loan Commitment Amount, will be made to the Canadian Borrower from time to
time on and subsequent to the Closing Date but prior to the Canadian
Revolving Loan Commitment Termination Date;
(g) from the Canadian Issuers (and participated in by the Canadian RL
Lenders), a Canadian Letter of Credit Commitment pursuant to which the
Canadian Issuers will issue Canadian Letters of Credit for the account of
the Canadian Borrower and, subject to SECTION 3.1.2, the Canadian
Borrower's Subsidiaries from time to time on and subsequent to the Closing
Date but prior to the Canadian Revolving Loan Commitment Termination Date
in a maximum aggregate Stated Amount at any one time outstanding not to
exceed Cdn $13,000,000 (PROVIDED that the aggregate outstanding principal
amount of Canadian Revolving Loans and Canadian Letter of Credit
Outstandings at any time shall not exceed the then existing Canadian
Revolving Loan Commitment Amount); and
-3-
<PAGE>
(h) from the Canadian Swing Line Lender (and participated in by the
Canadian RL Lenders), a Canadian Swing Line Loan Commitment pursuant to
which Borrowings of Canadian Swing Line Loans in an aggregate outstanding
principal amount not to exceed Cdn $1,400,000 will be made on and
subsequent to the Closing Date but prior to the Canadian Revolving Loan
Commitment Termination Date (PROVIDED that the aggregate outstanding
principal amount of such Canadian Swing Line Loans, Canadian Revolving
Loans and Canadian Letter of Credit Outstandings at any time shall not
exceed the then existing Canadian Revolving Loan Commitment Amount);
with all the proceeds of the Credit Extensions to be used for one or more of the
purposes specified in SECTION 9.1.8; and
WHEREAS, the Existing Lenders, the Lenders and the Issuers are willing, on
the terms and subject to the conditions hereinafter set forth (including
ARTICLE VII), to amend and restate the Existing Credit Agreement in its entirety
pursuant to the terms of this Agreement, and the Lenders and the Issuers are
willing to extend such Commitments and make such Loans to the Borrowers and
issue (or participate in) Letters of Credit for the account of the Borrowers and
their Subsidiaries;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"ACCEPTANCE NOTE" is defined in CLAUSE (b) of SECTION 3.6.
"ACCOUNT" means any account (as that term is defined in Section 9-106 of
the UCC) of the U.S. Borrower or any of its Subsidiaries arising from the sale
or lease of goods or rendering of services.
"ADJUSTED NET WORTH" means, at any time, $110,000,000, plus an amount equal
to cumulative Net Income from July 1, 1997 to the end of the most recently ended
Fiscal Quarter for which financial statements have been delivered pursuant to
CLAUSE (a) or CLAUSE (b) of SECTION 9.1.1, as shown in the consolidated
financial statements of the U.S. Borrower and its Subsidiaries that have been so
delivered; PROVIDED, that there shall be excluded from the determination of
Adjusted Net Worth
-4-
<PAGE>
(a) the cumulative adjustments due to foreign currency translation
required by FASB 52 arising after June 30, 1997; and
(b) the amount deducted, in determining Net Income, of all Specified
Adjustments (on an after-tax basis), to the extent incurred.
"AEA" means AEA Investors, and its current or future employees,
shareholders, directors and officers and (i) trusts for the benefit of such
Persons or the spouses, issue, parents or other relatives of such Persons, (ii)
entities controlling or controlled by such Persons and (iii) in the event of the
death of any such individual Person, heirs or testamentary legatees of such
Person.
"AEA INVESTORS" means AEA Investors, Inc., a Delaware corporation.
"AFFILIATE" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). With respect to any Lender or Issuer, a Person shall
be deemed to be "controlled by" another Person if such other Person possesses,
directly or indirectly, power to vote 51% or more of the securities (on a fully
diluted basis) having ordinary voting power for the election of directors or
managing general partners or to direct or cause the direction of the management
and policies of such Person whether by contract or otherwise. With respect to
all other Persons, a Person shall be deemed to be "controlled by" another Person
if such other Person possesses, directly or indirectly, power
(a) to vote 20% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"AGENT" and "AGENTS" are defined in the PREAMBLE.
"AGREEMENT" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"AGGREGATE LIMIT" is defined in SECTION 9.2.6.
"APPLICABLE CANADIAN BA STAMPING FEE" means with respect to (a) Canadian
Revolving Loans maintained as Canadian BAs, the applicable percentage set forth
under the column entitled "Applicable Canadian BA Stamping Fee" with respect
thereto and (b) Canadian Term Loans maintained as Canadian BAs, the applicable
percentage set forth under the column entitled
-5-
<PAGE>
"Applicable Canadian BA Stamping Fee" with respect thereto, in each case in the
definition of Applicable Margin set forth below.
"APPLICABLE COMMITMENT FEE MARGIN" means at all times during the applicable
periods set forth below with respect to the commitment fee payable to the U.S.
RL Lenders or the Canadian RL Lenders, as the case may be, pursuant to SECTION
5.3.1, the applicable percentage set forth below under the column entitled
"Applicable Commitment Fee Margin":
<TABLE>
<CAPTION>
Applicable Commitment
Leverage Ratio Fee Margin
-------------- ---------------------
<S> <C>
Less than 3.5:1 0.250%
Greater than or equal to 3.5:1 and
less than 4.5:1 0.375%
Greater than or equal to 4.5:1 0.500%.
</TABLE>
The Leverage Ratio used to compute the Applicable Commitment Fee Margin
shall be the Leverage Ratio set forth in the Compliance Certificate most
recently delivered by the U.S. Borrower to the U.S. Agent pursuant to CLAUSE (c)
of SECTION 9.1.1 (PROVIDED, HOWEVER, the Applicable Commitment Fee Margin for
the period from the Effective Date through (and including) the date on which the
U.S. Agent receives a Compliance Certificate in respect of the Fiscal Quarter
ended March 31, 1998 delivered pursuant to CLAUSE (c) of SECTION 9.1.1 shall be
0.500%); PROVIDED that changes in the Applicable Commitment Fee Margin resulting
from a change in the Leverage Ratio shall become effective upon delivery by the
U.S. Borrower to the U.S. Agent of a new Compliance Certificate pursuant to
CLAUSE (c) of SECTION 9.1.1 and notice therein of such change. If the U.S.
Borrower shall fail to deliver a Compliance Certificate within 45 days after the
end of any Fiscal Quarter (or within 90 days, in the case of the last Fiscal
Quarter of the Fiscal Year) as required pursuant to CLAUSE (c) of SECTION 9.1.1,
the Applicable Commitment Fee Margin from and including the 46th (or 91st, as
the case may be) day after the end of such Fiscal Quarter to but not including
the date the U.S. Borrower delivers to the U.S. Agent a Compliance Certificate
shall conclusively equal the next higher Applicable Commitment Fee Margin from
the Applicable Commitment Fee Margin (or if there is none higher, such
Applicable Commitment Fee Margin) that was in effect when the last Compliance
Certificate was so delivered by U.S. Borrower to the U.S. Agent.
"APPLICABLE MARGIN" means at all times during the applicable periods set
forth below,
(a) with respect to the unpaid principal amount of each U.S.
Revolving Loan maintained as a (i) U.S. Base Rate Loan, the applicable
percentage set forth below under the column entitled "Applicable Margin for
U.S. Base Rate Loans" and (ii) LIBO Rate Loan, the applicable percentage
set forth below under the column entitled "Applicable Margin for LIBO Rate
Loans":
-6-
<PAGE>
<TABLE>
<CAPTION>
Leverage Ratio Applicable Applicable
-------------- Margin For Margin For
U.S. Base LIBO
Rate Loans Rate Loans
---------- ----------
<S> <C> <C>
Less than 3.0:1 0.000% 0.750%
Greater than or equal to
3.0:1 and less than 3.5:1 0.000% 0.875%
Greater than or equal to
3.5:1 and less than 4.0:1 0.125% 1.125%
Greater than or equal to
4.0:1 and less than 4.5:1 0.500% 1.500%
Greater than or equal to
4.5:1 and less than 5.0:1 1.000% 2.000%
Greater than or equal to
5.0:1 and less than 5.75:1 1.250% 2.250%
Greater than or equal to
5.75:1 1.500% 2.500%.
</TABLE>
(b) with respect to the unpaid principal amount of each Term B Loan
maintained as a (i) U.S. Base Rate Loan, the applicable percentage set
forth below under the column entitled "Applicable Margin for U.S. Base Rate
Loans" and (ii) LIBO Rate Loan, the applicable percentage set forth below
under the column entitled "Applicable Margin for LIBO Rate Loans":
<TABLE>
<CAPTION>
Applicable Applicable
Margin For Margin For
Leverage Ratio U.S. Base LIBO
-------------- Rate Loans Rate Loans
---------- ----------
<S> <C> <C>
Less than 4.5:1 1.125% 2.125%
Greater than or equal to
4.5:1 and less than 5.0:1 1.375% 2.375%
Greater than or equal to
5.0:1 and less than 5.75:1 1.625% 2.625%
Greater than or equal to
5.75:1 1.875% 2.875%.
</TABLE>
(c) with respect to the unpaid principal amount of each Term C Loan
maintained as a (i) U.S. Base Rate Loan, the applicable percentage set
forth below under the column entitled "Applicable Margin for U.S. Base Rate
Loans" and (ii) LIBO Rate Loan, the
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<PAGE>
applicable percentage set forth below under the column entitled "Applicable
Margin for LIBO Rate Loans":
<TABLE>
<CAPTION>
Applicable Applicable
Leverage Ratio Margin For Margin For
-------------- U.S. Base LIBO
Rate Loans Rate Loans
---------- ----------
<S> <C> <C>
Less than 4.5:1 1.250% 2.250%
Greater than or equal to
4.5:1 and less than 5.0:1 1.500% 2.500%
Greater than or equal to
5.0:1 and less than 5.75:1 1.750% 2.750%
Greater than or equal to
5.75:1 2.000% 3.000%.
</TABLE>
(d) with respect to the unpaid principal amount of each Canadian
Revolving Loan maintained as a (i) Canadian Prime Rate Loan, the applicable
percentage set forth below under the column entitled "Applicable Margin for
Canadian Prime Rate Loans" and (ii) Canadian BA, the applicable percentage
set forth below under the column entitled "Applicable Canadian BA Stamping
Fee":
<TABLE>
<CAPTION>
Applicable
Leverage Ratio Margin For Applicable
-------------- Canadian Prime Canadian BA
Rate Loans Stamping Fee
---------- ------------
<S> <C> <C>
Less than 3.0:1 0.000% 0.750%
Greater than or equal to
3.0:1 and less than 3.5:1 0.000% 0.875%
Greater than or equal to
3.5:1 and less than 4.0:1 0.125% 1.125%
Greater than or equal to 0.500% 1.500%
4.0:1 and less than 4.5:1
Greater than or equal to 1.000% 2.000%
4.5:1 and less than 5.0:1
Greater than or equal to 1.250% 2.250%
5.0:1 and less than 5.75:1
Greater than or equal to 1.500% 2.500%.
5.75:1
</TABLE>
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<PAGE>
(e) with respect to the unpaid principal amount of each Canadian Term
Loan maintained as a (i) Canadian Prime Rate Loan, the applicable
percentage set forth below under the column entitled "Applicable Margin for
Canadian Prime Rate Loans" and (ii) Canadian BA, the applicable percentage
set forth below under the column entitled "Applicable Canadian BA Stamping
Fee":
<TABLE>
<CAPTION>
Applicable
Leverage Ratio Margin For Applicable
-------------- Canadian Prime Canadian BA
Rate Loans Stamping Fee
---------- ------------
<S> <C> <C>
Less than 4.5:1 1.125% 2.125%
Greater than or equal to
4.5:1 and less than 5.0:1 1.375% 2.375%
Greater than or equal to
5.0:1 and less than 5.75:1 1.625% 2.625%
Greater than or equal to
5.75:1 1.875% 2.875%.
</TABLE>
The Leverage Ratio used to compute the Applicable Margin shall be the
Leverage Ratio set forth in the Compliance Certificate most recently delivered
by the U.S. Borrower to the U.S. Agent pursuant to CLAUSE (c) of SECTION 9.1.1
(PROVIDED, HOWEVER, the Applicable Margin or Applicable Canadian BA Stamping
Fee, as applicable, for the period from the Effective Date through (and
including) the date on which the U.S. Agent receives a Compliance Certificate in
respect of the Fiscal Quarter ended March 31, 1998 delivered pursuant to CLAUSE
(c) of SECTION 9.1.1 shall be (i) 1.000% per annum in the case of U.S. Revolving
Loans maintained as U.S. Base Rate Loans, (ii) 2.000% per annum in the case of
U.S. Revolving Loans maintained as LIBO Rate Loans, (iii) 1.375% per annum in
the case of Term B Loans maintained as U.S. Base Rate Loans, (iv) 2.375% per
annum in the case of Term B Loans maintained as LIBO Rate Loans, (v) 1.500% per
annum in the case of Term C Loans maintained as U.S. Base Rate Loans, (vi)
2.500% per annum in the case of Term C Loans maintained as LIBO Rate Loans,
(vii) 1.000% per annum in the case of Canadian Revolving Loans maintained as
Canadian Prime Rate Loans, (viii) 2.000% per annum in the case of Canadian
Revolving Loans maintained as Canadian BAs, (ix) 1.375% per annum in the case of
Canadian Term Loans maintained as Canadian Prime Rate Loans, (x) 2.375% per
annum in the case of Canadian Term Loans maintained as Canadian BAs); PROVIDED
that changes in the Applicable Margin or Applicable Canadian BA Stamping Fee, as
the case may be (except with respect to Canadian BAs that have already been
issued), resulting from a change in the Leverage Ratio shall become effective
upon delivery by the U.S. Borrower to the U.S. Agent of a new Compliance
Certificate pursuant to CLAUSE (c) of SECTION 9.1.1 and notice therein of such
change. If the U.S. Borrower shall fail to deliver a Compliance Certificate
within 45 days after the end of any Fiscal Quarter (or within 90 days, in the
case of the last Fiscal Quarter of the Fiscal Year) as required pursuant to
CLAUSE
-9-
<PAGE>
(c) of SECTION 9.1.1, the Applicable Margin or Applicable Canadian BA Stamping
Fee, as applicable, from and including the 46th (or 91st, as the case may be)
day after the end of such Fiscal Quarter to but not including the date the U.S.
Borrower delivers to the U.S. Agent a Compliance Certificate shall conclusively
equal the next higher Applicable Margin or Applicable Canadian BA Stamping Fee,
as applicable, from the Applicable Margin or Applicable Canadian BA Stamping Fee
(or if there is none higher, such Applicable Margin or Applicable Canadian BA
Stamping Fee) that was in effect when the last Compliance Certificate was so
delivered by the U.S. Borrower to the U.S. Agent.
"ASSIGNEE LENDER" is defined in SECTION 12.11.1.
"AUTHORIZED OFFICER" means, relative to any Borrower and any other Obligor,
those of its officers or managing members (in the case of a limited liability
company) whose signatures and incumbency shall have been certified to the Agents
and the Lenders pursuant to SECTION 7.1.1.
"BORROWERS" is defined in the PREAMBLE.
"BORROWING" means the Loans of the same type and, in the case of LIBO Rate
Loans or Canadian BAs, having the same Interest Period made by all U.S. Lenders
or Canadian Lenders, respectively, on the same Business Day and pursuant to the
same Borrowing Request in accordance with SECTION 2.3 or SECTION 3.3,
respectively.
"BORROWING REQUEST" means a U.S. Borrowing Request or a Canadian Borrowing
Request.
"BUSINESS DAY" means
(a) any day which is neither a Saturday or Sunday nor
(i) relative to matters under the U.S. Facility, a legal holiday
on which banks are authorized or required to be closed in New York,
New York, or
(ii) relative to matters under the Canadian Facility, a legal
holiday on which banks are authorized or required to be closed in
Toronto, Ontario; and
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day which is a Business Day described in CLAUSE (a)
above and which is also a day on which dealings in U.S. Dollars are carried
on in the interbank eurodollar market of the U.S. Agent's LIBOR Office.
"C. BAIRD" means Mr. Charles F. Baird, Jr.
"CALCULATION PERIOD" is defined in CLAUSE (a) of SECTION 5.2.4.
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<PAGE>
"CANADIAN AGENT" is defined in the PREAMBLE.
"CANADIAN BA" means a bill of exchange drawn by the Canadian Borrower and
accepted by a Canadian Lender that is denominated in Canadian Dollars with a
term of 30, 60, 90 or 180 days, issued and payable only in Canada and having a
face amount of an integral multiple of Cdn $100,000; PROVIDED, HOWEVER, that,
(a) to the extent the context shall require, each Acceptance Note
shall be deemed to be a Canadian BA; and
(b) references to outstanding principal amounts relating to Canadian
BAs shall refer to the stated amount of unmatured Canadian BAs which have
not been collateralized pursuant to, and in accordance with, the terms of
CLAUSE (h) or (i) of SECTION 5.1.1.
"CANADIAN BA RATE" means, for a particular term, the discount rate per
annum, calculated on the basis of a year of 365 days or 366 days, as the case
may be, equal to the average rate per annum for Canadian Dollar bankers'
acceptances having such term that appears on the Reuters Screen CDOR Page (or
any successor page) as of 10:00 a.m. (local time) on the first day of such term
as determined by the Canadian Agent.
"CANADIAN BORROWER" is defined in the PREAMBLE; PROVIDED, HOWEVER, that if
the Canadian Borrower is merged or amalgamated with or liquidated into Canadian
Holdings in accordance with SECTION 9.2.10, then the "Canadian Borrower" shall
mean the surviving or resulting corporation of such merger, amalgamation or
liquidation.
"CANADIAN BORROWER DEBENTURE" means the Security Agreement, dated as of
June 30, 1997, executed and delivered by the Canadian Borrower, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"CANADIAN BORROWER PLEDGE AGREEMENT" means the Pledge Agreement, dated as
of June 30, 1997, executed and delivered by the Canadian Borrower, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"CANADIAN BORROWING REQUEST" means a Loan request and certificate duly
executed by an Authorized Officer of the Canadian Borrower, substantially in the
form of EXHIBIT B-2 hereto.
"CANADIAN COMMITMENT" is defined in SECTION 3.1.
"CANADIAN CONTINUATION/CONVERSION NOTICE" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Canadian Borrower, substantially in the form of EXHIBIT C-2 hereto.
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<PAGE>
"CANADIAN CREDIT EXTENSION" means, as the context may require,
(a) the making of a Canadian Term Loan or a Canadian Revolving Loan
(including the acceptance of a Canadian BA) by a Canadian Lender;
(b) the making of a Canadian Swing Line Loan by the Canadian Swing
Line Lender; or
(c) the issuance of a Canadian Letter of Credit, or the extension of
any Stated Expiry Date of any previously issued Canadian Letter of Credit,
by a Canadian Issuer.
"CANADIAN DOLLAR" and "CDN $" each mean the lawful money of Canada.
"CANADIAN FACILITY" is defined in SECTION 3.1.
"CANADIAN FACILITY GUARANTOR" means each of Parent, the U.S. Borrower, any
U.S. Subsidiary Guarantor, Canadian Holdings, each Canadian Subsidiary Guarantor
and, to the extent not prohibited by applicable law (including the law of the
jurisdiction under which such Subsidiary is organized), each other Subsidiary of
the U.S. Borrower, in each case in its capacity as a Guarantor.
"CANADIAN HOLDINGS" is defined in the FIFTH RECITAL.
"CANADIAN HOLDINGS DEBENTURE" means the Security Agreement, dated as of
June 30, 1997, executed and delivered by Canadian Holdings in its capacity as a
Canadian Facility Guarantor, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"CANADIAN HOLDINGS GUARANTY" means the Guaranty, dated as of June 30, 1997,
executed and delivered by Canadian Holdings in its capacity as a Canadian
Facility Guarantor, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"CANADIAN HOLDINGS PLEDGE AGREEMENT" means the Pledge Agreement, dated as
of June 30, 1997, executed and delivered by Canadian Holdings in its capacity as
a Canadian Facility Guarantor, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"CANADIAN ISSUANCE REQUEST" means a Letter of Credit request and
certificate duly executed by an Authorized Officer of the Canadian Borrower,
substantially in the form of EXHIBIT B-4 hereto.
"CANADIAN ISSUER" means, collectively, Scotiabank (or any affiliate, unit
or agency thereof) in its individual capacity hereunder as issuer of any
Canadian Letters of Credit and such
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<PAGE>
other Canadian Lender as may be designated by Scotiabank (and agreed to by the
Canadian Borrower and such Canadian Lender) in its individual capacity as the
issuer of any Canadian Letters of Credit.
"CANADIAN LENDERS" is defined in the preamble.
"CANADIAN LETTER OF CREDIT" is defined in CLAUSE (a) of SECTION 3.1.2.
"CANADIAN LETTER OF CREDIT COMMITMENT" means,
(a) relative to a Canadian Issuer, such Canadian Issuer's obligation
to issue Canadian Letters of Credit pursuant to SECTION 3.1.2; and
(b) relative to each Canadian RL Lender, its obligation to participate
in such Canadian Letters of Credit pursuant to SECTION 4.1.1.
"CANADIAN LETTER OF CREDIT COMMITMENT AMOUNT" means, on any date, a maximum
amount of Cdn $13,000,000, as such amount may be reduced from time to time
pursuant to SECTION 3.2.
"CANADIAN LETTER OF CREDIT OUTSTANDINGS" means, on any date, an amount
equal to the sum of
(a) the then aggregate amount which is undrawn and available under
all issued and outstanding Canadian Letters of Credit,
PLUS
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations in respect of such Canadian Letters of Credit.
"CANADIAN LOAN" means, as the context may require, a Canadian Term Loan, a
Canadian Revolving Loan or a Canadian Swing Line Loan.
"CANADIAN NOTE" means, as the context may require, a Canadian Term Note, a
Canadian Revolving Note or a Canadian Swing Line Note.
"CANADIAN PENSION PLAN" means a "registered pension plan", as such term is
defined in subsection 248(1) of the Income Tax Act (Canada), which is subject to
the Pension Benefits Act (Manitoba), or similar legislation in another Province,
and of which Canadian Holdings, the Canadian Borrower or any Canadian Subsidiary
is a participating employer.
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<PAGE>
"CANADIAN PERCENTAGE" means, relative to any Canadian Lender, the
applicable percentage relating to Canadian Revolving Loans or Canadian Term
Loans, as the case may be, as set forth opposite its name on SCHEDULE II hereto
or set forth in a Lender Assignment Agreement, as such percentage may be
adjusted from time to time (a) pursuant to Lender Assignment Agreement(s)
executed by such Lender and its Assignee Lender(s) and delivered pursuant to
SECTION 12.11.1 or (b) by a reallocation pursuant to SECTION 3.2.2.
"CANADIAN PERSON" means a Person that is not a "non-resident" of Canada
within the meaning of the Income Tax Act (Canada).
"CANADIAN PRIME RATE" means, on any date and relative to all Canadian Prime
Rate Loans, a fluctuating rate of interest per annum equal to the higher of
(a) the rate of interest most recently established by the Canadian
Agent at its Domestic Office as its prime rate for Canadian Dollar loans in
Canada; and
(b) the Canadian BA Rate most recently determined by the Canadian
Agent PLUS the lesser of (i) 1% and (ii) the Applicable Canadian BA
Stamping Fee.
The Canadian Prime Rate is not necessarily intended to be the lowest rate of
interest determined by the Canadian Agent in connection with extensions of
credit. Changes in the rate of interest on that portion of any Canadian Loans
maintained as Canadian Prime Rate Loans will take effect simultaneously with
each change in the Canadian Prime Rate. The Canadian Agent will give notice
promptly to the Canadian Borrower and the Canadian Lenders of changes in the
Canadian Prime Rate.
"CANADIAN PRIME RATE LOAN" means a Canadian Loan bearing interest at a
fluctuating rate determined by reference to the Canadian Prime Rate.
"CANADIAN REGISTER" is defined in SECTION 3.7.
"CANADIAN REVOLVING LOAN" is defined in SECTION 3.1.1.
"CANADIAN REVOLVING LOAN COMMITMENT" means, relative to any Canadian RL
Lender, such Canadian RL Lender's obligation (if any) to make Canadian Revolving
Loans pursuant to SECTION 3.1.1.
"CANADIAN REVOLVING LOAN COMMITMENT AMOUNT" means, on any date, the Cdn $
Equivalent of $13,000,000, as such amount may be reduced or reallocated from
time to time pursuant to SECTION 3.2, and as determined by the Canadian Agent in
accordance with its customary banking practice for determining currency exchange
rates on each Quarterly Payment Date for such date through (but excluding) the
next Quarterly Payment Date.
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<PAGE>
"CANADIAN REVOLVING LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) June 30, 2003;
(b) the date on which the Canadian Revolving Loan Commitment Amount
is terminated in full or reduced to zero pursuant to SECTION 3.2 (other
than SECTION 3.2.2); and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in the preceding CLAUSE (b) or (c),
the Canadian Revolving Loan Commitments shall terminate automatically and
without any further action.
"CANADIAN REVOLVING NOTE" means a promissory note of the Canadian Borrower
payable to any Canadian RL Lender, substantially in the form of EXHIBIT A-2
hereto (as such promissory note may be amended, endorsed or otherwise modified
from time to time), evidencing the Indebtedness of the Canadian Borrower to such
Canadian RL Lender resulting from outstanding Canadian Revolving Loans, and also
means all other promissory notes accepted from time to time in substitution
therefor or renewal thereof.
"CANADIAN RL LENDERS" means those Canadian Lenders with a Commitment to
make Canadian Revolving Loans.
"CANADIAN SUBSIDIARY" means each Subsidiary of the Canadian Borrower.
"CANADIAN SUBSIDIARY DEBENTURE" means any Security Agreement executed and
delivered by a Canadian Subsidiary in its capacity as a Canadian Subsidiary
Guarantor (other than 64804 Manitoba and Westcan Pharmaceuticals) pursuant to
the terms of this Agreement (including CLAUSE (a) of SECTION 9.1.7),
substantially in the form of Exhibit G-5 to the Existing Credit Agreement, as
amended, supplemented, amended and restated or otherwise modified from time to
time.
"CANADIAN SUBSIDIARY GUARANTOR" means each Canadian Subsidiary which has
executed and delivered a Canadian Subsidiary Guaranty.
"CANADIAN SUBSIDIARY GUARANTY" means a Subsidiary Guaranty executed and
delivered by a Canadian Subsidiary in its capacity as a Canadian Subsidiary
Guarantor (other than 64804 Manitoba and Westcan Pharmaceuticals) pursuant to
the terms of this Agreement (including CLAUSE (a) of SECTION 9.1.7),
substantially in the form of Exhibit F-5 to the Existing Credit Agreement, as
amended, supplemented, amended and restated or otherwise modified from time to
time.
-15-
<PAGE>
"CANADIAN SUBSIDIARY PLEDGE AGREEMENT" means any Pledge Agreement executed
and delivered by a Canadian Subsidiary in its capacity as a Canadian Subsidiary
Guarantor pursuant to the terms of this Agreement (including CLAUSE (a) of
SECTION 9.1.7), substantially in the form of Exhibit E-6 to the Existing Credit
Agreement, as amended, supplemented, amended and restated or otherwise modified
from time to time.
"CANADIAN SWING LINE LENDER" means, on the Effective Date, Scotiabank (or,
at any time thereafter, another Canadian Lender designated by Scotiabank with
the consent of the Canadian Borrower, if such Canadian Lender agrees to be the
Canadian Swing Line Lender hereunder), in such Person's capacity as the maker of
Canadian Swing Line Loans.
"CANADIAN SWING LINE LOAN" is defined in CLAUSE (b) of SECTION 3.1.1.
"CANADIAN SWING LINE LOAN COMMITMENT" is defined in CLAUSE (b) of SECTION
3.1.1.
"CANADIAN SWING LINE LOAN COMMITMENT AMOUNT" means, on any date, Cdn
$1,400,000 (or the U.S. $ Equivalent, as determined by the Canadian Agent in
accordance with its customary banking practice for determining currency exchange
rates on each Quarterly Payment Date for such date through (but excluding) the
next Quarterly Payment Date), as such amount may be reduced from time to time
pursuant to SECTION 3.2.
"CANADIAN SWING LINE NOTE" means a promissory note of the Canadian Borrower
payable to the Canadian Swing Line Lender, in the form of EXHIBIT A-6 hereto (as
such promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Canadian Borrower to the
Canadian Swing Line Lender resulting from outstanding Canadian Swing Line Loans,
and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"CANADIAN TERM LOAN" is defined in SECTION 3.1.3.
"CANADIAN TERM LOAN COMMITMENT" means, relative to any Canadian Lender,
such Lender's obligation (if any) to make Canadian Term Loans pursuant to
SECTION 3.1.3.
"CANADIAN TERM LOAN COMMITMENT AMOUNT" means Cdn $17,200,000.
"CANADIAN TERM LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) May 29, 1998 (if the Canadian Term Loans have not been made on or
prior to such date); and
(b) the date on which any Commitment Termination Event occurs.
-16-
<PAGE>
Upon the occurrence of any event described in CLAUSE (b), the Canadian Term Loan
Commitments shall terminate automatically and without any further action.
"CANADIAN TERM NOTE" means a promissory note of the Canadian Borrower
payable to any Canadian Lender, in the form of EXHIBIT A-8 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Canadian Borrower to such
Canadian Lender resulting from outstanding Canadian Term Loans, and also means
all other promissory notes accepted from time to time in substitution therefor
or renewal thereof.
"CANADIAN TRANSACTION" means the acquisition in January, 1997 of all of the
issued and outstanding shares of capital stock of G.S. Investments Ltd. by the
Canadian Borrower (as the successor to, among others, VH Acquisition Inc.,
resulting from a series of short form amalgamations (in January, 1997) involving
the Canadian Borrower, Seier Holdings Ltd., G.S. Investments Ltd. and VH
Acquisition Inc.).
"CAPITAL EXPENDITURES" means, for any period, the aggregate amount of all
expenditures of the U.S. Borrower and its Subsidiaries for fixed or capital
assets made during such period which, in accordance with GAAP, would be
classified as capital expenditures (excluding (i) with respect to all leasing or
similar arrangements entered into during such period which, in accordance with
GAAP, would be classified as a capitalized lease, the aggregate capitalized
amount of all rental payments payable during the term of such lease (including
the portion of such payments allocable to interest expense) and
(ii) expenditures made in connection with the replacement or restoration of
assets, to the extent (A) of the sales price received for the assets being
restored or replaced at the time of such expenditure or the credit granted by
the seller of such assets for the assets being traded in at such time or
(B) such replacement or restoration is financed with (x) insurance proceeds paid
on account of the loss of or damage to the assets so replaced or restored or
(y) awards of compensation arising from the taking by condemnation or eminent
domain of the assets so replaced) and, for purposes of the definition of "Excess
Cash Flow" and SECTION 9.2.16 only (and not for purposes of the calculation of
any covenants contained in SECTION 9.2.4)shall also include the aggregate amount
of investments in intangible assets which, in accordance with GAAP, would be
included on the balance sheet of the U.S. Borrower and its Subsidiaries,
including deferred start-up costs and computer software.
"CAPITALIZED LEASE LIABILITIES" means all monetary obligations of the
Borrowers or any of their Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as a capitalized lease, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a premium or
a penalty.
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<PAGE>
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's capital, whether now outstanding or
issued after the Effective Date.
"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one year
after such time, issued or guaranteed by the government of the United
States (or any agency or instrumentality thereof) or the government of
Canada or, if such evidence is rated at least R1(mid) by Dominion Bond
Rating Service Limited or CBRS Inc., by the government of any Province of
Canada;
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of any Obligor)
organized under the laws of any state of the United States or of the
District of Columbia or under the laws of Canada or of any Province of
Canada and rated A-l by S&P, P-1 by Moody's, or R1(mid) by Dominion
Bond Rating Service Limited or CBRS Inc., or
(ii) any Lender (or its holding company);
(c) any certificate of deposit or bankers acceptance, maturing not
more than one year after such time, which is issued or accepted by either
(i) a commercial banking institution that (x) is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $250,000,000 (or the Cdn $
Equivalent thereof), (y) is listed on Schedule I of the Bank Act
(Canada) or (z) had a credit rating of Aa or better from Moody's or a
comparable rating from S&P, or
(ii) any Lender; or
(d) any repurchase agreement entered into with any Lender (or other
commercial banking institution of the stature referred to in CLAUSE (c)(i))
which
(i) is secured by a fully perfected security interest in any
obligation of the type described in CLAUSE (a); and
(ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of
such Lender (or other commercial banking institution) thereunder.
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<PAGE>
"CASH FLOW COVERAGE RATIO" means, at the close of any Fiscal Quarter, the
ratio computed (except as set forth in CLAUSE (c) below) for the period
consisting of such Fiscal Quarter and each of the three immediately prior Fiscal
Quarters of:
(a) EBITDA (for all such Fiscal Quarters) minus Capital Expenditures
made during such Fiscal Quarters
TO
(b) the sum (for all such Fiscal Quarters) of
(i) Interest Expense paid in cash;
PLUS
(ii) scheduled principal repayments of Indebtedness (including
scheduled principal repayments of the Term Loans pursuant to the
provisions of CLAUSES (d) and (e) of SECTION 5.1.1, but excluding the
amount of Indebtedness which is refinanced with other Indebtedness
pursuant to SECTION 9.2.2, to the extent so refinanced (including the
principal repayments of Subordinated Debt to the extent made with the
proceeds of other Subordinated Debt issued to refinance or replace
such original Subordinated Debt in accordance with the terms of this
Agreement));
PLUS
(iii) all federal, state, provincial, local and foreign income
taxes actually paid in cash by the U.S. Borrower and its Subsidiaries;
PROVIDED, HOWEVER, that in computing the Cash Flow Coverage Ratio for
(c) the fourth Fiscal Quarter of the 1998 Fiscal Year, the amount set
forth in CLAUSE (b) above shall equal (i) such amount for the second, third
and fourth Fiscal Quarters of the 1998 Fiscal Year, multiplied by (ii)
1.333;
(d) the first Fiscal Quarter of the 1999 Fiscal Year, Capital
Expenditures for expanding capacity of up to $30,420,000 shall be excluded
from the amount of Capital Expenditures in CLAUSE (a) above;
(e) the second Fiscal Quarter of the 1999 Fiscal Year, Capital
Expenditures for expanding capacity of up to $28,810,000 shall be excluded
from the amount of Capital Expenditures in CLAUSE (a) above; and
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<PAGE>
(f) the third Fiscal Quarter of the 1999 Fiscal Year, Capital
Expenditures for expanding capacity of up to $26,920,000 shall be excluded
from the amount of Capital Expenditures in CLAUSE (a) above.
"CDN $ EQUIVALENT" means the Exchange Equivalent in Canadian Dollars of any
amount of U.S. Dollars.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"CHANGE IN CONTROL" means
(a) at any time prior to the creation of a Public Market, the failure
of AEA, North Castle, C. Baird and Senior Management, collectively, to
directly or indirectly own beneficially at least 51% of the outstanding
Voting Stock of LHPG on a fully diluted basis, such Voting Stock to be held
free and clear of all Liens (except (i) in the case of AEA and Senior
Management only, Persons described in the definition of "AEA" and such
Senior Management may grant or otherwise create or suffer to exist Liens on
their shares of LHPG so long as all such Liens of all such Persons are not
in favor of a single Person or group of Persons acting in concert and (ii)
in the case of North Castle and C. Baird, non-consensual Liens that arise
by operation of law but which do not result in a change in the ownership of
such Capital Stock); or
(b) at any time after the creation of a Public Market (i) the failure
of AEA, North Castle, C. Baird and Senior Management, collectively, to
directly or indirectly own beneficially at least 30% of the outstanding
Voting Stock of LHPG on a fully diluted basis, such Voting Stock to be held
free and clear of all Liens (except (i) in the case of AEA and Senior
Management only, Persons described in the definition of "AEA" and such
Senior Management may grant or otherwise create or suffer to exist Liens on
their shares of LHPG so long as all such Liens of all such Persons are not
in favor of a single Person or group of Persons acting in concert and (ii)
in the case of North Castle and C. Baird, non-consensual Liens that arise
by operation of law but which do not result in a change in the ownership of
such Capital Stock), or (iii) any person or group (within the meaning of
Sections 13(d) and 14(d) under the Exchange Act) (other than any of AEA,
North Castle, C. Baird and Senior Management) shall become the ultimate
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such
right is exercisable immediately, after the passage
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of time, upon the happening of an event or otherwise) directly or
indirectly, of shares representing 20% or more of the Voting Stock of LHPG
on a fully diluted basis; or
(c) during any period of 24 consecutive months, individuals who at
the beginning of such period constituted the Board of Directors of LHPG
(together with any new directors whose election by such Board or whose
nomination for election by the stockholders of LHPG was approved by (i)
directors appointed by North Castle or (ii) a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors of LHPG then in office; or
(d) the failure of LHPG to directly own beneficially and of record
all of the outstanding Voting Stock of Parent on a fully diluted basis,
such Voting Stock to be held free and clear of all Liens; or
(e) the failure of Parent to directly own beneficially and of record
all of the outstanding Voting Stock of the U.S. Borrower on a fully diluted
basis, such Voting Stock to be held free and clear of all Liens, except in
favor of the Secured Parties; or
(f) so long as the Canadian Facility has not been terminated or there
are any Obligations owing by an Obligor with respect to the Canadian
Facility (other than in the case where the Canadian Facility is being
terminated and all Obligations in respect of the Canadian Facilities are
being repaid or cash collateralized on terms reasonably satisfactory to the
Canadian Agent contemporaneously with the diminution of the U.S. Borrower's
ownership in the Canadian Borrower), the failure of the U.S. Borrower to
directly or indirectly own beneficially and of record all of the
outstanding Voting Stock of the Canadian Borrower on a fully diluted basis,
such Voting Stock to be held free and clear of all Liens except in favor of
the Secured Parties; or
(g) at any time, the failure of C. Baird to be a managing member of
North Castle (other than a failure resulting from the death, incompetency
or disability of C. Baird); or
(h) a "Change of Control" (as defined in any Subordinated Debt
Instrument) shall occur.
"CLOSING DATE" means the date all closing conditions set forth in SECTION
7.1 are satisfied and the initial Credit Extension hereunder is made.
"CODE" means the Internal Revenue Code of 1986, and the regulations
thereunder, in each case as amended, reformed or otherwise modified from time to
time.
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"COMMITMENT" means, as the context may require, a U.S. Lender's Incremental
Term B Loan Commitment, Incremental Term C Loan Commitment, U.S. Revolving Loan
Commitment or U.S. Letter of Credit Commitment, a U.S. Issuer's U.S. Letter of
Credit Commitment, the U.S. Swing Line Lender's U.S. Swing Line Loan Commitment,
a Canadian Lender's Canadian Term Loan Commitment, Canadian Revolving Loan
Commitment or Canadian Letter of Credit Commitment, a Canadian Issuer's Canadian
Letter of Credit Commitment or the Canadian Swing Line Lender's Canadian Swing
Line Loan Commitment.
"COMMITMENT AMOUNT" means, as the context may require, the Incremental
Term B Loan Commitment Amount, the Incremental Term C Loan Commitment Amount,
the U.S. Revolving Loan Commitment Amount, the U.S. Letter of Credit Commitment
Amount, the U.S. Swing Line Loan Commitment Amount, the Canadian Term Loan
Commitment Amount, the Canadian Revolving Loan Commitment Amount, the Canadian
Letter of Credit Commitment Amount or the Canadian Swing Line Loan Commitment
Amount.
"COMMITMENT TERMINATION DATE" means, as the context may require, the U.S.
Revolving Loan Commitment Termination Date, the Incremental Term B Loan
Commitment Termination Date, the Incremental Term C Loan Commitment Termination
Date, the Canadian Revolving Loan Commitment Termination Date or the Canadian
Term Loan Commitment Termination Date.
"COMMITMENT TERMINATION EVENT" means
(a) the occurrence of any Event of Default described in CLAUSES (a)
through (d) of SECTION 10.1.9; or
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of all or any portion of the Loans to be due
and payable pursuant to SECTION 10.3, or
(ii) the giving of notice by the U.S. Agent, acting at the
direction of the Required Lenders, to the Borrowers that the
Commitments have been terminated.
"COMPLIANCE CERTIFICATE" means a certificate duly completed and executed by
an Authorized Officer of the U.S. Borrower, substantially in the form of
EXHIBIT E hereto, as amended, supplemented, amended and restated or otherwise
modified from time to time, together with such changes thereto as the U.S. Agent
may from time to time reasonably request for the purpose of monitoring the U.S.
Borrower's compliance with the financial covenants contained herein.
"CONDUIT ENTITY" is defined in CLAUSE (d) of SECTION 6.6.
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"CONFIDENTIAL INFORMATION" means information relating to LHPG or any of its
Subsidiaries obtained by either Agent or any Lender pursuant to or in connection
with this Agreement, or otherwise from or on behalf of LHPG or any of its
Subsidiaries or Affiliate (to the extent identified as an Affiliate to the
Lenders) (including any information obtained by either Agent or any Lender in
the course of any review of the books or records of either Borrower or any
Subsidiary thereof as contemplated herein), but excluding information (i) that
was previously known to such Agent or Lender (other than through a previous
lending or other business relationship with LHPG or any of its Subsidiaries), or
(ii) that is or subsequently becomes generally publicly known through no act or
omission by either Agent or any Lender or any Person acting therefor.
"CONTINGENT LIABILITY" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the Indebtedness of any
other Person (other than by endorsements of instruments in the course of
collection), or guarantees the payment of dividends or other distributions upon
the shares of any other Person. The amount of any Person's obligation under any
Contingent Liability shall (subject to any limitation set forth therein) be
deemed to be the outstanding principal amount of the debt, obligation or other
liability guaranteed thereby.
"CONTINUATION/CONVERSION NOTICE" means, as the context may require, a U.S.
Continuation/Conversion Notice or a Canadian Continuation/Conversion Notice.
"CONTROLLED GROUP" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the U.S. Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"COPYRIGHT SECURITY AGREEMENT" means any Copyright Security Agreement (if
and to the extent executed and delivered by any Obligor in accordance with the
terms of a Loan Document) in substantially the form of Exhibit C to any Security
Agreement, as amended, supplemented, amended and restated or otherwise modified
from time to time.
"CREDIT EXTENSION" means, as the context may require, a Canadian Credit
Extension or a U.S. Credit Extension.
"CREDIT EXTENSION REQUEST" means, as the context may require, any Borrowing
Request or Issuance Request.
"CURRENT ASSETS" means, at any time, all amounts (other than cash and Cash
Equivalent Investments) which, in accordance with GAAP, would be included as
current assets on a consolidated balance sheet of the U.S. Borrower and its
Subsidiaries at such time.
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"CURRENT LIABILITIES" means, at any time, all amounts which, in accordance
with GAAP, would be included as current liabilities on a consolidated balance
sheet of the U.S. Borrower and its Subsidiaries at such time, excluding current
maturities of Indebtedness.
"DEFAULT" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"DISBURSEMENT" is defined in SECTION 4.1.2.
"DISBURSEMENT DATE" is defined in SECTION 4.1.2.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule attached hereto as
SCHEDULE I, as it may be amended, supplemented, amended and restated or
otherwise modified from time to time by the Borrowers with the written consent
of the U.S. Agent and the Required Lenders.
"DOLLAR", "U.S. DOLLAR" and "$" each mean the lawful money of the United
States.
"DOMESTIC OFFICE" means,
(a) relative to any U.S. Lender, the office of such Lender designated
as such Lender's "Domestic Office" below its signature hereto or in a
Lender Assignment Agreement, or such other office of a U.S. Lender (or any
successor or assign of such Lender) within the United States as may be
designated from time to time by notice from such Lender, as the case may
be, to each other Person party hereto, and
(b) relative to any Canadian Lender, the office of such Lender
designated as such Lender's "Domestic Office" below its signature hereto or
in a Lender Assignment Agreement, or such other office of a Canadian Lender
(or any successor or assign of such Lender) within Canada as may be
designated from time to time by notice from such Lender, as the case may
be, to each other Person party hereto.
"DUAL LENDERS" means, collectively, those U.S. RL Lenders that also are
Canadian RL Lenders.
"EASTERN CONSOLIDATION" means the consolidation of the U.S. Borrower's
eastern United States packaging and distribution operations into a new facility
in South Carolina, including the closure of certain discontinued facilities, and
the incurrence of moving and relocation expenses for equipment and personnel,
severance expenses in connection with the closure of such discontinued
facilities and training expenses in connection with the opening of the new
facility.
"EBITDA" means, for any applicable period, the sum (without duplication) of
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(a) Net Income MINUS the aggregate amount of payments made in
accordance with CLAUSE (f)(i) and CLAUSE (f)(iii) of SECTION 9.2.13,
PLUS
(b) the amount deducted, in determining Net Income, representing
amortization of assets (including amortization with respect to goodwill,
deferred financing costs, other non-cash interest and all other intangible
assets),
PLUS
(c) the amount deducted, in determining Net Income, of all income
taxes (whether paid or deferred) of the U.S. Borrower and its Subsidiaries,
PLUS
(d) the amount deducted, in determining Net Income, of Interest
Expense of the U.S. Borrower and its Subsidiaries, (including, for purposes
of this definition only, the Canadian Borrower and its Subsidiaries as if
the Canadian Transaction had occurred at the beginning of the applicable
period), to the extent incurred, plus, without duplication, any non-cash
interest expense,
PLUS
(e) the amount deducted, in determining Net Income, representing
depreciation of assets,
PLUS
(f) the amount deducted, in determining Net Income, of all management
fees paid in cash in accordance with CLAUSE (b) of SECTION 9.2.13,
PLUS
(g) the amount deducted, in determining Net Income, due to foreign
currency translation required by FASB 52 arising after June 30, 1997,
PLUS
(h) the amount deducted, in determining Net Income, of all Specified
Adjustments.
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"EFFECTIVE DATE" means the date this Agreement becomes effective pursuant
to SECTION 12.8.
"ENVIRONMENTAL LAWS" means all U.S. and Canadian federal, state, provincial
or local statutes, laws, ordinances, by-laws, codes, rules, regulations,
guidelines, decrees and orders relating to public health and safety, the
environment, pollution or waste management.
"EQUITY RIGHTS" means the right to receive, under certain circumstances,
LHPG Common Stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections thereto.
"ESCROW ACCOUNT" is defined in CLAUSE (c) of SECTION 5.1.1.
"EVENT OF DEFAULT" is defined in SECTION 10.1.
"EXCESS CASH FLOW" means, for any Fiscal Year, the excess (if any), of
(a) EBITDA for such Fiscal Year or (in the case of the 1998 Fiscal
Year) for the period that begins from the date of the first Fiscal Quarter
beginning after June 30, 1997 to March 31, 1998 (referred to as the
"POST-CLOSING 1998 PERIOD")
OVER
(b) the sum (for such Fiscal Year or, in the case of the 1998 Fiscal
Year, the Post-Closing 1998 Period) of
(i) Interest Expense;
PLUS
(ii) scheduled payments and optional prepayments, to the extent
actually made, of the principal amount of the Term Loans and any other
Indebtedness permitted pursuant to CLAUSES (d), (g) and (i) of SECTION
9.2.2 (other than (i) Indebtedness of a revolving loan or similar
type, except to the extent that a corresponding amount of the
commitment to lend is permanently terminated or reduced and
(ii) Indebtedness of a type described in CLAUSES (c), (e) or (f) of
SECTION 9.2.2), and optional prepayments of the principal amount of
the Revolving Loans in connection with a reduction of the Revolving
Loan Commitment Amount;
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PLUS
(iii) all federal, state, provincial, local and foreign income
taxes actually paid in cash by the U.S. Borrower and its Subsidiaries;
PLUS
(iv) Capital Expenditures actually made;
PLUS
(v) dividends (other than dividends paid pursuant to CLAUSES
(d), (e) and (g) of SECTION 9.2.6) paid in cash by the U.S. Borrower
to Parent;
PLUS
(vi) the amount of liabilities paid in cash to the extent such
liabilities were reserved for in accordance with GAAP on the Opening
Consolidated Balance Sheet;
PLUS
(vii) all management and consulting fees (including
reimbursement of expenses) paid or payable by the U.S. Borrower and
its Subsidiaries to North Castle or any Affiliate thereof, in
accordance with CLAUSE (b) of SECTION 9.2.13;
PLUS
(viii) the aggregate amount of Specified Adjustments paid in
cash;
PLUS
(ix) 75% (in the 1998 Fiscal Year) and 100% (in the case of each
subsequent Fiscal Year) of the amount of the net increase, if greater
than zero, of Current Assets over Current Liabilities of the U.S.
Borrower and its Subsidiaries from the last day of the immediately
preceding Fiscal Year to the end of the relevant Fiscal Year.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE EQUIVALENT" means, on any date, relative to any amount (the
"ORIGINAL AMOUNT") expressed in either Canadian Dollars or U.S. Dollars (the
"ORIGINAL CURRENCY"), the
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amount expressed in the other currency which would be required to buy the
Original Amount of the Original Currency using the noon spot rate exchange for
Canadian interbank transactions applied in converting the other currency into
the Original Currency published by the Bank of Canada for such date.
"EXISTING CANADIAN SUBSIDIARY DEBENTURE" means the Security Agreement,
dated as of June 30, 1997, executed and delivered by each of 64804 Manitoba and
Westcan Pharmaceuticals, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"EXISTING CANADIAN SUBSIDIARY GUARANTY" means the Guaranty, dated as of
June 30, 1997, executed and delivered by each of 64804 Manitoba and Westcan
Pharmaceuticals, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"EXISTING CREDIT AGREEMENT" is defined in the SECOND RECITAL.
"EXISTING LENDERS" is defined in the SECOND RECITAL.
"EXISTING MORTGAGE" means any Mortgage executed and delivered pursuant to
the Existing Credit Agreement.
"EXISTING TERM B LOANS" means the Term B Loans made by the Lenders to the
U.S. Borrower under the Existing Credit Agreement.
"EXISTING TERM C LOANS" means the Term C Loans made by the Lenders to the
U.S. Borrower under the Existing Credit Agreement.
"EXISTING TERM LOANS" means the Existing Term B Loans and Existing Term C
Loans.
"FACILITY" means, as the context may require, the Canadian Facility or the
U.S. Facility.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York; or
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by the U.S. Agent from three federal funds brokers of recognized
standing selected by it.
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"FEE LETTERS" mean, collectively, (a) that certain confidential letter,
dated May 30, 1997, from Scotiabank to North Castle, LHPG and the Canadian
Borrower and (b) that certain confidential letter, dated April 17, 1998, from
Scotiabank to the Borrowers, in each case relating to, among other things,
certain fees to be paid in connection with this Agreement.
"FISCAL QUARTER" means a quarter ending on the last day of March, June,
September or December.
"FISCAL YEAR" means any period of twelve consecutive calendar months ending
on March 31; references to a Fiscal Year with a number corresponding to any
calendar year (E.G., the "1999 Fiscal Year") refer to the Fiscal Year ending on
March 31 of such calendar year.
"FOREIGN PLEDGE AGREEMENT" means any supplemental pledge agreement governed
by the laws of a jurisdiction other than the United States or a State thereof
executed and delivered by a Borrower or any of its Subsidiaries pursuant to the
terms of this Agreement, in form and substance satisfactory to the Agents, as
may be necessary or desirable under the laws of organization or incorporation of
a Subsidiary to further protect or perfect the Lien on and security interest in
any Pledged Shares and/or Pledged Notes (as such terms are defined in a Pledge
Agreement).
"F.R.S. BOARD" means the Board of Governors of the Federal Reserve System
or any successor thereto.
"GAAP" is defined in SECTION 1.4.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
province, canton or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, the National Association of
Insurance Commissioners, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"GUARANTOR" means, as the context may require, a Canadian Facility
Guarantor or a U.S. Facility Guarantor.
"GUARANTY" means, as the context may require, the U.S. Borrower Guaranty,
the Parent Guaranty, the Canadian Holdings Guaranty or any Subsidiary Guaranty
(including the Existing Canadian Subsidiary Guaranty).
"HAZARDOUS MATERIAL" means:
(a) with respect to the U.S. Facility,
(i) any "hazardous substance", as defined by CERCLA;
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(ii) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended; or
(iii) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance (including any petroleum
product) within the meaning of any other applicable federal, state or
local law, regulation, ordinance or requirement (including consent
decrees and administrative orders) relating to or imposing liability
or standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material, all as amended; and
(b) with respect to the Canadian Facility,
(i) any substances that are defined or listed in, or otherwise
classified pursuant to, any applicable Environmental Laws as
"hazardous substances", "hazardous materials", "hazardous wastes",
"toxic substances", "contaminants", "pollutants" or any other
formulation intended to define, list or classify substances by reason
of adverse effects on the environment or deleterious properties such
as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "TLCP" toxicity or "EP" toxicity;
(ii) any oil, petroleum or petroleum derived substances, natural
gas, natural gas liquids;
(iii) any flammable substances or explosives or any radioactive
materials; or
(iv) any asbestos in any form or electrical equipment which
contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million.
"HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities of
such Person under currency exchange agreements, interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms contained in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"IMPERMISSIBLE QUALIFICATION" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of the U.S. Borrower, any qualification or exception to such opinion or
certification
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(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause a
Borrower to be in default of any of its obligations under SECTION 9.2.4.
"INCLUDING" and "INCLUDE" means including without limiting the generality
of any description preceding such term, and, for purposes of this Agreement and
each other Loan Document, the parties hereto agree that the rule of EJUSDEM
GENERIS shall not be applicable to limit a general statement, which is followed
by or referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"INCREMENTAL TERM B LOAN COMMITMENT" is defined in CLAUSE (a) of SECTION
2.1.3.
"INCREMENTAL TERM B LOAN COMMITMENT AMOUNT" means, on any date,
$23,000,000.
"INCREMENTAL TERM B LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) May 29, 1998 (if the Incremental Term B Loans have not been made
on or prior to such date); and
(b) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in CLAUSE (b), the Term B Loan
Commitments shall terminate automatically and without any further action.
"INCREMENTAL TERM B LOANS" is defined in CLAUSE (a) of SECTION 2.1.3.
"INCREMENTAL TERM C LOAN COMMITMENT" is defined in CLAUSE (b) of SECTION
2.1.3.
"INCREMENTAL TERM C LOAN COMMITMENT AMOUNT" means, on any date,
$25,000,000.
"INCREMENTAL TERM C LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) May 29, 1998 (if the Incremental Term C Loans have not been made
on or prior to such date); and
(b) the date on which any Commitment Termination Event occurs.
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Upon the occurrence of any event described in CLAUSE (b), the Term C Loan
Commitments shall terminate automatically and without any further action.
"INCREMENTAL TERM C LOANS" is defined in CLAUSE (b) of SECTION 2.1.3.
"INCREMENTAL TERM LOANS" means, collectively, the Incremental Term B Loans
and the Incremental Term C Loans.
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances, in each case issued for the account of such Person;
(c) all obligations of such Person as lessee under leases which have
been or should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities;
(d) net liabilities (after giving effect to any gains) of such Person
under all Hedging Obligations;
(e) whether or not so included as liabilities in accordance with
GAAP, all obligations of such Person to pay the deferred purchase price of
property or services (PROVIDED that the term "deferred purchase price for
services" shall not include deferred payment for services incurred or
created by the Person relating to its employees and former employees) and
indebtedness (excluding prepaid interest thereon) secured by a Lien on
property owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention agreements),
whether or not such indebtedness shall have been assumed by such Person or
is limited in recourse;
(f) all Receivables Facility Outstandings; and
(g) all Contingent Liabilities of such Person in respect of any of
the foregoing types of obligations of such Person or any other Persons.
For all purposes of this Agreement, (i) the term "Indebtedness" shall exclude
(y) customer deposits and interest payable thereon in the ordinary course of
business and (z) trade and other accounts and accrued expenses payable in the
ordinary course of business in accordance with customary trade terms (including
time drafts payable to foreign suppliers and, notwithstanding CLAUSES (a) and
(e) above, notes payable in respect of the deferred payment of insurance policy
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premiums), and in the case of both (y) and (z) above, which are not overdue for
a period of more than 90 days or, if overdue for more than 90 days, as to which
a dispute exists and adequate reserves in conformity with GAAP have been
established on the books of such Person, and (ii) the Indebtedness of any Person
shall include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer (except to the extent that
either by operation of law or by the express terms of the relevant partnership
or joint venture agreement any such liabilities incurred in connection therewith
are completely without recourse to such Person).
"INDEMNIFIED LIABILITIES" is defined in SECTION 12.4.
"INDEMNIFIED PARTIES" is defined in SECTION 12.4.
"INTEREST COVERAGE RATIO" means, at the close of any Fiscal Quarter, the
ratio computed (except as set forth in the proviso below) for the period
consisting of such Fiscal Quarter and each of the three immediately prior Fiscal
Quarters of:
(a) EBITDA (for all such Fiscal Quarters)
TO
(b) the sum (for all such Fiscal Quarters) of Interest Expense paid
in cash;
PROVIDED, HOWEVER, that in computing the Interest Coverage Ratio for the fourth
Fiscal Quarter of the 1998 Fiscal Year, the amount set forth in CLAUSE (b) above
shall equal (i) Interest Expense for the second, third and fourth Fiscal
Quarters of the 1998 Fiscal Year, multiplied by (ii) 1.333.
"INTEREST EXPENSE" means, for any Fiscal Quarter, the aggregate interest
expense (net of interest income) of the U.S. Borrower and its Subsidiaries for
such Fiscal Quarter, as determined in accordance with GAAP, including (i) the
portion of any payments made in respect of Capitalized Lease Liabilities
allocable to interest expense and (ii) interest (or other fees in the nature of
interest or discount accrued and paid or payable in cash for such Fiscal
Quarter) in respect of the Permitted Receivables Transaction, but excluding
deferred financing costs and other non-cash interest expense.
"INTEREST PERIOD" means,
(a) relative to any LIBO Rate Loans, the period beginning on (and
including) the date on which such LIBO Rate Loan is made or continued as,
or converted into, a LIBO Rate Loan pursuant to SECTION 2.3 or 2.4 and
continuing to (but excluding) the day which, numerically corresponds to
such date one, two, three or six months thereafter (or, if such month has
no numerically corresponding day, on the last Business Day of such month)
as the U.S. Borrower may select in its relevant notice pursuant to
SECTION 2.3 or 2.4; and
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(b) relative to any Canadian BA or Acceptance Note, the period
beginning on (and including) the date on which such Canadian BA is accepted
or rolled over pursuant to SECTION 3.3 or 3.4 or such Acceptance Note is
issued pursuant to SECTION 3.6 and continuing to (but excluding) the date
which is 30, 60, 90 or 180 days thereafter as the Canadian Borrower may
select in its relevant notice pursuant to SECTION 3.3 or 3.4;
PROVIDED, HOWEVER, that
(c) the U.S. Borrower shall not be permitted to select Interest
Periods to be in effect at any one time which have expiration dates
occurring on more than four different dates with respect to Revolving Loans
and four different dates with respect to Term Loans;
(d) the Canadian Borrower shall not be permitted to select Interest
Periods to be in effect at any one time which have expiration dates
occurring on more than five different dates;
(e) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following
Business Day (unless, if such Interest Period applies to a LIBO Rate Loan,
such next following Business Day is the first Business Day of a calendar
month, in which case such Interest Period shall end on the Business Day
next preceding such numerically corresponding day); and
(f) no Interest Period may end later than the Stated Maturity Date
for such Loan.
"INVESTMENT" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel, petty cash and similar advances to
directors, officers and employees made in the ordinary course of business);
(b) any Contingent Liability of such Person incurred in connection
with loans or advances described in CLAUSE (a); and
(c) any ownership or similar interest held by such Person in any
other Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and otherwise without
adjustment by reason of the financial condition of such other Person) and shall,
if made by the transfer or exchange of property other than cash, be deemed to
have been made in an original principal or capital amount equal to the fair
market value of such property at the time of such Investment.
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"ISSUANCE REQUEST" means, as the context may require, a U.S. Issuance
Request or a Canadian Issuance Request.
"ISSUER" means, as the context may require, a Canadian Issuer or a U.S.
Issuer.
"LAW CHANGE" is defined in CLAUSE (b) of SECTION 6.6.
"LENDERS" is defined in the PREAMBLE and, in addition, shall include any
commercial bank or other financial institution that becomes a Lender pursuant to
SECTION 12.11.1.
"LENDER ASSIGNMENT AGREEMENT" means a lender assignment agreement
substantially in the form of EXHIBIT D hereto.
"LENDER'S ENVIRONMENTAL LIABILITY" means any and all losses, liabilities,
obligations, penalties, claims, litigation, demands, defenses, costs, judgments,
suits, proceedings, damages (including consequential damages), disbursements or
expenses of any kind or nature whatsoever (including reasonable attorneys' fees
at trial and appellate levels and experts' fees and disbursements and expenses
incurred in investigating, defending against or prosecuting any litigation,
claim or proceeding) which may at any time be imposed upon, incurred by or
asserted or awarded against any Lender or any of such Lender's parent and
subsidiary corporations, and their Affiliates, shareholders, directors,
officers, employees, and agents in connection with or arising from:
(a) any Hazardous Material on, in, under or affecting all or any
portion of any property of a Borrower or any Subsidiary, the groundwater
thereunder, or any surrounding areas thereof to the extent caused by
Releases from a Borrower's or any of such Borrower's Subsidiaries' or any
of their respective predecessors' properties;
(b) any misrepresentation, inaccuracy or breach of any warranty,
contained or referred to in SECTION 8.12;
(c) any violation or claim of violation by a Borrower or any of its
Subsidiaries of any Environmental Laws; or
(d) the imposition of any lien for damages caused by or the recovery
of any costs for the cleanup, release or threatened release of Hazardous
Material by a Borrower or any of its Subsidiaries, or in connection with
any property owned or formerly owned by a Borrower or any of its
Subsidiaries.
"LETTER OF CREDIT" means, as the context may require, a Canadian Letter of
Credit or a U.S. Letter of Credit.
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"LETTER OF CREDIT COMMITMENT AMOUNT" means, as the context may require, the
Canadian Letter of Credit Commitment Amount or the U.S. Letter of Credit
Commitment Amount.
"LETTER OF CREDIT OUTSTANDING" means, as the context may require, the
Canadian Letter of Credit Outstandings or the U.S. Letter of Credit
Outstandings.
"LEVERAGE RATIO" means, as of the last day of any Fiscal Quarter, the ratio
of
(a) Total Debt outstanding on the last day of such Fiscal Quarter
TO
(b) EBITDA computed for the period consisting of such Fiscal Quarter
and each of the three immediately preceding Fiscal Quarters.
"LHPG" is defined in the FIFTH RECITAL.
"LHPG COMMON STOCK" means the common stock of LHPG after giving effect to
the Recapitalization.
"LIBO RATE" means, relative to any Interest Period for LIBO Rate Loans, the
rate of interest equal to the average (rounded upwards, if necessary, to the
nearest 1/100 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to Scotiabank's LIBOR Office in the
London, England interbank market as at or about 11:00 a.m. London, England time
two Business Days prior to the beginning of such Interest Period for delivery on
the first day of such Interest Period, and in an amount approximately equal to
the amount of Scotiabank's LIBO Rate Loan and for a period approximately equal
to such Interest Period.
"LIBO RATE LOAN" means a U.S. Revolving Loan or a U.S. Term Loan bearing
interest, at all times during an Interest Period applicable to such Loan, at a
fixed rate of interest determined by reference to the LIBO Rate (Reserve
Adjusted).
"LIBO RATE (RESERVE ADJUSTED)" means, relative to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
(Reserve Adjusted) ---------------------------------
1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the U.S. Agent on the basis of the LIBOR Reserve
Percentage in effect on, and the
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applicable rates furnished to and received by the U.S. Agent from Scotiabank,
two Business Days before the first day of such Interest Period.
"LIBOR OFFICE" means, relative to any U.S. Lender, the office of such U.S.
Lender designated as such U.S. Lender's "LIBOR Office" below its signature
hereto or in a Lender Assignment Agreement, or such other office of a U.S.
Lender as designated from time to time by notice from such U.S. Lender to the
U.S. Borrower and the U.S. Agent, whether or not outside the United States,
which shall be making or maintaining LIBO Rate Loans of such Lender hereunder.
"LIBOR RESERVE PERCENTAGE" means, relative to any Interest Period for LIBO
Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of or including "Eurocurrency Liabilities", as currently
defined in Regulation D of the F.R.S. Board, having a term approximately equal
or comparable to such Interest Period.
"LIEN" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or other priority or preferential
arrangement of any kind or nature whatsoever, to secure payment of a debt or
performance of an obligation, except for liens arising from the filing of
"precautionary" UCC or PPSA financing statements in connection with obligations
under leases that are not Capitalized Lease Liabilities to the extent that such
financing statements relate solely to the property subject to such lease
obligations and where the debtor named on such financing statements is not the
legal or beneficial owner of the described property.
"LOAN" means, as the context may require, a Canadian Loan or a U.S. Loan.
"LOAN DOCUMENTS" collectively means this Agreement, the Notes, the Letters
of Credit, each Pledge Agreement, each Security Agreement, each Mortgage, each
Rate Protection Agreement relating to Hedging Obligations of a Borrower or any
of its Subsidiaries, each Borrowing Request, each Issuance Request, each Foreign
Pledge Agreement, the Fee Letter, the Master Subordination Agreement, each
Guaranty and each other agreement, certificate, document or instrument delivered
in connection with this Agreement and such other agreements, whether or not
specifically mentioned herein or therein.
"LOCAL TIME" means
(a) relative to matters under the U.S. Facility, New York, New York
time, or
(b) relative to matters under the Canadian Facility, Toronto time.
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"MANAGEMENT INVESTORS" means any of the officers, directors, employees and
other members of the management of LHPG or any of its Subsidiaries, or family
members or relatives thereof, or trusts for the benefit of any of the foregoing,
or their heirs, executors, successors and legal representatives.
"MANAGEMENT SERVICES AGREEMENT" means the Consulting Agreement, dated as of
June 30, 1997, among North Castle Partners, L.L.C., LHPG and the U.S. Borrower,
as amended, supplemented, amended and restated or otherwise modified from time
to time.
"MANAGEMENT SHAREHOLDERS" is defined in the THIRD RECITAL.
"MASTER SUBORDINATION AGREEMENT" means a Master Subordination Agreement,
substantially in the form of Exhibit K to the Existing Credit Agreement, as
amended, supplemented, amended and restated or otherwise modified from time to
time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
financial condition, operations, assets, business or properties of the U.S.
Borrower or the U.S. Borrower and its Subsidiaries, taken as a whole, (b) the
rights and remedies of the Agents or any Secured Party under any Loan Document
or (c) the perfection or priority of the Secured Parties' Liens upon the
collateral described in any Loan Document.
"MERGER" is defined in the Existing Credit Agreement.
"MERGER AGREEMENT" is defined in the Existing Credit Agreement.
"MOODY'S" means Moody's Investors Service, Inc.
"MORTGAGE" means each Existing Mortgage and each mortgage, deed of trust or
agreement executed and delivered by the U.S. Borrower or any other Obligor in
favor of the U.S. Agent and shall also include any of the Canadian Borrower
Debenture, the Canadian Holdings Debenture and any Canadian Subsidiary Debenture
which creates a Lien on Mortgaged Real Property, pursuant to the terms of this
Agreement, substantially in the form of Exhibit H to the Existing Credit
Agreement (if the real property which is to be encumbered is located in the
U.S.), under which a Lien is granted on the Mortgaged Real Property and fixtures
described therein, in each case as amended, supplemented, amended and restated
or otherwise modified from time to time.
"MORTGAGED REAL PROPERTY" means each fee or leasehold interest in the Real
Property owned (or leased) by the U.S. Borrower, the Canadian Borrower or any
other Obligor which has been mortgaged in favor of the U.S. Agent or the
Canadian Agent, as such Real Properties are described in ITEM 8.10 of the
Disclosure Schedule on the Effective Date, and all other Real
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Properties as may from time to time following the Effective Date be required to
be encumbered in favor of the Secured Parties in accordance with the terms of
this Agreement.
"NET DISPOSITION PROCEEDS" means the excess of
(a) the gross cash proceeds received by a Borrower or any of its
Subsidiaries from any Permitted Disposition of the type described in CLAUSE
(d) of SECTION 9.2.11 and any cash payments received in respect of
promissory notes or other non-cash consideration delivered to such Borrower
or such Subsidiary in respect of such Permitted Disposition,
OVER
(b) (i) all reasonable and customary fees and expenses with respect
to legal, investment banking, brokerage and accounting and other
professional fees, sales commissions and disbursements actually incurred in
connection with such Permitted Disposition which have not been paid to
Affiliates of such Borrower (except as permitted pursuant to SECTION
9.2.13),
(ii) all taxes and other governmental costs and expenses actually
paid or estimated by such Borrower (in good faith) to be payable in cash in
connection with such Permitted Disposition,
(iii) payments made by such Borrower or any of its Subsidiaries to
retire Indebtedness (other than the Loans) of such Borrower or any of its
Subsidiaries where payment of such Indebtedness is required in connection
with such Permitted Disposition, and
(iv) amounts, in the reasonable judgment of such Borrower, provided
by such Borrower or any of its Subsidiaries, as the case may be, as a
reserve, against any liabilities associated with such Permitted Disposition
to the extent, but only to the extent, that the amounts so deducted, or for
which such Borrower or any Subsidiary is liable, as the case may be, are,
at the time of receipt of such cash, paid or payable to a Person that is
not an Affiliate or, if payable to an Affiliate, are permitted under
SECTION 9.2.13, and are properly attributable to such transaction or to the
asset that is the subject thereof;
PROVIDED, HOWEVER, that if, after the payment of all taxes with respect to such
Permitted Disposition, (x) the amount of estimated taxes, if any, pursuant to
CLAUSE (b)(ii) above exceeded the tax amount actually paid in cash in respect of
such Permitted Disposition or (y) the amount reserved, if any, pursuant to
CLAUSE (b)(iv) above exceeded the actual associated liabilities in respect of
such Permitted Disposition, the aggregate amount of such excess shall be
immediately payable, pursuant to CLAUSE (c) of SECTION 5.1.1, as Net Disposition
Proceeds. "Net Disposition Proceeds" shall exclude (x) an aggregate amount
equal to $15,000,000 of proceeds of Permitted Dispositions over the term of this
Agreement and (y) 100% of proceeds from Permitted
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Dispositions of the type permitted pursuant to CLAUSE (e) of SECTION 9.2.11, in
a maximum aggregate amount over the term of this Agreement not to exceed
$5,000,000 (with such amount being referred to as the "RETAINED AMOUNT") to the
extent
(i) the Retained Amount is directly generated from the sale or
issuance after the date hereof of any newly issued stock, warrants or
options (I.E., other than stock, warrants or options outstanding on the
Effective Date) of any Subsidiary to any Person (other than such Borrower
or a wholly-owned Subsidiary),
(ii) such Borrower has, no less than 5 Business Days (or such shorter
period agreed to by the applicable Agent) prior to such sale or issuance,
notified the applicable Agent thereof and delivered to the applicable Agent
copies of all relevant registration statements, documents and other
instruments prepared in connection with such sale or issuance and such
other information relating thereto as the applicable Agent may otherwise
request), and
(iii) the applicable Agent shall have received a certificate from an
Authorized Officer of such Borrower certifying (A) as to the proposed
reinvestment of the Retained Amount in such Subsidiary, (B) as to the value
received by the Subsidiary for the sale or issuance of such newly issued
stock, warrants or options and (C) that the value of such Borrower's
ownership interest (whether held directly or indirectly) in such Subsidiary
has not been reduced as a result of such sale or issuance;
PROVIDED, HOWEVER, that to the extent any Retained Amount is not reinvested in
such Subsidiary in the method previously certified to the Agent within twelve
months from the date of receipt of the Retained Amount, then the portion of the
Retained Amount not so reinvested shall constitute Net Disposition Proceeds and
100% of such unreinvested Retained Amount shall be applied to the prepayment of
Term Loans pursuant to CLAUSE (c) of SECTION 5.1.1.
"NET EQUITY PROCEEDS" means with respect to the sale or issuance by Parent
or LHPG to any Person of any stock, warrants or options or the exercise of any
such warrants or options, the EXCESS of:
(a) the gross cash proceeds received by such Person from such sale,
exercise or issuance,
OVER
(b) all reasonable and customary underwriting commissions and legal,
investment banking, brokerage and accounting and other professional fees,
sales commissions and disbursements actually incurred in connection with
such sale, exercise or issuance which have not been paid to Affiliates of a
Borrower in connection therewith.
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Net Equity Proceeds shall exclude the proceeds of any issuance or exercise of
stock, options or warrants issued (i) in connection with the Recapitalization,
including pursuant to the Merger Agreement, (ii) to any Management Investor in
connection with a subscription agreement, incentive plan or similar arrangement,
or (iii) in connection with any contribution in cash to the capital of Parent or
LHPG by a replacement officer or employee following the death, disability,
retirement or termination of employment of another officer or employee of LHPG
or its Subsidiaries).
"NET INCOME" means, for any period, the aggregate of all amounts (exclusive
of (i) all amounts in respect of any extraordinary gains or extraordinary
losses, (ii) gains and losses arising from the sale of material assets not in
the ordinary course of business and (iii) earnings and losses from discontinued
operations) which, in accordance with GAAP, would be included as net income on
the consolidated financial statements of the U.S. Borrower and its Subsidiaries
for such period (including, for periods prior to the Fiscal Quarter ended June
30, 1998, the Canadian Borrower and its Subsidiaries as if the Canadian
Transaction had occurred at the beginning of such period).
"NET TANGIBLE ASSETS" means, at any time, the aggregate amount which, in
accordance with GAAP, would be included as total assets (less intangible assets)
on the balance sheet of the U.S. Borrower and its Subsidiaries at such time
MINUS the aggregate amount which, in accordance with GAAP, would be included as
Current Liabilities on the balance sheet of the U.S. Borrower and its
Subsidiaries at such time.
"NET UNREPATRIATED DISPOSITION PROCEEDS" means, at any time, the total
amount of Net Disposition Proceeds at such time that have not (i) been applied
to prepay Loans pursuant to CLAUSE (c) of SECTION 5.1.1 or resulted in a
reduction of the U.S. Revolving Loan Commitment pursuant to SECTION 2.2.2, or
(ii) been deposited in an escrow account pursuant to the terms of an escrow
agreement in accordance with CLAUSE (c) of SECTION 5.1.1.
"NORTH CASTLE" is defined in the FIFTH RECITAL.
"NOTE" means, as the context may require, a U.S. Note or a Canadian Note.
"NOTIONAL BA PROCEEDS" means, relative to a particular Canadian Loan by way
of Canadian BAs, the aggregate face amount of such Canadian BAs less the
aggregate of:
(a) a discount from the aggregate face amount of such Canadian BAs
calculated in accordance with normal market practice based on the Canadian
BA Rate for the term of such Canadian BAs; and
(b) the amount of the Applicable Canadian BA Stamping Fees in respect
of such Canadian BAs calculated in accordance with SECTION 3.5.2.
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"OBLIGATIONS" means all obligations (monetary or otherwise, whether
absolute or contingent, matured or unmatured, direct or indirect, choate or
inchoate, sole, joint, several or joint and several, due or to become due,
heretofore or hereafter contracted or acquired) of the Borrowers and each other
Obligor arising under or in connection with this Agreement, the Notes, the
Letters of Credit and each other Loan Document including (i) all obligations for
principal or interest under the Notes, whether incurred on the date hereof or
after the Effective Date, (ii) all other obligations and liabilities of each
Obligor, whether incurred on the date hereof or after the Effective Date,
whether for fees, costs, indemnification or otherwise, arising hereunder or
under any other Loan Document, (iii) all out-of-pocket costs and expenses,
including attorneys' fees and legal expenses, incurred by the Agents or any
Lender to the extent set forth in this Agreement in connection with such
Indebtedness, obligations and liabilities (iv) following the occurrence and
during the continuance of an Event of Default, all advances made by the Agents
or any Lender for the maintenance, protection, preservation or enforcement of,
or realization upon, the collateral in which the Agents have been granted a
security interest pursuant to a Loan Document (or any portion thereof) including
advances for storage, transportation charges, taxes, insurance, repairs and the
like, and (v) Hedging Obligations owed to a Lender or an Affiliate thereof (or a
Person that was a Lender or an Affiliate of a Lender at the time the applicable
Rate Protection Agreement was entered into).
"OBLIGOR" means, as the context may require, each Borrower, Parent, each
Guarantor and any other Person (other than a Secured Party) to the extent such
Person is obligated under this Agreement or any other Loan Document.
"OPENING CONSOLIDATED BALANCE SHEET" means the consolidated balance sheet
of the U.S. Borrower and its Subsidiaries as of the date of the Merger, giving
effect to the Recapitalization and the Assumption (as defined in the Existing
Credit Agreement), prepared in accordance with GAAP.
"ORGANIC DOCUMENT" means, relative to any Obligor, as applicable, its
certificate of incorporation, by-laws, certificate of partnership, partnership
agreement, certificate of formation, limited liability company agreement and all
shareholder agreements, voting trusts and similar arrangements applicable to any
of such Obligor's partnership interests, limited liability company interests or
authorized shares of Capital Stock.
"PARENT" is defined in the FIFTH RECITAL.
"PARENT GUARANTY" means the Guaranty, dated as of June 30, 1997, executed
and delivered by Parent, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"PARENT PLEDGE AGREEMENT" means the Pledge Agreement, dated as of June 30,
1997, executed and delivered by Parent, as amended, supplemented, amended and
restated or otherwise modified from time to time.
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"PARTICIPANT" is defined in SECTION 12.11.2.
"PATENT SECURITY AGREEMENT" means any Patent Security Agreement (if and to
the extent executed and delivered from time to time by any Obligor in accordance
with the terms of a Loan Document) in substantially the form of Exhibit A to any
Security Agreement, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PENSION PLAN" means, as the context may require, a U.S. Pension Plan or a
Canadian Pension Plan.
"PERCENTAGE" means, as the context may require, a U.S. Percentage or a
Canadian Percentage.
"PERMITTED ACQUISITION" means an acquisition (whether pursuant to an
acquisition of stock, assets or otherwise) by a Borrower or any Subsidiary
(other than a Restricted Subsidiary) from any Person of a business in which all
of the following is satisfied:
(a) such business is, taken as a whole, reasonably related or
reasonably similar to the business of such Borrower and its Subsidiaries as
described in the FIRST RECITAL;
(b) immediately before and after giving effect to such acquisition no
Default shall have occurred and be continuing;
(c) such Borrower or Subsidiary shall have delivered to the U.S.
Agent consolidated financial statements for the period of four full Fiscal
Quarters immediately preceding such acquisition (prepared in good faith and
in a manner and using such methodology which is consistent with the most
recent financial statements delivered pursuant to SECTION 9.1.1) giving
effect to the consummation of such acquisition and evidencing compliance
with the covenants set forth in SECTION 9.2.4; and
(d) solely in the case of such an acquisition of Capital Stock of a
target company, such acquisition is undertaken only with the prior,
effective written consent or approval to such acquisition of either the
target company's board of directors, an equivalent governing body of the
target company, any other Person or group of Persons authorized to give
such consent by the target company or (in the case of any company that does
not have a class of Voting Stock registered under Section 12 of the
Exchange Act) a majority of the holders of the Voting Stock of the target
company or of the Capital Stock being so acquired.
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"PERMITTED DISPOSITION" means a disposition of assets by a Borrower or any
of its Subsidiaries permitted pursuant to SECTION 9.2.11.
"PERMITTED RECEIVABLES TRANSACTION" means any transaction providing for the
sale or financing of Accounts; PROVIDED, HOWEVER, that the expiration date,
term, conditions and structure (including the legal and organizational structure
of any Receivables Co. and the restrictions imposed on its activities) of, and
the documentation relating to, the Permitted Receivables Transaction must be on
terms and conditions satisfactory to the U.S. Agent.
"PERSON" means any natural person, corporation, limited liability company,
partnership, joint venture, joint stock company, firm, association, trust or
unincorporated organization, government, governmental agency, court or any other
legal entity, whether acting in an individual, fiduciary or other capacity.
"PLAN" means any Pension Plan or Welfare Plan.
"PLEDGE AGREEMENT" means, as the context may require, the U.S. Borrower
Pledge Agreement, the Canadian Borrower Pledge Agreement, the Parent Pledge
Agreement, the Canadian Holdings Pledge Agreement, any Subsidiary Pledge
Agreement or any Foreign Pledge Agreement.
"PLEDGED SUBSIDIARY" means, at any time, each Subsidiary in respect of
which the applicable Agent has been granted, at such time, a security interest
in and to, or a pledge of, (i) any of the issued and outstanding shares of
Capital Stock of such Subsidiary, or (ii) any intercompany notes of such
Subsidiary owing to a Borrower or another Subsidiary of a Borrower.
"POST-CLOSING 1998 PERIOD" is defined in CLAUSE (a) of the definition of
"Excess Cash Flow".
"PPSA" means The Personal Property Security Act (Manitoba), as in effect
from time to time.
"PROCESS AGENT" is defined in SECTION 12.14.
"PRO FORMA BALANCE SHEET" is defined in SECTION 7.1.4.
"PUBLIC EQUITY OFFERING" means a public offering of the Voting Stock of
Parent or LHPG pursuant to an effective registration statement under the
Securities Act of 1933, as amended.
"PUBLIC MARKET" shall exist if (i) a Public Equity Offering has been
consummated and (ii) any Voting Stock of Parent or LHPG has been distributed by
means of an effective registration statement under the Securities Act of 1933,
as amended.
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"QUARTERLY PAYMENT DATE" means the fifteenth day of March, June, September
and December, or, if any such day is not a Business Day, the next succeeding
Business Day.
"RATE PROTECTION AGREEMENT" means, collectively, any currency or interest
rate swap, cap, collar or similar agreement entered into by an Obligor under
which the counterparty to such agreement is (or, at the time such Rate
Protection Agreement was entered into, was) a Lender or an Affiliate of a
Lender.
"REAL PROPERTY" means, with respect to any Person, such Person's present
and future right, title and interest (including, without limitation, any
leasehold estate) in
(a) any plots, pieces or parcels of land;
(b) any improvements, buildings, structures and fixtures now or
hereafter located or erected thereon or attached thereto of every nature
whatsoever (the rights and interest described in CLAUSES (a) and (b) being
the "PREMISES");
(c) all easements, rights of way, gores of land or any lands occupied
by streets, ways, alleys, passages, sewer rights, water courses, water
rights and powers, and public places adjoining such land, and any other
interests in property constituting appurtenances to the Premises, or which
hereafter shall in any way belong, relate or be appurtenant thereto;
(d) all hereditaments, gas, oil, minerals (with the right to extract,
sever and remove such gas, oil and minerals), and easements, of every
nature whatsoever, located in or on the Premises; and
(e) all other rights and privileges thereunto belonging or
appertaining and all extensions, additions, improvements, betterments,
renewals, substitutions and replacements to or of any of the rights and
interests described in CLAUSES (c) and (d) above.
"RECAPITALIZATION" means the recapitalization of LHPG in accordance with
the terms of the Merger Agreement.
"RECEIVABLES CO." means any special purpose wholly-owned Subsidiary of the
U.S. Borrower organized after the date hereof (or such other Person agreed to by
the Agents) that purchases Accounts generated by the U.S. Borrower or any of its
Subsidiaries in connection with the Permitted Receivables Transaction.
"RECEIVABLES FACILITY OUTSTANDINGS" means, at any date of determination,
with respect to the Permitted Receivables Transaction, the aggregate cash
proceeds received by the U.S.
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Borrower or any of its Subsidiaries from the sale or financing of Accounts
pursuant to the Permitted Receivables Transaction which are outstanding on the
date of determination.
"RECEIVABLES PROCEEDS" means, with respect to the Permitted Receivables
Transaction, the maximum amount of the commitment to purchase Accounts under the
Permitted Receivables Transaction.
"REFUNDED CANADIAN SWING LINE LOANS" is defined in CLAUSE (b) of SECTION
3.3.2.
"REFUNDED U.S. SWING LINE LOANS" is defined in CLAUSE (b) of SECTION 2.3.2.
"REGISTER" means, as applicable, the Canadian Register or the U.S.
Register.
"REIMBURSEMENT OBLIGATION" is defined in SECTION 4.1.3.
"RELEASE" means a "RELEASE", as such term is defined in CERCLA.
"RENTALS" means, for any period and determined in accordance with GAAP, all
fixed payments made by the U.S. Borrower or any of its Subsidiaries, as lessee
or sublessee under any lease of real or personal property (including as such all
payments that the U.S. Borrower or any of its Subsidiaries, as the case may be,
is obligated to make to the lessor on termination of the lease or surrender of
the property), but shall be exclusive of any amounts required to be paid by the
U.S. Borrower or any such Subsidiary (whether or not designated as rents or
additional rents) on account of maintenance, repairs, insurance, taxes,
assessments and similar charges. Fixed rents under any so called "percentage
leases" shall be computed solely on the basis of the minimum rents, if any,
required to be paid by the U.S. Borrower or any of its Subsidiaries, as the case
may be, regardless of sales or gross revenues.
"REPLACEMENT INDEBTEDNESS" is defined in CLAUSE (k) of SECTION 9.2.2.
"REPLACEMENT NOTICE" is defined in SECTION 6.11.
"REQUIRED LENDERS" means, at any time, Lenders holding at least 51% of the
Total Exposure Amount.
"RESOURCE CONSERVATION AND RECOVERY ACT" means the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., as amended.
"RESTRICTED SUBSIDIARY" means, collectively, any direct or indirect,
non-wholly-owned Subsidiary (and Subsidiaries thereof) of the U.S. Borrower
(other than the Canadian Borrower) or any direct or indirect, wholly-owned
non-U.S. Subsidiary of the U.S. Borrower resulting from an Investment by the
U.S. Borrower permitted by CLAUSE (i) of SECTION 9.2.5.
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"REVOLVING LOAN" means, as the context may require, a U.S. Revolving Loan
or a Canadian Revolving Loan.
"REVOLVING LOAN COMMITMENT" means, as the context may require, the Canadian
Revolving Loan Commitment or the U.S. Revolving Loan Commitment.
"REVOLVING LOAN COMMITMENT AMOUNT" means, as the context may require, the
U.S. Revolving Loan Commitment Amount or the Canadian Revolving Loan Commitment
Amount.
"REVOLVING NOTE" means, as the context may require, a U.S. Revolving Note
or a Canadian Revolving Note.
"RL LENDER" means, as the context may require, a U.S. RL Lender or a
Canadian RL Lender.
"S&P" means Standard & Poor's Rating Services.
"SCOTIABANK" is defined in the PREAMBLE.
"SEC" means the Securities and Exchange Commission.
"SECURED PARTIES" means, collectively, the Lenders, the Issuers, the
Agents, each counterparty to a Rate Protection Agreement that is (or, at the
time such Rate Protection Agreement was entered into, was) a Lender or an
Affiliate thereof and (in each case) each of their respective successors,
permitted transferees and permitted assigns.
"SECURITY AGREEMENT" means, as the context may require, the U.S. Borrower
Security Agreement, the Canadian Borrower Debenture, the Canadian Holdings
Debenture, each Existing Canadian Subsidiary Debenture, each U.S. Subsidiary
Security Agreement and each Canadian Subsidiary Debenture, in each case as
amended, supplemented, amended and restated or otherwise modified from time to
time.
"SENIOR MANAGEMENT" means, collectively, Robert M. Kaminski, Gale K.
Bensussen, William B. Towne, Kevin J. Lanigan, Stanley J. Kahn, Scott C.
Rexinger, Giffen H. Ott and Robert J. LaFerriere.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any
Subsidiary that, together with its Subsidiaries, (i) for the most recent Fiscal
Year of the U.S. Borrower, accounted for (or, in the case of any Subsidiary that
is acquired following the Effective Date, would have accounted for) more than 3%
of the consolidated revenues of the U.S. Borrower and its Subsidiaries during
such Fiscal Year or (ii) as of the end of the most recent Fiscal Year of the
U.S. Borrower, was the owner of (or, in the case of any Subsidiary that is
acquired following the Effective Date, would have been the owner of) more than
3% of the consolidated assets of the
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U.S. Borrower and its Subsidiaries at the end of such Fiscal Year, all as set
forth on the most recently available consolidated financial statements of the
U.S. Borrower for such Fiscal Year.
"64804 MANITOBA" means 64804 Manitoba Ltd., a Manitoba corporation.
"SOUTH CAROLINA TRANSACTIONS" is defined in SECTION 9.1.9.
"SPECIFIED ADJUSTMENTS" means an amount equal to the sum of
(a) documented, non-recurring
(i) charges incurred pursuant to the Eastern Consolidation after
June 30, 1997 in an amount not to exceed $3,800,000,
PLUS
(ii) costs incurred by the Canadian Borrower for discontinued
bonuses paid to its former owners in an amount not to exceed
$2,400,000,
PLUS
(iii) costs incurred as a management transaction bonus for the
Recapitalization in an amount not to exceed $5,200,000,
PLUS
(iv) compensation charges incurred during the 1998 Fiscal Year
for the in-the-money value of stock options which will be, as part of
the Recapitalization, cashed out, exchanged for LHPG Common Stock or
converted into Equity Rights, in an amount not to exceed $15,700,000,
PLUS
(v) equity related costs incurred (i) as transaction-related fees
and expenses of $6,100,000, incurred by LHPG that were an adjustment
to the amount received by the shareholders of LHPG immediately prior
to the Merger and (ii) as transaction fees and expenses in an amount
not to exceed $6,200,000 incurred by LHPG that were related to the new
equity raised from the shareholders of LHPG in connection with the
Merger,
PLUS
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(b) documented non-cash compensation expenses arising from the
granting of stock options.
"STATED AMOUNT" of each Letter of Credit means the total amount available
to be drawn under such Letter of Credit upon the issuance thereof.
"STATED EXPIRY DATE" is defined in SECTION 4.1.
"STATED MATURITY DATE" means
(a) in the case of Revolving Loans, June 30, 2003;
(b) in the case of Term B Loans and Canadian Term Loans, December 30,
2004; and
(c) in the case of Term C Loans, December 30, 2005.
"SUBJECT LENDER" is defined in CLAUSE (a) of SECTION 6.11.
"SUBORDINATED DEBT" means the unsecured Indebtedness of the U.S. Borrower
evidenced by the Subordinated Notes and any other unsecured Indebtedness of the
U.S. Borrower subordinated to the Obligations on terms and conditions, and
pursuant to documentation, reasonably satisfactory to the U.S. Agent and the
Required Lenders.
"SUBORDINATED DEBT INSTRUMENTS" means the Subordinated Indenture, the
Subordinated Notes and all other agreements and instruments delivered in
connection therewith or pursuant to which the same shall have been issued or are
governed, as amended, supplemented, amended and restated or otherwise modified
in accordance with SECTION 9.2.12.
"SUBORDINATED INDENTURE" means the Indenture, dated as of June 30, 1997,
between the U.S. Borrower and United States Trust Company of New York, as
trustee, as amended, supplemented, amended and restated or otherwise modified
from time to time in accordance with SECTION 9.2.12.
"SUBORDINATED NOTE HOLDERS" means any and all holders of Subordinated
Notes.
"SUBORDINATED NOTES" means the 9.625% Senior Subordinated Notes due 2007
issued by the U.S. Borrower pursuant to the Subordinated Indenture or in
exchange for any initially issued Subordinated Notes pursuant to an exchange
offer, in each case as amended, supplemented, amended and restated or otherwise
modified from time to time in accordance with SECTION 9.2.12.
"SUBORDINATION PROVISIONS" is defined in SECTION 10.1.11.
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"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership or other business entity of which more than 50% of the outstanding
Capital Stock (or other ownership interest) having ordinary voting power to
elect a majority of the board of directors, managers or other voting members of
the governing body of such entity (irrespective of whether at the time Capital
Stock (or other ownership interest) of any other class or classes of such entity
shall or might have voting power upon the occurrence of any contingency) is at
the time directly or indirectly owned by such Person, by such Person and one or
more other Subsidiaries of such Person, or by one or more other Subsidiaries of
such Person. Unless the context otherwise specifically requires, the term
"Subsidiary" shall be a reference to a Subsidiary of a Borrower.
"SUBSIDIARY GUARANTOR" means each Subsidiary party to a Subsidiary Guaranty
(including each Subsidiary that is required, pursuant to CLAUSE (a) of SECTION
9.1.7 to become a party to a Subsidiary Guaranty).
"SUBSIDIARY GUARANTY" means, as the context may require, a U.S. Subsidiary
Guaranty or a Canadian Subsidiary Guaranty.
"SUBSIDIARY PLEDGE AGREEMENT" means, as the context may require, a U.S.
Subsidiary Pledge Agreement or a Canadian Subsidiary Pledge Agreement.
"SUBSIDIARY SECURITY AGREEMENT" means, as the context may require, a U.S.
Subsidiary Security Agreement or a Canadian Subsidiary Debenture.
"SWING LINE LENDER" means, as the context may require, the U.S. Swing Line
Lender or the Canadian Swing Line Lender.
"SWING LINE LOAN" means, as the context may require, a U.S. Swing Line Loan
or a Canadian Swing Line Loan.
"SWING LINE LOAN COMMITMENT" means, as the context may require, the U.S.
Swing Line Loan Commitment or the Canadian Swing Line Loan Commitment.
"SWING LINE LOAN COMMITMENT AMOUNT" means, as the context may require, the
U.S. Swing Line Loan Commitment Amount or the Canadian Swing Line Loan
Commitment Amount.
"SWING LINE NOTE" means, as the context may require, a U.S. Swing Line Note
or a Canadian Swing Line Note.
"TAXES" is defined in SECTION 6.6.
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"TAX SHARING AGREEMENT" means the tax sharing agreement between the U.S.
Borrower and LHPG delivered pursuant to SECTION 7.1.23, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"TERM B LOANS" means, collectively, the Existing Term B Loans and the
Incremental Term B Loans.
"TERM B NOTE" means a promissory note of the U.S. Borrower payable to any
U.S. Lender, in the form of EXHIBIT A-3 hereto (as such promissory note may be
amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Indebtedness of the U.S. Borrower to such U.S. Lender resulting from
outstanding Term B Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"TERM C LOAN" means, collectively, the Existing Term C Loans and the
Incremental Term C Loans.
"TERM C NOTE" means a promissory note of the U.S. Borrower payable to any
U.S. Lender, in the form of EXHIBIT A-4 hereto (as such promissory note may be
amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Indebtedness of the U.S. Borrower to such U.S. Lender resulting from
outstanding Term C Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"TERM LOAN" means, as the context may require, a Term B Loan, Term C Loan
or a Canadian Term Loan.
"TERM LOAN COMMITMENT" means, as the context may require, the Incremental
Term B Loan Commitment, the Incremental Term C Loan Commitment or the Canadian
Term Loan Commitment.
"TERM LOAN COMMITMENT AMOUNT" means, as the context may require, the
Incremental Term B Loan Commitment Amount, the Incremental Term C Loan
Commitment Amount or the Canadian Term Loan Commitment.
"TERM LOAN COMMITMENT TERMINATION DATE" means, as the context may require,
the Incremental Term B Loan Commitment Termination Date, the Incremental Term C
Loan Commitment Termination Date or the Canadian Term Loan Commitment.
"TERM NOTE" means, as the context may require, a Term B Note, a Term C Note
or a Canadian Term Note.
"TOTAL ADJUSTED CAPITAL" means, on any date, an amount equal to the sum
(without duplication) of
(a) Total Debt on such date
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PLUS
(b) Adjusted Net Worth on such date.
"TOTAL DEBT" means, on any date, the outstanding principal amount of all
Indebtedness of the U.S. Borrower and its Subsidiaries of the type referred to
in CLAUSE (a), CLAUSE (b) (including the U.S. $ Equivalent amount (on such date
of determination) of the Letter of Credit Outstandings), CLAUSE (c) and CLAUSE
(f), in each case of the definition of "Indebtedness" (exclusive of intercompany
Indebtedness between the U.S. Borrower and any of its Subsidiaries or between
any Subsidiaries of the U.S. Borrower) and (without duplication) any Contingent
Liability in respect of any of the foregoing types of obligations of such Person
or any other Person.
"TOTAL EXPOSURE AMOUNT" means, on any date of determination, the
outstanding principal amount of all U.S. Loans, U.S. Letter of Credit
Outstandings, the U.S. $ Equivalent (measured on the date immediately preceding
such date of determination) of all Canadian Loans, the U.S. $ Equivalent
(measured on the date immediately preceding such date of determination) of all
Canadian Letter of Credit Outstandings and, without duplication, the unfunded
amount of both Revolving Loan Commitment Amounts.
"TRADEMARK SECURITY AGREEMENT" means any Trademark Security Agreement
executed and delivered by any Obligor substantially in the form of Exhibit B to
any Security Agreement, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"TYPE" means, relative to any Loan, the portion thereof, if any, being
maintained as a U.S. Base Rate Loan, a LIBO Rate Loan, a Canadian Prime Rate
Loan or a Canadian BA.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the State of New York.
"UNITED STATES" or "U.S." means the United States of America, its fifty
states and the District of Columbia.
"U.S. AGENT" is defined in the PREAMBLE.
"U.S. ALTERNATE BASE RATE" means, on any date relative to all U.S. Base
Rate Loans, a fluctuating rate of interest per annum equal to the higher of
(a) the rate of interest most recently established by the U.S. Agent
at its Domestic Office as its base rate for U.S. Dollar loans made in the
United States; and
(b) the U.S. Federal Funds Rate most recently determined by the U.S.
Agent PLUS 1/2 of 1%.
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The U.S. Alternate Base Rate is not necessarily intended to be the lowest rate
of interest determined by the U.S. Agent in connection with extensions of
credit. Changes in the rate of interest on that portion of any U.S. Loans
maintained as U.S. Base Rate Loans will take effect simultaneously with each
change in the U.S. Alternate Base Rate. The U.S. Agent will give notice
promptly to the U.S. Borrower and the U.S. Lenders of changes in the U.S.
Alternate Base Rate.
"U.S. BASE RATE LOAN" means a U.S. Loan bearing interest at a fluctuating
rate determined by reference to the U.S. Alternate Base Rate.
"U.S. BORROWER" is defined in the PREAMBLE.
"U.S. BORROWER GUARANTY" means the Guaranty, dated as of June 30, 1997,
executed and delivered by the U.S. Borrower, as amended, supplemented, amended
and restated or otherwise modified from time to time.
"U.S. BORROWER PLEDGE AGREEMENT" means the Pledge Agreement, dated as of
June 30, 1997, executed and delivered by the U.S. Borrower, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"U.S. BORROWER SECURITY AGREEMENT" means the Security Agreement, dated as
of June 30, 1997, executed and delivered by the U.S. Borrower, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"U.S. BORROWING REQUEST" means a Loan request and certificate duly executed
by an Authorized Officer of the U.S. Borrower, substantially in the form of
EXHIBIT B-1 hereto.
"U.S. COMMITMENT" is defined in SECTION 2.1.
"U.S. CONTINUATION/CONVERSION NOTICE" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the U.S.
Borrower, substantially in the form of EXHIBIT C-1 hereto.
"U.S. CREDIT EXTENSION" means, as the context may require,
(a) the making of a U.S. Term Loan or a U.S. Revolving Loan by a U.S.
Lender;
(b) the making of a U.S. Swing Line Loan by the U.S. Swing Line
Lender; or
(c) the issuance of a U.S. Letter of Credit, or the extension of the
Stated Expiry Date of a previously issued Letter of Credit, by a U.S.
Issuer.
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"U.S. $ EQUIVALENT" means the Exchange Equivalent in U.S. Dollars of any
amount of Canadian Dollars.
"U.S. FACILITY" is defined in ARTICLE II.
"U.S. FACILITY GUARANTOR" means each of Parent and each U.S. Subsidiary
Guarantor, in each case in its capacity as a Guarantor.
"U.S. FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York; or
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by the U.S. Agent from three federal funds brokers of recognized
standing selected by it.
"U.S. ISSUANCE REQUEST" means a Letter of Credit request and certificate
duly executed by an Authorized Officer of the U.S. Borrower, substantially in
the form of EXHIBIT B-3 hereto.
"U.S. ISSUER" means, collectively, Scotiabank (or any affiliate, unit or
agency thereof) in its individual capacity hereunder as issuer of any U.S.
Letters of Credit and such other U.S. Lender as may be designated by Scotiabank
(and agreed to by the U.S. Borrower and such U.S. Lender) in its individual
capacity as the issuer of any U.S. Letters of Credit.
"U.S. LENDER" is defined in the PREAMBLE.
"U.S. LETTER OF CREDIT" is defined in CLAUSE (a) OF SECTION 2.1.2.
"U.S. LETTER OF CREDIT COMMITMENT" means,
(a) relative to a U.S. Issuer, such U.S. Issuer's obligation to issue
U.S. Letters of Credit pursuant to SECTION 2.1.2; and
(b) relative to each U.S. RL Lender, its obligation to participate in
U.S. Letters of Credit pursuant to SECTION 4.1.1.
"U.S. LETTER OF CREDIT COMMITMENT AMOUNT" means, on any date, a maximum
amount of $35,000,000, as such amount may be reduced from time to time pursuant
to SECTION 2.2.
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"U.S. LETTER OF CREDIT OUTSTANDINGS" means, on any date, an amount equal to
the sum of
(a) the then aggregate amount which is undrawn and available under
all issued and outstanding U.S. Letters of Credit,
PLUS
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations in respect of such U.S. Letters of Credit.
"U.S. LOAN" means, as the context may require, a Term B Loan, a Term C
Loan, a U.S. Revolving Loan or a Swing Line Loan.
"U.S. NOTE" means, as the context may require, a U.S. Revolving Note, a
Term B Note, a Term C Note or a U.S. Swing Line Note.
"U.S. PENSION PLAN" means a "pension plan", as such term is defined in
Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the
U.S. Borrower or any corporation, trade or business that is, along with the U.S.
Borrower, a member of a Controlled Group, may have liability, including any
liability by reason of having been a substantial employer within the meaning of
Section 4063 of ERISA at any time during the preceding five years, or by reason
of being deemed to be a contributing sponsor under Section 4069 of ERISA.
"U.S. PERCENTAGE" means, relative to any U.S. Lender, the applicable
percentage relating to U.S. Revolving Loans, Term B Loans or Term C Loans, as
the case may be, as set forth opposite its name on SCHEDULE II hereto or set
forth in a Lender Assignment Agreement, as such percentage may be adjusted from
time to time (a) pursuant to Lender Assignment Agreement(s) executed by such
Lender and its Assignee Lender(s) and delivered pursuant to SECTION 12.11.1 or
(b) by a reallocation pursuant to SECTION 2.2.3.
"U.S. PERSON" means any Person who is a United States Person within the
meaning of Section 7701(a)(30) of the Code (or any applicable successor
provision).
"U.S. REGISTER" is defined in SECTION 2.6(b).
"U.S. REVOLVING LOAN" is defined in SECTION 2.1.1.
"U.S. REVOLVING LOAN COMMITMENT" means, relative to any U.S. RL Lender,
such U.S. RL Lender's obligation (if any) to make U.S. Revolving Loans pursuant
to CLAUSE (a) of SECTION 2.1.1.
"U.S. REVOLVING LOAN COMMITMENT AMOUNT" means, on any date, $112,000,000,
as such amount may be reduced or reallocated from time to time pursuant to
SECTION 2.2.
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"U.S. REVOLVING LOAN COMMITMENT TERMINATION DATE" means the earliest of
(a) June 30, 2003;
(b) the date on which the U.S. Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to SECTION 2.2 (other than
SECTION 2.2.3); and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in the preceding CLAUSE (b) or (c),
the U.S. Revolving Loan Commitments shall terminate automatically and without
any further action.
"U.S. REVOLVING NOTE" means a promissory note of the U.S. Borrower payable
to any U.S. RL Lender, substantially in the form of EXHIBIT A-1 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the U.S. Borrower to such U.S.
RL Lender resulting from outstanding U.S. Revolving Loans, and also means all
other promissory notes accepted from time to time in substitution therefor or
renewal thereof.
"U.S. RL LENDERS" means those U.S. Lenders with a Commitment to make U.S.
Revolving Loans.
"U.S. SUBSIDIARY" means any Subsidiary that is incorporated under the laws
of the United States or a state thereof.
"U.S. SUBSIDIARY GUARANTOR" means each U.S. Subsidiary which has executed
and delivered a U.S. Subsidiary Guaranty.
"U.S. SUBSIDIARY GUARANTY" means a Subsidiary Guaranty executed and
delivered by a U.S. Subsidiary Guarantor pursuant to the terms of this Agreement
(including CLAUSE (a) of SECTION 9.1.7), substantially in the form of Exhibit
F-4 to the Existing Credit Agreement, as amended, supplemented, amended and
restated or otherwise modified from time to time.
"U.S. SUBSIDIARY PLEDGE AGREEMENT" means any Pledge Agreement executed and
delivered by a U.S. Subsidiary pursuant to the terms of this Agreement
(including CLAUSE (a) of SECTION 9.1.7), substantially in the form of Exhibit
E-5 to the Existing Credit Agreement, as amended, supplemented, amended and
restated or otherwise modified from time to time.
"U.S. SUBSIDIARY SECURITY AGREEMENT" means any Security Agreement executed
and delivered by a U.S. Subsidiary pursuant to the terms of this Agreement
(including CLAUSE (a) of SECTION 9.1.7), substantially in the form of
Exhibit G-4 to the Existing Credit Agreement, as amended, supplemented, amended
and restated or otherwise modified from time to time.
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"U.S. SWING LINE LENDER" means, on the Effective Date, Scotiabank (or, at
any time thereafter, another U.S. RL Lender designated by Scotiabank with the
consent of the U.S. Borrower, if such U.S. RL Lender agrees to be the U.S. Swing
Line Lender hereunder), in such Person's capacity as the maker of U.S. Swing
Line Loans.
"U.S. SWING LINE LOAN" is defined in CLAUSE (b) of SECTION 2.1.1.
"U.S. SWING LINE LOAN COMMITMENT" is defined in CLAUSE (b) of SECTION
2.1.1.
"U.S. SWING LINE LOAN COMMITMENT AMOUNT" means, on any date, $15,000,000,
as such amount may be reduced from time to time pursuant to SECTION 2.2.
"U.S. SWING LINE NOTE" means a promissory note of the U.S. Borrower payable
to the U.S. Swing Line Lender, in the form of EXHIBIT A-5 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the U.S. Borrower to the U.S.
Swing Line Lender resulting from outstanding U.S. Swing Line Loans, and also
means all other promissory notes accepted from time to time in substitution
therefor or renewal thereof.
"VOTING STOCK" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"WELFARE PLAN" means a "WELFARE PLAN", as such term is defined in
section 3(1) of ERISA.
"WESTCAN PHARMACEUTICALS" means Westcan Pharmaceuticals Ltd., a Manitoba
corporation.
"WHOLLY-OWNED" means, with respect to any direct or indirect Subsidiary,
any Subsidiary all of the outstanding common stock (or similar equity interest)
of which (other than any director's qualifying shares or investments by foreign
nationals mandated by applicable laws) is owned directly or indirectly by a
Borrower.
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in each other Loan Document, the
Disclosure Schedule, or any Borrowing Request, Issuance Request, Continuation
/Conversion Notice, Compliance Certificate, notice or other communications
delivered from time to time in connection with this Agreement or any other Loan
Document.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such
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Article or Section of this Agreement or such other Loan Document, as the case
may be, and, unless otherwise specified, references in any Article, Section or
definition to any clause are references to such clause of such Article, Section
or definition.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS. (a) Unless
otherwise specified, all accounting terms used herein or in any other Loan
Document shall be interpreted, and all accounting determinations and
computations hereunder or thereunder (including under SECTION 9.2.4) shall be
made, in accordance with those generally accepted accounting principles ("GAAP")
applied in the preparation of the financial statements referred to in CLAUSE (a)
of SECTION 7.1.17; PROVIDED, HOWEVER, that all financial statements required to
be delivered hereunder or under any other Loan Document shall be prepared in
accordance with GAAP as in effect from time to time. Unless otherwise expressly
provided, all financial covenants and defined financial terms shall be computed
on a consolidated basis for the U.S. Borrower and its Subsidiaries, in each case
without duplication.
(b) If any changes in accounting principles from those used in the
preparation of the financial statements referred to in SECTION 8.5 hereafter
occur as a result of the promulgation of rules, regulations, pronouncements, or
opinions by the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants (or successors thereto or agencies with similar
functions) and such changes result in a change in the method of calculation of
financial covenants, standards or terms found in this Agreement, the Borrowers
and the Lenders agree to enter into negotiations in order to amend such
financial covenants, standards or terms so as to equitably reflect such changes
with the desired result that the evaluations of the U.S. Borrower's financial
condition shall be the same after such changes as if such changes had not been
made; PROVIDED, HOWEVER, that until the parties hereto have reached a definitive
agreement on such amendments, the U.S. Borrower's financial condition shall
continue to be evaluated on the same principles as those used in the preparation
of the financial statements referred to in SECTION 8.5.
ARTICLE II
U.S. COMMITMENTS AND BORROWING
SECTION 2.1. U.S. COMMITMENTS. On the terms and subject to the
conditions of this Agreement (including SECTIONS 2.1.4, 2.1.5 and ARTICLE VII),
(a) each U.S. Lender severally agrees to make U.S. Loans (other than
U.S. Swing Line Loans) pursuant to the U.S. Commitments and the U.S. Swing
Line Lender agrees to make U.S. Swing Line Loans pursuant to the U.S. Swing
Line Loan Commitment, in each case as described in this SECTION 2.1; and
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(b) each U.S. Issuer severally agrees that it will issue U.S. Letters
of Credit pursuant to SECTION 2.1.2, and each U.S. RL Lender severally
agrees that it will purchase participation interests in such U.S. Letters
of Credit pursuant to SECTION 4.1.1.
Such agreements of each U.S. Lender are referred to collectively as its "U.S.
COMMITMENT", and all U.S. Commitments of U.S. Lenders are referred to
collectively as the "U.S. FACILITY".
SECTION 2.1.1. U.S. REVOLVING LOAN COMMITMENT AND U.S. SWING LINE LOAN
COMMITMENT. (a) From time to time on any Business Day occurring prior to the
U.S. Revolving Loan Commitment Termination Date, each U.S. RL Lender will make
loans (relative to such Lender, its "U.S. REVOLVING LOANS") to the U.S. Borrower
equal to such U.S. RL Lender's U.S. Percentage of the aggregate amount of each
Borrowing of the U.S. Revolving Loans requested by the U.S. Borrower to be made
on such day. The Commitment of each such U.S. RL Lender described in this
SECTION 2.1.1 is herein referred to as its "U.S. REVOLVING LOAN COMMITMENT". On
the terms and subject to the conditions hereof, the U.S. Borrower may from time
to time borrow, prepay and reborrow the U.S. Revolving Loans.
(b) From time to time on any Business Day occurring prior to the U.S.
Revolving Loan Commitment Termination Date, the U.S. Swing Line Lender will make
loans (relative to the U.S. Swing Line Lender, its "U.S. SWING LINE LOANS") to
the U.S. Borrower equal to the principal amount of the U.S. Swing Line Loans
requested by the U.S. Borrower to be made on such day. The Commitment of the
U.S. Swing Line Lender described in this CLAUSE (b) is herein referred to as its
"U.S. SWING LINE LOAN COMMITMENT". On the terms and subject to the conditions
hereof, the U.S. Borrower may from time to time borrow, prepay and reborrow U.S.
Swing Line Loans.
SECTION 2.1.2. U.S. LETTER OF CREDIT COMMITMENT. From time to time on
any Business Day occurring prior to the U.S. Revolving Loan Commitment
Termination Date, the applicable U.S. Issuer will
(a) issue one or more standby or documentary letters of credit
(relative to such U.S. Issuer, its "U.S. LETTER OF CREDIT") for the account
of the U.S. Borrower (which may be for the benefit of a U.S. Subsidiary
that has delivered a Subsidiary Guaranty) in the Stated Amount requested by
the U.S. Borrower on such day; or
(b) extend the Stated Expiry Date of an existing standby U.S. Letter
of Credit previously issued hereunder to a date not later than the earlier
of (x) the then scheduled U.S. Revolving Loan Commitment Termination Date
and (y) two years from the date of such extension.
SECTION 2.1.3. U.S. TERM LOAN COMMITMENT. In a single Borrowing
occurring on the Closing Date, each U.S. Lender that has an Incremental Term B
Loan Commitment or an Incremental Term C Loan Commitment, as applicable,
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(a) will make loans (relative to such U.S. Lender, its "INCREMENTAL
TERM B LOANS") to the U.S. Borrower equal to such U.S. Lender's U.S.
Percentage of the aggregate amount of the Borrowing of Incremental Term B
Loans requested by the U.S. Borrower to be made on such day (with the
commitment of each such U.S. Lender described in this CLAUSE (a) herein
referred to as its "INCREMENTAL TERM B LOAN COMMITMENT"); and
(b) will make loans (relative to such U.S. Lender, its "INCREMENTAL
TERM C LOANS") to the U.S. Borrower equal to such U.S. Lender's U.S.
Percentage of the aggregate amount of the U.S. Borrowing of Incremental
Term C Loans requested by the U.S. Borrower to be made on such day (with
the commitment of each such U.S. Lender described in this CLAUSE (b) herein
referred to as its "INCREMENTAL TERM C LOAN COMMITMENT").
No amounts paid or prepaid with respect to Term B Loans or Term C Loans may be
reborrowed.
SECTION 2.1.4. U.S. LENDERS NOT PERMITTED OR REQUIRED TO MAKE LOANS. No
U.S. Lender shall be permitted or required to make any U.S. Loan if, after
giving effect thereto, the aggregate outstanding principal amount of
(a) all U.S. Revolving Loans
(i) of all U.S. RL Lenders and the outstanding principal amount
of all U.S. Swing Line Loans, together with the aggregate amount of
all U.S. Letter of Credit Outstandings, would exceed the then existing
U.S. Revolving Loan Commitment Amount; or
(ii) of such U.S. RL Lender, together with such U.S. RL Lender's
U.S. Percentage of the aggregate amount of all U.S. Letter of Credit
Outstandings and such U.S. RL Lender's U.S. Percentage of the
outstanding principal amount of all U.S. Swing Line Loans, would
exceed such U.S. RL Lender's U.S. Percentage of the then existing U.S.
Revolving Loan Commitment Amount;
(b) all Incremental Term B Loans or Incremental Term C Loans, as the
case may be,
(i) of all U.S. Lenders would exceed the Incremental Term B Loan
Commitment Amount (in the case of Incremental Term B Loans) or the
Incremental Term C Loan Commitment Amount (in the case of Incremental
Term C Loans); or
(ii) of such U.S. Lender with an Incremental Term B Loan
Commitment or an Incremental Term C Loan Commitment, as the case may
be, would exceed such U.S. Lender's U.S. Percentage of the Incremental
Term B Loan
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Commitment Amount (in the case of Incremental Term B Loans) or the
Incremental Term C Loan Commitment Amount (in the case of Incremental
Term C Loans); or
(c) (i) all U.S. Swing Line Loans would exceed the then existing U.S.
Swing Line Loan Commitment Amount; or (ii) unless otherwise agreed to by
the U.S. Swing Line Lender, in its sole discretion, the sum of all U.S.
Swing Line Loans and U.S. Revolving Loans made by the U.S. Swing Line
Lender plus the U.S. Swing Line Lender's U.S. Percentage multiplied by the
aggregate amount of U.S. Letter of Credit Outstandings would exceed the
amount determined by multiplying the U.S. Swing Line Lender's U.S.
Percentage by the then existing U.S. Revolving Loan Commitment Amount.
SECTION 2.1.5. U.S. ISSUER NOT PERMITTED OR REQUIRED TO ISSUE U.S.
LETTERS OF CREDIT. No U.S. Issuer shall be permitted or required to issue any
U.S. Letter of Credit if, after giving effect thereto, (a) the aggregate amount
of all U.S. Letter of Credit Outstandings would exceed the U.S. Letter of Credit
Commitment Amount or (b) the sum of the aggregate amount of all U.S. Letter of
Credit Outstandings plus the aggregate principal amount of all U.S.
Revolving Loans and U.S. Swing Line Loans then outstanding would exceed the U.S.
Revolving Loan Commitment Amount.
SECTION 2.2. REDUCTION OF THE U.S. COMMITMENT AMOUNTS; REALLOCATION. The
U.S. Commitment Amounts are subject to reduction from time to time pursuant to
SECTIONS 2.2.1 and 2.2.2, and to reallocation from time to time pursuant to
SECTION 2.2.3.
SECTION 2.2.1. OPTIONAL. The U.S. Borrower may, from time to time on any
Business Day occurring after the Effective Date, voluntarily reduce the amount
of the U.S. Revolving Loan Commitment Amount, the U.S. Swing Line Loan
Commitment Amount or the U.S. Letter of Credit Commitment Amount on the Business
Day so specified by the U.S. Borrower; PROVIDED, HOWEVER, that all such
reductions shall require at least one Business Day's prior notice to the U.S.
Agent and be permanent, and any partial reduction of any U.S. Commitment Amount
shall be in a minimum amount of $1,000,000 and in an integral multiple of
$500,000. Any reduction of the U.S. Revolving Loan Commitment Amount which
reduces the U.S. Revolving Loan Commitment Amount below the then current amount
of the U.S. Letter of Credit Commitment Amount or the U.S. Swing Line Loan
Commitment Amount, as the case may be, shall result in an automatic and
corresponding reduction of the U.S. Letter of Credit Commitment Amount or the
U.S. Swing Line Loan Commitment Amount, as the case may be, to the amount of the
U.S. Revolving Loan Commitment Amount, as so reduced, without any further action
on the part of any U.S. Lender, any U.S. Issuer or the U.S. Swing Line Lender,
as the case may be.
SECTION 2.2.2. MANDATORY. The U.S. Revolving Loan Commitment Amount
shall be reduced as set forth below.
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(a) Following the prepayment of the Term Loans in full, the U.S.
Revolving Loan Commitment Amount shall, without any further action,
automatically and permanently be reduced concurrently with the receipt of
any Net Disposition Proceeds received by the U.S. Borrower or its U.S.
Subsidiaries, in an amount equal to 100% of such Net Disposition Proceeds;
PROVIDED, HOWEVER, that Net Disposition Proceeds attributable to
dispositions by non-U.S. Subsidiaries shall not be deemed "received" for
purposes of this clause until such time as such Net Disposition Proceeds
would have been required to be applied to repay Term Loans (determined as
if any Term Loans were still outstanding) pursuant to CLAUSE (c) of SECTION
5.1.1; and PROVIDED, FURTHER, that the U.S. Borrower shall comply with its
obligation to repatriate such Net Disposition Proceeds as promptly as
possible in accordance with CLAUSE (c) of SECTION 5.1.1.
(b) The U.S. Revolving Loan Commitment Amount shall be reduced on
each Business Day on which a Permitted Receivables Transaction is
consummated in an amount equal to the Receivables Proceeds.
Notwithstanding the foregoing, in no event shall the U.S. Revolving Loan
Commitment Amount be reduced as a result of CLAUSE (a) of this Section to less
than $50,000,000.
SECTION 2.2.3. REALLOCATION. At any time after the first anniversary of
the Effective Date and prior to the U.S. Revolving Loan Commitment Termination
Date, the Borrowers may, periodically after at least twelve months have elapsed
since the most recent reallocation made pursuant to this SECTION 2.2.3 or
SECTION 3.2.2, upon five Business Days' prior irrevocable written notice
delivered to the Agents, elect to reallocate the U.S. $ Equivalent of the then
unused Canadian Revolving Loan Commitment Amount to the U.S. Revolving Loan
Commitment Amount; PROVIDED, HOWEVER, that the U.S. Revolving Loan Commitment
Amount shall not at any time exceed $125,000,000 (or such lesser amount if the
U.S. Revolving Loan Commitment Amount has been permanently reduced in accordance
with SECTIONS 2.2.1 or 2.2.2) as a result of such reallocation. Any such
reallocation will automatically reduce the Canadian Revolving Loan Commitment
Amount by a corresponding amount and, upon the effectiveness of such
reallocation, the U.S. Percentages relating to U.S. Revolving Loans of the Dual
Lenders shall be increased, and the U.S. Percentages of the U.S. RL Lenders that
are not Dual Lenders shall be decreased, as set forth in the next two sentences
to the extent necessary to reflect the Dual Lenders' commitment to make U.S.
Revolving Loans in the increased amount so reallocated to the U.S. Revolving
Loan Commitment Amount, it being the intent of the parties hereto that the U.S.
Revolving Loan Commitment of U.S. RL Lenders that are not Dual Lenders shall not
be increased above that which was in effect immediately prior to giving effect
to such reallocation. The U.S. Percentage of the U.S. Revolving Loan Commitment
Amount of a U.S. RL Lender that is not a Dual Lender shall equal the maximum
principal amount of U.S. Revolving Loans that such U.S. RL Lender would be
required to make immediately prior to giving effect to a reallocation pursuant
to this Section DIVIDED by the U.S. Revolving Loan Commitment Amount immediately
after giving effect to the increase in the U.S. Revolving Loan Commitment Amount
resulting from such reallocation. The U.S. Percentage of the U.S. Revolving
Loan Commitment
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Amount of a U.S. RL Lender that is a Dual Lender shall equal the quotient of (a)
the sum of (i) the maximum principal amount of U.S. Revolving Loans that such
Dual Lender would be required to make immediately prior to giving effect to a
reallocation pursuant to this Section PLUS (ii) the product of (x) such Dual
Lender's Canadian Percentage to make Canadian Revolving Loans MULTIPLIED by (y)
the U.S. $ Equivalent of the Canadian Revolving Loan Commitment Amount
reallocated pursuant to this Section, DIVIDED by (b) the U.S. Revolving Loan
Commitment Amount immediately after giving effect to the increase in the U.S.
Revolving Loan Commitment Amount resulting from such reallocation. If the U.S.
Revolving Loan Commitment Amount is reduced as a result of a reallocation that
increases the Canadian Revolving Loan Commitment Amount pursuant to SECTION
3.2.2, then the U.S. Percentages of the U.S. RL Lenders that are not Dual
Lenders shall be increased and the U.S. Percentages of the Dual Lenders shall be
decreased based upon the foregoing principles (it being understood that the
Commitment Amounts of the U.S. RL Lenders that are not Dual Lenders shall not be
changed as a result of such reallocation). Upon (and as a condition to) a
reallocation pursuant to this Section which increases the U.S. Revolving Loan
Commitment Amount, the U.S. Borrower shall execute and deliver to each of the
Dual Lenders a new U.S. Revolving Note to reflect the increased U.S. Revolving
Loan Commitment of such Dual Lender. The U.S. Agent shall distribute to the
Borrowers and the Lenders the modified Percentages in effect after giving effect
to a reallocation pursuant to this Section.
SECTION 2.3. BORROWING PROCEDURES. U.S. Loans (other than U.S. Swing
Line Loans) shall be made by the U.S. Lenders in accordance with SECTION 2.3.1,
and U.S. Swing Line Loans shall be made by the U.S. Swing Line Lender in
accordance with SECTION 2.3.2.
SECTION 2.3.1. BORROWINGS OF OTHER THAN U.S. SWING LINE LOANS. In the
case of other than U.S. Swing Line Loans, by delivering a Borrowing Request to
the U.S. Agent on or before 1:00 p.m. (local time) on a Business Day, the U.S.
Borrower may from time to time irrevocably request, on not less than one
Business Day's notice in the case of U.S. Base Rate Loans, or three Business
Days' notice in the case of LIBO Rate Loans, and in either case not more than
five Business Days' notice, that a Borrowing be made, in the case of LIBO Rate
Loans, in a minimum amount of $1,000,000 and an integral multiple of $1,000,000,
in the case of U.S. Base Rate Loans, in a minimum amount of $1,000,000 and an
integral multiple of $250,000 or, in either case, in the unused amount of the
applicable U.S. Commitment; PROVIDED, HOWEVER, that all initial U.S. Loans shall
be made as LIBO Rate Loans. On the terms and subject to the conditions of this
Agreement, each Borrowing shall be comprised of the type of U.S. Loans, and
shall be made on the Business Day, specified in such Borrowing Request. In the
case of other than U.S. Swing Line Loans, on or before 11:00 a.m. (local time)
on such Business Day, each U.S. Lender that has a U.S. Commitment to make the
U.S. Loans being requested shall deposit with the U.S. Agent same day funds in
an amount equal to such U.S. Lender's U.S. Percentage of the requested
Borrowing. Such deposit will be made to an account which the U.S. Agent shall
specify from time to time by notice to the U.S. Lenders. To the extent funds
are received from the U.S. Lenders, the U.S. Agent shall make such funds
available to the U.S. Borrower by wire transfer to the accounts the U.S.
Borrower shall have specified in its Borrowing Request. No
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U.S. Lender's obligation to make any U.S. Loan shall be affected by any other
U.S. Lender's failure to make any U.S. Loan.
SECTION 2.3.2. U.S. SWING LINE LOANS. (a) By telephonic notice, promptly
followed (within one Business Day) by the delivery of a confirming Borrowing
Request, to the U.S. Swing Line Lender on or before 1:00 p.m. (local time) on
the Business Day the proposed U.S. Swing Line Loan is to be made, the U.S.
Borrower may from time to time irrevocably request that U.S. Swing Line Loans be
made by the U.S. Swing Line Lender in an aggregate minimum principal amount of
$200,000 and an integral multiple of $100,000. All U.S. Swing Line Loans shall
be made as U.S. Base Rate Loans and shall not be entitled to be converted into
LIBO Rate Loans. The proceeds of each U.S. Swing Line Loan shall be made
available by the U.S. Swing Line Lender, by its close of business on the
Business Day telephonic notice is received by it as provided in this CLAUSE (a),
to the U.S. Borrower by wire transfer to the account the U.S. Borrower shall
have specified in its notice therefor.
(b) If
(i) any U.S. Swing Line Loan shall be outstanding for more than four
Business Days;
(ii) any U.S. Swing Line Loan is or will be outstanding on a date when
the U.S. Borrower requests that a U.S. Revolving Loan be made; or
(iii) any Default shall occur and be continuing,
each U.S. RL Lender (other than the U.S. Swing Line Lender) irrevocably agrees
that it will, at the request of the U.S. Swing Line Lender, make a U.S.
Revolving Loan (which shall initially be funded as a LIBO Rate Loan) in an
amount equal to such U.S. RL Lender's U.S. Percentage of the aggregate principal
amount of all such U.S. Swing Line Loans then outstanding (such outstanding U.S.
Swing Line Loans hereinafter referred to as the "REFUNDED U.S. SWING LINE
LOANS"). On or before 11:00 a.m. (local time) on the first Business Day
following receipt by each U.S. RL Lender of a request to make U.S. Revolving
Loans as provided in the preceding sentence, each such U.S. RL Lender shall
deposit in an account specified by the U.S. Swing Line Lender the amount so
requested in same day funds and such funds shall be applied by the U.S. Swing
Line Lender to repay the Refunded U.S. Swing Line Loans. At the time the
aforementioned U.S. RL Lenders make the above referenced U.S. Revolving Loans,
the U.S. Swing Line Lender shall be deemed to have made, in consideration of the
making of the Refunded U.S. Swing Line Loans, U.S. Revolving Loans in an amount
equal to the U.S. Swing Line Lender's U.S. Percentage of the aggregate principal
amount of the Refunded U.S. Swing Line Loans. Upon the making (or deemed
making, in the case of the U.S. Swing Line Lender) of any U.S. Revolving Loans
pursuant to this CLAUSE (b), the amount so funded shall become outstanding under
such U.S. RL Lender's U.S. Revolving Note and shall no longer be owed under the
U.S. Swing Line Note. All interest payable with respect to any U.S. Revolving
Loans
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made (or deemed made, in the case of the U.S. Swing Line Lender) pursuant to
this CLAUSE (b) shall be appropriately adjusted to reflect the period of time
during which the U.S. Swing Line Lender had outstanding U.S. Swing Line Loans in
respect of which such U.S. Revolving Loans were made. Each U.S. RL Lender's
obligation to make the U.S. Revolving Loans referred to in this CLAUSE (b) shall
be absolute and unconditional and shall not be affected by any circumstance,
including (i) any set-off, counterclaim, recoupment, defense or other right
which such U.S. RL Lender may have against the U.S. Swing Line Lender, the U.S.
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default; (iii) any adverse change in the condition (financial
or otherwise) of the U.S. Borrower; (iv) the acceleration or maturity of any
U.S. Loans or the termination of any U.S. Commitment after the making of any
U.S. Swing Line Loan; (v) any breach of this Agreement or any other Loan
Document by the U.S. Borrower or any U.S. RL Lender; or (vi) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
SECTION 2.4. CONTINUATION AND CONVERSION ELECTIONS. By delivering a
Continuation/Conversion Notice to the U.S. Agent on or before 1:00 p.m. (local
time) on a Business Day, the U.S. Borrower may from time to time irrevocably
elect, on not less than one Business Day's notice in the case of U.S. Base Rate
Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in
either case not more than five Business Days' notice, that all, or any portion
in an aggregate minimum amount of $1,000,000 and an integral multiple of
$1,000,000, in the case of LIBO Rate Loans, or an aggregate minimum amount of
$1,000,000 and an integral multiple of $250,000, in the case of U.S. Base Rate
Loans, be, in the case of U.S. Base Rate Loans, converted into LIBO Rate Loans
or be, in the case of LIBO Rate Loans, converted into U.S. Base Rate Loans or
continued as LIBO Rate Loans (in the absence of delivery of a Continuation/
Conversion Notice with respect to any LIBO Rate Loan at least three Business
Days (but not more than five Business Days) before the last day of the then
current Interest Period with respect thereto, such LIBO Rate Loan shall, on such
last day, automatically convert to a U.S. Base Rate Loan); PROVIDED, HOWEVER,
that (x) each such conversion or continuation shall be pro rated among the
applicable outstanding U.S. Loans of all U.S. Lenders that have made such U.S.
Loans, and (y) no portion of the outstanding principal amount of any U.S. Loans
may be continued as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing.
SECTION 2.5. FUNDING. Each U.S. Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such U.S. Lender) to make or maintain such LIBO Rate Loan; PROVIDED,
HOWEVER, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such U.S. Lender, and the obligation of the U.S. Borrower to
repay such LIBO Rate Loan shall nevertheless be to such U.S. Lender for the
account of such foreign branch, Affiliate or international banking facility; and
PROVIDED, FURTHER, HOWEVER, that such U.S. Lender shall cause such foreign
branch, Affiliate or international banking facility to comply with the
applicable provisions of CLAUSE (b) of SECTION 6.6 with respect to such LIBO
Rate Loan. In addition, the U.S. Borrower hereby consents and agrees that,
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for purposes of any determination to be made for purposes of SECTION 6.1, 6.2,
6.3 or 6.4, it shall be conclusively assumed that each U.S. Lender elected to
fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's
interbank eurodollar market.
SECTION 2.6. U.S. REGISTER; U.S. NOTES.
(a) Each U.S. Lender may maintain in accordance with its usual
practice an account or accounts evidencing the Indebtedness of the U.S.
Borrower to such U.S. Lender resulting from each U.S. Loan made by such
U.S. Lender, including the amounts of principal and interest payable and
paid to such U.S. Lender from time to time hereunder. In the case of a
U.S. Lender that does not request, pursuant to PARAGRAPH (b)(ii) below,
execution and delivery of a Note evidencing the U.S. Loans made by such
U.S. Lender to the U.S. Borrower, such account or accounts shall, to the
extent not inconsistent with the notations made by the U.S. Agent in the
U.S. Register, be conclusive and binding on the U.S. Borrower absent
manifest error; PROVIDED, HOWEVER, that the failure of any U.S. Lender to
maintain such account or accounts shall not limit or otherwise affect any
Obligations of the U.S. Borrower or any other Obligor.
(b)(i) The U.S. Borrower hereby designates the U.S. Agent to serve as
the U.S. Borrower's agent, solely for the purpose of this CLAUSE (b), to
maintain a register (the "U.S. REGISTER") on which the U.S. Agent will
record each U.S. Lender's U.S. Commitment, the U.S. Loans made by each U.S.
Lender and each repayment in respect of the principal amount of the U.S.
Loans of each U.S. Lender and annexed to which the U.S. Agent shall retain
a copy of each Lender Assignment Agreement delivered to the U.S. Agent
pursuant to SECTION 12.11.1. Failure to make any recordation, or any error
in such recordation, shall not affect the U.S. Borrower's obligation in
respect of such U.S. Loans. The entries in the U.S. Register shall be
conclusive, in the absence of manifest error, and the U.S. Borrower, the
U.S. Agent and the U.S. Lenders shall treat each Person in whose name a
U.S. Loan (and as provided in CLAUSE (ii) the Note evidencing such U.S.
Loan, if any) is registered as the owner thereof for all purposes of this
Agreement, notwithstanding notice or any provision herein to the contrary.
A U.S. Lender's U.S. Commitment and the U.S. Loans made pursuant thereto
may be assigned or otherwise transferred in whole or in part only by
registration of such assignment or transfer in the U.S. Register. Any
assignment or transfer of a U.S. Lender's U.S. Commitment or the U.S. Loans
made pursuant thereto shall be registered in the U.S. Register only upon
delivery to the U.S. Agent of a Lender Assignment Agreement duly executed
by the assignor thereof. No assignment or transfer of a U.S. Lender's U.S.
Commitment or the U.S. Loans made pursuant thereto shall be effective
unless such assignment or transfer shall have been recorded in the U.S.
Register by the U.S. Agent as provided in this Section.
(ii) The U.S. Borrower agrees that, upon the request to the U.S.
Agent by any U.S. Lender, the U.S. Borrower will execute and deliver to
such U.S. Lender, as
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applicable, a U.S. Revolving Note, a Term B Note and a Term C Note
evidencing the U.S. Loans made by such U.S. Lender. The U.S. Borrower
hereby irrevocably authorizes each U.S. Lender to make (or cause to be
made) appropriate notations on the grid attached to such U.S. Lender's Note
(or on any continuation of such grid), which notations, if made, shall
evidence, INTER ALIA, the date of, the outstanding principal of, and the
interest rate and Interest Period applicable to the U.S. Loans evidenced
thereby. Such notations shall, to the extent not inconsistent with the
notations made by the U.S. Agent in the U.S. Register, be conclusive and
binding on the U.S. Borrower absent manifest error; PROVIDED, HOWEVER, that
the failure of any U.S. Lender to make any such notations shall not limit
or otherwise affect any Obligations of the U.S. Borrower or any other
Obligor. The Loans evidenced by any such Note and interest thereon shall at
all times (including after assignment pursuant to SECTION 12.11.1) be
represented by one or more Notes payable to the order of the payee named
therein and its registered assigns. A Note and the obligation evidenced
thereby may be assigned or otherwise transferred in whole or in part only
by registration of such assignment or transfer of such Note and the
obligation evidenced thereby in the U.S. Register (and each Note shall
expressly so provide). Any assignment or transfer of all or part of an
obligation evidenced by a Note shall be registered in the U.S. Register
only upon surrender for registration of assignment or transfer of the Note
evidencing such obligation, accompanied by a Lender Assignment Agreement
duly executed by the assignor thereof, and thereupon, if requested by the
assignee, one or more new Notes shall be issued to the designated assignee
and the old Note shall be returned by the U.S. Agent to the Borrower marked
"exchanged". No assignment of a Note and the obligation evidenced thereby
shall be effective unless it shall have been recorded in the U.S. Register
by the U.S. Agent as provided in this Section.
ARTICLE III
CANADIAN COMMITMENTS, BORROWING AND CANADIAN BAs
SECTION 3.1. CANADIAN COMMITMENTS. On the terms and subject to the
conditions of this Agreement (including SECTIONS 3.1.3, 3.1.4 and ARTICLE VII),
(a) each Canadian Lender severally agrees to make Canadian Loans
(other than Canadian Swing Line Loans) pursuant to the Canadian Commitments
and the Canadian Swing Line Lender agrees to make Canadian Swing Line Loans
pursuant to the Canadian Swing Line Loan Commitment, in each case as
described in this SECTION 3.1, and each Canadian Lender agrees to accept
Canadian BAs in accordance with SECTION 3.5; and
(b) each Canadian Issuer severally agrees that it will issue Canadian
Letters of Credit pursuant to SECTION 3.1.2, and each Canadian RL Lender
severally agrees that it will purchase participation interests in such
Canadian Letters of Credit pursuant to SECTION 4.1.1.
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Such agreements of each Canadian Lender are referred to collectively as its
"CANADIAN COMMITMENT", and all Canadian Commitments of Canadian Lenders are
referred to collectively as the "CANADIAN FACILITY".
SECTION 3.1.1. CANADIAN REVOLVING LOAN COMMITMENT AND CANADIAN SWING
LINE LOAN COMMITMENT. (a) From time to time on any Business Day occurring prior
to the Canadian Revolving Loan Commitment Termination Date, each Canadian RL
Lender will make revolving loans to or accept Canadian BAs of (relative to such
Lender, its "CANADIAN REVOLVING LOANS") the Canadian Borrower equal to such
Canadian RL Lender's Canadian Percentage of the aggregate amount of each
Borrowing of the Canadian Revolving Loans requested by the Canadian Borrower to
be made on such day. The Commitment of each such Canadian RL Lender described
in this SECTION 3.1.1 is herein referred to as its "CANADIAN REVOLVING LOAN
COMMITMENT". On the terms and subject to the conditions hereof, the Canadian
Borrower may from time to time borrow, prepay and reborrow the Canadian
Revolving Loans.
(b) From time to time on any Business Day occurring prior to the Canadian
Revolving Loan Commitment Termination Date, the Canadian Swing Line Lender will
make loans (relative to the Canadian Swing Line Lender, its "CANADIAN SWING LINE
LOANS") to the Canadian Borrower equal to the principal amount of the Canadian
Swing Line Loans requested by the Canadian Borrower to be made on such day. The
Commitment of the Canadian Swing Line Lender described in this CLAUSE (b) is
herein referred to as its "CANADIAN SWING LINE LOAN COMMITMENT". On the terms
and subject to the conditions hereof, the Canadian Borrower may from time to
time borrow, prepay and reborrow Canadian Swing Line Loans.
SECTION 3.1.2. CANADIAN LETTER OF CREDIT COMMITMENT. From time to time
on any Business Day occurring prior to the Canadian Revolving Loan Commitment
Termination Date, the applicable Canadian Issuer will
(a) issue one or more standby or documentary letters of credit
(relative to such Canadian Issuer, its "CANADIAN LETTER OF CREDIT") for the
account of the Canadian Borrower (which may be for the benefit of a
Canadian Subsidiary that has delivered a Subsidiary Guaranty) in the Stated
Amount requested by the Canadian Borrower on such day; or
(b) extend the Stated Expiry Date of an existing standby Canadian
Letter of Credit previously issued hereunder to a date not later than the
earlier of (x) the Canadian Revolving Loan Commitment Termination Date and
(y) two years from the date of such extension.
SECTION 3.1.3. CANADIAN TERM LOAN COMMITMENT. Subject to compliance by
the Canadian Borrower with the terms of SECTION 3.1.4, 7.1 and 7.2, in a single
Borrowing occurring on the Closing Date, each Canadian Lender that has a
Canadian Term Loan Commitment will
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make loans to or accept Canadian BAs from (relative to such Canadian Lender, its
"CANADIAN TERM LOANS") the Canadian Borrower equal to such Canadian Lender's
Canadian Percentage of the aggregate amount of the Borrowing of Canadian Term
Loans requested by the Canadian Borrower to be made on such day (with the
commitment of each such Canadian Lender described in this SECTION 3.1.3 herein
referred to as its "CANADIAN TERM LOAN COMMITMENT"). No amounts paid or prepaid
with respect to Canadian Term Loans may be reborrowed.
SECTION 3.1.4. CANADIAN LENDERS NOT PERMITTED OR REQUIRED TO MAKE LOANS.
No Canadian Lender shall be permitted or required to make any Canadian Loan if,
after giving effect thereto, the aggregate outstanding principal amount of
(a) all Canadian Revolving Loans
(i) of all Canadian RL Lenders and the outstanding principal amount
of all Canadian Swing Line Loans, together with the aggregate amount of all
Canadian Letter of Credit Outstandings, would exceed the then existing
Canadian Revolving Loan Commitment Amount; or
(ii) of such Canadian RL Lender, together with such Canadian RL
Lender's Canadian Percentage of the aggregate amount of all Canadian Letter
of Credit Outstandings and such Canadian RL Lender's Canadian Percentage of
the outstanding principal amount of all Canadian Swing Line Loans, would
exceed such Canadian RL Lender's Canadian Percentage of the then existing
Canadian Revolving Loan Commitment Amount;
(b) all Canadian Term Loans
(i) of all Canadian Lenders would exceed the Canadian Term Loan
Commitment Amount; or
(ii) of such Canadian Lender with a Canadian Term Loan Commitment
would exceed such Canadian Lender's Canadian Percentage of the Canadian
Term Loan Commitment Amount; or
(c) (i) all Canadian Swing Line Loans would exceed the then existing
Canadian Swing Line Loan Commitment Amount; or (ii) unless otherwise
agreed to by the Canadian Swing Line Lender, in its sole discretion, the
sum of all Canadian Swing Line Loans and Canadian Revolving Loans made by
the Canadian Swing Line Lender plus the Canadian Swing Line Lender's
Canadian Percentage multiplied by the aggregate amount of Canadian Letter
of Credit Outstandings would exceed the amount determined by multiplying
the Canadian Swing Line Lender's Canadian Percentage by the then existing
Canadian Revolving Loan Commitment Amount.
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SECTION 3.1.5. CANADIAN ISSUER NOT PERMITTED OR REQUIRED TO ISSUE
CANADIAN LETTERS OF CREDIT. No Canadian Issuer shall be permitted or required
to issue any Canadian Letter of Credit if, after giving effect thereto, (a) the
aggregate amount of all Canadian Letter of Credit Outstandings would exceed the
Canadian Letter of Credit Commitment Amount or (b) the sum of the aggregate
amount of all Canadian Letter of Credit Outstandings plus the aggregate
principal amount of all Canadian Revolving Loans and Canadian Swing Line Loans
then outstanding would exceed the Canadian Revolving Loan Commitment Amount.
SECTION 3.2. REDUCTION OF THE CANADIAN COMMITMENT AMOUNTS; REALLOCATION.
The Canadian Commitment Amounts are subject to reduction from time to time
pursuant to SECTION 3.2.1, and to reallocation from time to time pursuant to
SECTION 3.2.2.
SECTION 3.2.1. OPTIONAL. The Canadian Borrower may, from time to time
on any Business Day occurring after the Effective Date, voluntarily reduce the
amount of the Canadian Revolving Loan Commitment Amount, the Canadian Swing Line
Loan Commitment Amount or the Canadian Letter of Credit Commitment Amount on the
Business Day so specified by the Canadian Borrower; PROVIDED, HOWEVER, that all
such reductions shall require at least one Business Day's prior notice to the
Canadian Agent and be permanent, and any partial reduction of any Canadian
Commitment Amount shall be in a minimum amount of Cdn $1,000,000 and in an
integral multiple of Cdn $500,000. Any reduction of the Canadian Revolving Loan
Commitment Amount which reduces the Canadian Revolving Loan Commitment Amount
below the then current amount of the Canadian Letter of Credit Commitment Amount
or the Canadian Swing Line Loan Commitment Amount, as the case may be, shall
result in an automatic and corresponding reduction of the Canadian Letter of
Credit Commitment Amount or the Canadian Swing Line Loan Commitment Amount, as
the case may be, to the amount of the Canadian Revolving Loan Commitment Amount,
as so reduced, without any further action on the part of any Canadian Lender,
any Canadian Issuer or the Canadian Swing Line Lender, as the case may be.
SECTION 3.2.2. REALLOCATION. At any time after the first anniversary of
the Effective Date and prior to the Canadian Revolving Loan Commitment
Termination Date, the Borrowers may, periodically after at least twelve months
have elapsed since the most recent reallocation made pursuant to this SECTION
3.2.2 or SECTION 2.2.3, upon five Business Days' prior irrevocable written
notice delivered to the Agents, elect to reallocate the Cdn $ Equivalent of the
unused U.S. Revolving Loan Commitment Amount to the Canadian Revolving Loan
Commitment Amount of the Dual Lenders; PROVIDED, HOWEVER, that the Canadian
Revolving Loan Commitment Amount shall not at any time exceed the Cdn $
Equivalent of $20,000,000 (or such lesser amount if the Canadian Revolving Loan
Commitment Amount has been permanently reduced in accordance with SECTION 3.2.1)
as a result of such reallocation. Any such reallocation will automatically
reduce the U.S. Revolving Loan Commitment Amount by a corresponding amount.
Upon a reallocation pursuant to this Section, the Canadian RL Lenders shall have
the same Canadian Percentage to make Canadian Revolving Loans as that which was
in effect on the Effective Date
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(as such Canadian Percentage to make Canadian Revolving Loans may have been
modified by way of a Lender Assignment Agreement subsequent to the Effective
Date).
SECTION 3.3. BORROWING PROCEDURES. Canadian Loans (other than Canadian
Swing Line Loans) shall be made by the Canadian Lenders in accordance with
SECTION 3.3.1, and Canadian Swing Line Loans shall be made by the Canadian Swing
Line Lender in accordance with SECTION 3.3.2.
SECTION 3.3.1. BORROWINGS OF OTHER THAN CANADIAN SWING LINE LOANS. In
the case of other than Canadian Swing Line Loans, by delivering a Borrowing
Request to the Canadian Agent at or before 1:00 p.m. (local time) on a Business
Day, the Canadian Borrower may from time to time irrevocably request, on the
Business Day the proposed Borrowing is to be made in the case of Canadian Prime
Rate Loans (to the extent the aggregate outstanding principal amount of Canadian
Prime Rate Loans, including as a result of such requested Borrowing, does not
exceed Cdn $2,000,000) or on not less than one Business Day's notice (to the
extent the aggregate outstanding principal amount of Canadian Prime Rate Loans,
including as a result of such requested Borrowing, exceeds Cdn $2,000,000), or
three Business Days' notice in the case of Canadian BAs, and in any case not
more than five Business Days' notice, that a Borrowing be made, in the case of
Canadian Prime Rate Loans, in a minimum amount of Cdn $100,000 and an integral
multiple of Cdn $100,000, in the case of Canadian BAs, in a minimum amount of
Cdn $1,000,000 and an integral multiple of Cdn $100,000 or, in either case, in
the unused amount of the applicable Canadian Commitment; PROVIDED, HOWEVER, that
all initial Canadian Loans shall be made as Canadian BAs. On the terms and
subject to the conditions of this Agreement, each Borrowing shall be comprised
of the type of Canadian Loans, and shall be made on the Business Day, specified
in such Borrowing Request. On or before 11:00 a.m. (local time) on such
Business Day, each Canadian Lender that has a Canadian Commitment to make the
Canadian Loans being requested shall deposit with the Canadian Agent same day
funds in an amount equal to such Canadian Lender's Canadian Percentage of the
requested Borrowing. Such deposit will be made to an account which the Canadian
Agent shall specify from time to time by notice to the Canadian Lenders. To the
extent funds are received from the Canadian Lenders, the Canadian Agent shall
make such funds available to the Canadian Borrower by wire transfer to the
accounts the Canadian Borrower shall have specified in its Borrowing Request.
No Canadian Lender's obligation to make any Canadian Loan shall be affected by
any other Canadian Lender's failure to make any Canadian Loan.
SECTION 3.3.2. CANADIAN SWING LINE LOANS. (a) By telephonic notice,
promptly followed (within one Business Day) by the delivery of a confirming
Borrowing Request, to the Canadian Swing Line Lender on or before 1:00 p.m.
(local time) on the Business Day the proposed Canadian Swing Line Loan is to be
made, the Canadian Borrower may from time to time irrevocably request that
Canadian Swing Line Loans be made by the Canadian Swing Line Lender in an
aggregate minimum principal amount of Cdn $100,000 and an integral multiple of
Cdn $100,000 or, if requested by the Canadian Borrower and consented to by the
Canadian Swing Line Lender, be made in U.S. Dollars, in an aggregate minimum
principal amount of
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$100,000 and an integral multiple of $100,000. All Canadian Swing Line Loans
shall be made as Canadian Prime Rate Loans and shall not be entitled to be
converted into Canadian BAs. The proceeds of each Canadian Swing Line Loan
shall be made available by the Canadian Swing Line Lender, by its close of
business on the Business Day telephonic notice is received by it as provided in
this Section, to the Canadian Borrower by wire transfer to the account the
Canadian Borrower shall have specified in its notice therefor.
(b) If
(i) any Canadian Swing Line Loan shall be outstanding for more than
four Business Days;
(ii) any Canadian Swing Line Loan is or will be outstanding on a date
when the Canadian Borrower requests that a Canadian Revolving Loan be made;
or
(iii) any Default shall occur and be continuing,
each Canadian RL Lender (other than the Canadian Swing Line Lender) irrevocably
agrees that it will, at the request of the Canadian Swing Line Lender, make a
Canadian Revolving Loan (which shall initially be funded as a Canadian BAs) in
an amount equal to such Canadian RL Lender's Canadian Percentage of the
aggregate principal amount (or, in the case of Canadian Swing Line Loans made in
U.S. Dollars, the Cdn $ Equivalent) of all such Canadian Swing Line Loans then
outstanding (such outstanding Canadian Swing Line Loans hereinafter referred to
as the "REFUNDED CANADIAN SWING LINE LOANS"). On or before 11:00 a.m. (local
time) on the first Business Day following receipt by each Canadian RL Lender of
a request to make Canadian Revolving Loans as provided in the preceding
sentence, each such Canadian RL Lender shall deposit in an account specified by
the Canadian Swing Line Lender the amount so requested in same day funds and
such funds shall be applied by the Canadian Swing Line Lender to repay the
Refunded Canadian Swing Line Loans. At the time the aforementioned Canadian RL
Lenders make the above referenced Canadian Revolving Loans, the Canadian Swing
Line Lender shall be deemed to have made, in consideration of the making of the
Refunded Canadian Swing Line Loans, Canadian Revolving Loans in an amount equal
to the Canadian Swing Line Lender's Canadian Percentage of the aggregate
principal amount of the Refunded Canadian Swing Line Loans. Upon the making (or
deemed making, in the case of the Canadian Swing Line Lender) of any Canadian
Revolving Loans pursuant to this CLAUSE (b), the amount so funded shall become
outstanding under such Canadian RL Lender's Canadian Revolving Note and shall no
longer be owed under the Canadian Swing Line Note. All interest payable with
respect to any Canadian Revolving Loans made (or deemed made, in the case of the
Canadian Swing Line Lender) pursuant to this CLAUSE (b) shall be appropriately
adjusted to reflect the period of time during which the Canadian Swing Line
Lender had outstanding Canadian Swing Line Loans in respect of which such
Canadian Revolving Loans were made. Each Canadian RL Lender's obligation to
make the Canadian Revolving Loans referred to in this CLAUSE (b) shall be
absolute and unconditional and shall not be affected by any circumstance,
including (i) any set-off,
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counterclaim, recoupment, defense or other right which such Canadian RL Lender
may have against the Canadian Swing Line Lender, the Canadian Borrower or any
other Person for any reason whatsoever; (ii) the occurrence or continuance of
any Default; (iii) any adverse change in the condition (financial or otherwise)
of the Canadian Borrower; (iv) the acceleration or maturity of any Canadian
Loans or the termination of any Canadian Commitment after the making of any
Canadian Swing Line Loan; (v) any breach of this Agreement or any other Loan
Document by the Canadian Borrower or any Canadian RL Lender; or (vi) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
SECTION 3.4. CONTINUATION AND CONVERSION ELECTIONS. By delivering a
Continuation/Conversion Notice to the Canadian Agent on or before 1:00 p.m.
(local time) on a Business Day, the Canadian Borrower may from time to time
irrevocably elect, on not less than one Business Day's notice in the case of
Canadian Prime Rate Loans, or three Business Days' notice in the case of
Canadian BAs, and in either case not more than five Business Days' notice, that
all, or any portion in an aggregate minimum amount of Cdn $100,000 and an
integral multiple of Cdn $100,000, in the case of Canadian Prime Rate Loans, or
an aggregate minimum amount of Cdn $1,000,000 and an integral multiple of Cdn
$100,000, in the case of Canadian BAs, be, in the case of Canadian Prime Rate
Loans, converted into Canadian BAs or be, in the case of Canadian BAs, converted
into Canadian Prime Rate Loans or rolled over as Canadian BAs (in the absence of
delivery of a Continuation/Conversion Notice with respect to any Canadian BA at
least three Business Days (but not more than five Business Days) before the last
day of the then current Interest Period with respect thereto, such Canadian BA
shall, on such last day, automatically convert to a Canadian Prime Rate Loan);
PROVIDED, HOWEVER, that (x) each such conversion or continuation shall be pro
rated among the applicable outstanding Canadian Loans of all Canadian Lenders
that have made such Canadian Loans, and (y) no portion of the outstanding
principal amount of any Canadian Loans may be continued as, or be converted
into, Canadian BAs when any Default has occurred and is continuing.
SECTION 3.4.1. CONVERTING CANADIAN PRIME RATE LOANS TO CANADIAN BAS.
Provided that the Canadian Borrower has, by giving notice to the Canadian Agent
in accordance with SECTION 3.4, requested the Canadian Lenders to accept its
drafts to replace all or a portion of an outstanding Canadian Loan, then each
Canadian Lender shall, on the date of conversion and concurrent with the payment
by the Canadian Borrower to the Canadian Agent on behalf of the Canadian Lenders
of the principal amount of such outstanding Canadian Loan or the portion thereof
which is being converted less the Notional BA Proceeds with respect to the
drafts to be accepted, accept the Canadian Borrower's draft or drafts having an
aggregate face amount equal to its Canadian Percentage of the aggregate
principal amount of such Canadian Loan or the portion thereof which is being
converted, such acceptance to be in accordance with SECTION 3.5.1.
SECTION 3.4.2. CONVERTING CANADIAN BAS TO CANADIAN PRIME RATE LOANS.
Each Canadian Lender shall, at the end of an Interest Period with respect to
Canadian BAs which such Canadian Lender has accepted, pay to the holder thereof
the face amount of such Canadian BA. Provided that the Canadian Borrower has,
by giving notice to the Canadian Agent in accordance
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with SECTION 3.4, requested the Canadian Lenders to convert all or a portion of
outstanding maturing Canadian BAs into a particular type of Canadian Loan, each
Canadian Lender shall, upon the end of an Interest Period with respect to such
Canadian BAs and the payment by such Canadian Lender to the holders of such
Canadian BAs of the aggregate face amount thereof, make available to the
Canadian Borrower the Canadian Loan into which the matured Canadian BAs or a
portion thereof are converted in the aggregate principal amount equal to its
Canadian Percentage of the aggregate face amount of the matured Canadian BAs or
the portion thereof which are being converted.
SECTION 3.5. CANADIAN BAS. Not in limitation of any other provision of
this Agreement, but in furtherance thereof, the provisions of this SECTION 3.5
shall further apply to the acceptance, rolling over and conversion of Canadian
BAs:
SECTION 3.5.1. FUNDING OF CANADIAN BAS. If the Canadian Agent receives
a Borrowing Request or a Continuation/Conversion Notice from the Canadian
Borrower requesting a Borrowing or a rollover of or a conversion into a Canadian
Loan by way of Canadian BAs, the Canadian Agent shall notify each of the
Canadian Lenders, prior to 11:00 a.m. (local time) on the second Business Day
prior to the date of such Credit Extension, of such request and of each Canadian
Lender's Canadian Percentage of such Canadian Loan. Each Canadian Lender shall,
not later than 11:30 a.m. (local time) on the date of each Canadian Loan by way
of Canadian BAs (whether in respect of the Credit Extension or pursuant to a
rollover or conversion), accept drafts of the Canadian Borrower which are
presented to it for acceptance and which have an aggregate face amount equal to
such Canadian Lender's Canadian Percentage of the total Credit Extension being
made available by way of Canadian BAs on such date. With respect to each
drawdown of, rollover of or conversion into Canadian BAs, each Canadian Lender
shall not be required to accept any draft which has a face amount which is not
in an integral multiple of Cdn $100,000. Each Canadian Lender shall purchase
its Canadian Percentage of any Canadian BAs. Concurrent with the acceptance of
drafts of the Canadian Borrower as aforesaid, each Canadian Lender shall make
available to the Canadian Agent its Canadian Percentage of the Notional BA
Proceeds with respect to such Credit Extension. The Canadian Agent shall, upon
fulfillment by the Canadian Borrower of the terms and conditions set forth in
ARTICLE VII, make such Notional BA Proceeds available to the Canadian Borrower
on the date of such Credit Extension by crediting the designated account of the
Canadian Borrower.
SECTION 3.5.2. ACCEPTANCE FEES. With respect to each draft the Canadian
Borrower accepted pursuant hereto, the Canadian Borrower shall pay to the
Canadian Lenders, in advance, an acceptance fee calculated at the rate per
annum, on the basis of a year of 365 days or 366 days, as the case may be, equal
to the Applicable Canadian BA Stamping Fee on the face amount of such Canadian
BA for its term, being the actual number of days in the period commencing on the
date of acceptance of the Canadian Borrower's draft and continuing to (but
excluding) the maturity date of such Canadian BA. Such acceptance fee shall be
non-refundable and shall be fully earned when due. Such acceptance fee shall be
paid to the Canadian Lenders by deducting
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the amount thereof from what would otherwise be Notional BA Proceeds (excluding
such fee) funded pursuant to SECTION 3.5.1.
SECTION 3.5.3. PRESIGNED DRAFT FORMS. To enable the Canadian Lenders to
accept Canadian BAs, the Canadian Borrower shall supply each Canadian Lender
with such number of drafts as such Canadian Lender may reasonably request, duly
endorsed and executed on behalf of the Canadian Borrower. Each Canadian Lender
agrees that, in respect of the safekeeping of executed drafts of the Canadian
Borrower which are delivered to it for acceptance hereunder, it will exercise
the same degree of care which it gives to its own negotiable instruments;
PROVIDED that such Canadian Lender shall not be deemed to be an insurer thereof.
Such Canadian Lender will, upon request by the Canadian Borrower, promptly
advise the Canadian Borrower of the number and designations, if any, of the
uncompleted drafts then held by it. The signature of any duly authorized
officer of the Canadian Borrower on a draft may be mechanically reproduced in
facsimile and drafts and Canadian BAs bearing such facsimile signature shall be
binding upon the Canadian Borrower as if they had been manually signed by such
officer. Notwithstanding that any of the individuals whose manual or facsimile
signature appears on any draft as one of such officers may no longer hold office
at the date thereof or at the date of its acceptance by such Canadian Lender
hereunder or at any time thereafter, any draft or Canadian BA so signed shall be
valid and binding upon the Canadian Borrower. The receipt by the Canadian Agent
of a request for a Borrowing by way of Canadian BAs shall be each Canadian
Lender's sufficient authority to complete, and each Canadian Lender shall,
subject to the terms and conditions of this Agreement, complete the pre-signed
forms of drafts in accordance with such request and the advice of the Canadian
Agent as to the amount of the Canadian BAs to be accepted by such Canadian
Lender, and the drafts so completed shall thereupon be deemed to have been
presented for acceptance.
SECTION 3.5.4. BILL S-9. It is the intention of the parties that, if
the proposed Depository Bills and Notes Act is enacted in substantially the
terms of Bill S-9 which was passed by the Senate of Canada on March 19, 1998,
and to which first reading was given in the House of Commons of Canada on March
25, 1998, all Canadian BAs accepted by Canadian Lenders under this Agreement
after the effective date of that Act and after clearing services acceptable to
the Canadian Borrower, the Canadian Lenders and the Canadian Agent are
available, shall be issued in the form of a "depository bill" and deposited with
a "clearing house," as those terms are defined in Bill S-9. At that time, the
Canadian Agent shall, in consultation with the Canadian Borrower and the
Canadian Lenders, establish and notify the Canadian Borrower and the Canadian
Lenders of such procedures, consistent with the terms of this Agreement and the
requirements of the Act, as are reasonably necessary to accomplish the parties'
intention.
SECTION 3.6. SPECIAL PROVISIONS RELATING TO ACCEPTANCE NOTES. (a) The
Canadian Borrower and each Canadian Lender hereby acknowledges and agrees that
from time to time certain Canadian Lenders which are not Canadian chartered
banks or which are Canadian chartered banks listed on Schedule II of the Bank
Act (Canada) may not be authorized to or may, as a matter of general corporate
policy, elect not to accept Canadian BA drafts, and the Canadian
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Borrower and each Canadian Lender agrees that any such Canadian Lender may
purchase Acceptance Notes of the Canadian Borrower in accordance with the
provisions of SECTION 3.6(b) in lieu of accepting Canadian BAs for its account.
(b) In the event that any Canadian Lender described in SECTION 3.6(a) above
is unable to, or elects as a matter of general corporate policy not to, accept
Canadian BAs hereunder, such Canadian Lender shall not accept Canadian BAs
hereunder, but rather, if the Canadian Borrower requests the acceptance of such
Canadian BAs, the Canadian Borrower shall deliver to such Canadian Lender
non-interest bearing promissory notes (each, an "ACCEPTANCE NOTE") of the
Canadian Borrower, substantially in the form of EXHIBIT A-7 hereto, having the
same maturity as the Canadian BAs to be accepted and in an aggregate principal
amount equal to the undiscounted face amount of such Canadian BAs. Each such
Canadian Lender hereby agrees to purchase Acceptance Notes from the Canadian
Borrower at a purchase price equal to the Notional BA Proceeds which would have
been applicable if a Canadian BA draft had been accepted by such Canadian Lender
and such Acceptance Notes shall be governed by the provisions of this ARTICLE
III as if they were Canadian BAs.
SECTION 3.7. CANADIAN REGISTER; CANADIAN NOTES.
(a) Each Canadian Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the Indebtedness of the Canadian
Borrower to such Canadian Lender resulting from each Canadian Loan made by
such Canadian Lender, including the amounts of principal and interest
payable and paid to such Canadian Lender from time to time hereunder. In
the case of a Canadian Lender that does not request, pursuant to PARAGRAPH
(b)(ii) below, execution and delivery of a Note evidencing the Canadian
Loans made by such Canadian Lender to the Canadian Borrower, such account
or accounts shall, to the extent not inconsistent with the notations made
by the Canadian Agent in the Canadian Register, be conclusive and binding
on the Canadian Borrower absent manifest error; PROVIDED, HOWEVER, that the
failure of any Canadian Lender to maintain such account or accounts shall
not limit or otherwise affect any Obligations of the Canadian Borrower or
any other Obligor.
(b)(i) The Canadian Borrower hereby designates the Canadian Agent to
serve as the Canadian Borrower's agent, solely for the purpose of this
CLAUSE (b), to maintain a register (the "CANADIAN REGISTER") on which the
Canadian Agent will record each Canadian Lender's Canadian Commitment, the
Canadian Loans made by each Canadian Lender and each repayment in respect
of the principal amount of the Canadian Loans of each Canadian Lender and
annexed to which the Canadian Agent shall retain a copy of each Lender
Assignment Agreement delivered to the Canadian Agent pursuant to SECTION
12.11.1. Failure to make any recordation, or any error in such
recordation, shall not affect the Canadian Borrower's obligation in respect
of such Canadian Loans. The entries in the Canadian Register shall be
conclusive, in the absence of manifest error, and the Canadian Borrower,
the Canadian Agent and the Canadian Lenders shall treat each
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Person in whose name a Canadian Loan (and as provided in CLAUSE (ii) the
Note evidencing such Canadian Loan, if any) is registered as the owner
thereof for all purposes of this Agreement, notwithstanding notice or any
provision herein to the contrary. A Canadian Lender's Canadian Commitment
and the Canadian Loans made pursuant thereto may be assigned or otherwise
transferred in whole or in part only by registration of such assignment or
transfer in the Canadian Register. Any assignment or transfer of a
Canadian Lender's Canadian Commitment or the Canadian Loans made pursuant
thereto shall be registered in the Canadian Register only upon delivery to
the Canadian Agent of a Lender Assignment Agreement duly executed by the
assignor thereof. No assignment or transfer of a Canadian Lender's
Canadian Commitment or the Canadian Loans made pursuant thereto shall be
effective unless such assignment or transfer shall have been recorded in
the Canadian Register by the Canadian Agent as provided in this Section.
(ii) The Canadian Borrower agrees that, upon the request to the
Canadian Agent by any Canadian Lender, the Canadian Borrower will execute
and deliver to such Canadian Lender a Canadian Note evidencing the Canadian
Loans made by such Canadian Lender to the Canadian Borrower. The Canadian
Borrower hereby irrevocably authorizes each Canadian Lender to make (or
cause to be made) appropriate notations on the grid attached to such
Canadian Lender's Canadian Note (or on any continuation of such grid),
which notations, if made, shall evidence, INTER ALIA, the date of, the
outstanding principal of, and the interest rate and Interest Period
applicable to the Canadian Loans evidenced thereby. Such notations shall,
to the extent not inconsistent with the notations made by the Canadian
Agent in the Canadian Register, be conclusive and binding on the Canadian
Borrower that issued such note absent manifest error; PROVIDED, HOWEVER,
that the failure of any Canadian Lender to make any such notations shall
not limit or otherwise affect any Obligations of the Canadian Borrower or
any other Obligor. The Loans evidenced by any such Note and interest
thereon shall at all times (including after assignment pursuant to SECTION
12.11.1) be represented by one or more Notes payable to the order of the
payee named therein and its registered assigns. A Canadian Note and the
obligation evidenced thereby may be assigned or otherwise transferred in
whole or in part only by registration of such assignment or transfer of
such Canadian Note and the obligation evidenced thereby in the Canadian
Register (and each Canadian Note shall expressly so provide). Any
assignment or transfer of all or part of an obligation evidenced by a
Canadian Note shall be registered in the Canadian Register only upon
surrender for registration of assignment or transfer of the Canadian Note
evidencing such obligation, accompanied by a Lender Assignment Agreement
duly executed by the assignor thereof, and thereupon, if requested by the
assignee, one or more new Canadian Notes shall be issued to the designated
assignee and the old Note shall be returned by the Canadian Agent to the
Canadian Borrower marked "exchanged". No assignment of a Canadian Note and
the obligation evidenced thereby shall be effective unless it shall have
been recorded in the Canadian Register by the Canadian Agent as provided in
this Section.
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ARTICLE IV
U.S. AND CANADIAN LETTER OF CREDIT SUBFACILITIES
On the terms and subject to the conditions of this Agreement (including
ARTICLE VII), each Borrower, each Issuer and each Lender severally agrees as
follows:
SECTION 4.1. ISSUANCE PROCEDURES. By delivering an Issuance Request to
the Agent under either Facility on a local Business Day, at or before 1:00 p.m.
(local time), the Borrower under such Facility may, from time to time
irrevocably request, on not less than three nor more than ten Business Days'
notice (or such other notice as may be acceptable in the sole discretion of the
applicable Issuer under such Facility), in the case of an initial issuance of a
Letter of Credit, and not less than three nor more than ten Business Days'
notice prior to the then existing Stated Expiry Date of a Letter of Credit
(unless a shorter or longer notice period is acceptable in the sole discretion
of the applicable Issuer under such Facility), in the case of a request for the
extension of the Stated Expiry Date of a Letter of Credit, that the applicable
Issuer under such Facility issue, or extend the Stated Expiry Date of, as the
case may be, an irrevocable Letter of Credit for such Borrower's account.
Notwithstanding anything to the contrary contained herein or in any separate
application for any Letter of Credit, each Borrower under each Facility hereby
acknowledges and agrees that (v) it shall be obligated to reimburse the
applicable Issuer under such Facility upon each Disbursement under a Letter of
Credit issued under such Facility and (w) it shall be deemed to be the obligor
for purposes of each Letter of Credit issued at its request under such Facility.
Upon receipt of an Issuance Request pursuant to either Facility, the Agent under
such Facility shall promptly provide notice thereof to each Issuer and each
Lender under such Facility. Each Letter of Credit shall by its terms be stated
to expire on a date (its "STATED EXPIRY DATE") no later than the earlier of
(x) the applicable scheduled Revolving Loan Commitment Termination Date or
(y) two years from the date of its issuance. The Issuer of each Letter of
Credit will make available to the beneficiary thereof the original of such
Letter of Credit.
SECTION 4.1.1. OTHER LENDERS' PARTICIPATION. Upon the issuance of each
Letter of Credit pursuant to a Facility by an Issuer under such Facility, and
without further action, each RL Lender (other than such Issuer) under such
Facility shall be deemed to have irrevocably purchased from such Issuer, to the
extent of such Lender's Percentage of the Revolving Loan Commitment Amount under
such Facility, and such Issuer shall be deemed to have irrevocably granted and
sold to such Lender a participation interest in such Letter of Credit (including
the contingent liability and any Reimbursement Obligation and all rights with
respect thereto), and such Lender shall, to the extent of its Percentage of the
Revolving Loan Commitment Amount under such Facility, as the case may be, be
responsible for reimbursing promptly (and in any event within one Business Day)
such Issuer for Reimbursement Obligations which have not been reimbursed in
accordance with SECTION 4.1.3 by the Borrower which requested the issuance of
such Letter of Credit. In addition, each RL Lender under each Facility shall,
to the extent of its
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Percentage of the Revolving Loan Commitment Amount under such Facility, be
entitled to receive a ratable portion of the Letter of Credit fees payable
pursuant to SECTION 5.3.2 with respect to each Letter of Credit issued under
such Facility and of interest payable pursuant to SECTION 5.2 with respect to
any Reimbursement Obligation. To the extent that any Lender under either
Facility has reimbursed an Issuer for a Disbursement as required by this
Section, such Lender shall be entitled to receive a portion, according to its
Percentage of the Revolving Loan Commitment Amount under such Facility, of any
amounts subsequently received (from the Borrower which requested the issuance of
such Letter of Credit or otherwise) in respect of such Disbursement.
SECTION 4.1.2. DISBURSEMENTS; CONVERSION TO LOANS. Each Issuer of a
Letter of Credit issued pursuant to either Facility will notify the Borrower
which requested the issuance of such Letter of Credit and the applicable Agent
promptly of the presentment for payment of such Letter of Credit, together with
notice of the date (the "DISBURSEMENT DATE") such payment shall be made (each
such payment, a "DISBURSEMENT"). Subject to the terms and provisions of such
Letter of Credit and this Agreement, such Issuer shall make such payment to the
beneficiary (or its designee) of such Letter of Credit. On the first Business
Day following the Disbursement Date (the "REIMBURSEMENT DUE DATE") such Borrower
will reimburse the applicable Agent for the account of the Issuer of such Letter
of Credit, for all amounts which such Issuer has disbursed under such Letter of
Credit, together with interest thereon at the rate per annum otherwise
applicable to Loans under such Facility (which shall, in the case of the
Canadian Facility, be Canadian Prime Rate Loans and, in the case of the U.S.
Facility, be U.S. Base Rate Loans) from and including the Disbursement Date to
but excluding the Reimbursement Due Date and, thereafter (unless such
Disbursement is converted into Canadian Prime Rate Loans or U.S. Base Rate
Loans, as appropriate, on the Reimbursement Due Date), at a rate per annum equal
to the rate per annum then in effect with respect to such overdue Canadian Prime
Rate Loans or U.S. Base Rate Loans, as the case may be, pursuant to
SECTION 5.2.2 for the period from the Reimbursement Due Date through the date of
such reimbursement; PROVIDED, HOWEVER, that, if no Default shall have then
occurred and be continuing, unless such Borrower has notified the applicable
Agent no later than one Business Day prior to the Reimbursement Due Date that it
will reimburse such Issuer for such Disbursement, then the amount of the
Disbursement shall be deemed to be a Borrowing under such Facility (which shall,
in the case of the Canadian Facility, be Canadian Prime Rate Loans and, in the
case of the U.S. Facility, be U.S. Base Rate Loans) and following the giving of
notice thereof by the applicable Agent to the RL Lenders under such Facility,
each such RL Lender under such Facility (other than such Issuer) will deliver to
such Issuer on the Reimbursement Due Date immediately available funds in an
amount equal to such Lender's Percentage of such Borrowing. Each conversion of
Disbursement amounts into a Borrowing shall constitute a representation and
warranty by such Borrower that on the date of such Borrowing all of the
statements set forth in SECTIONS 7.2.1 and 7.2.2 are true and correct.
SECTION 4.1.3. REIMBURSEMENT. If a Borrower shall fail to honor its
obligation (a "REIMBURSEMENT OBLIGATION") under SECTION 4.1.2 to reimburse an
Issuer with respect to a Disbursement (including interest thereon) in respect of
a Letter of Credit issued pursuant to either
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Facility upon the request of such Borrower and such Disbursement is not
converted into a Borrowing pursuant to SECTION 4.1.2, then, upon notice thereof
by the applicable Agent to the RL Lenders under such Facility, each such
Lender's obligation under SECTION 4.1.1 to reimburse, according to its
Percentage of the Revolving Loan Commitment Amount under such Facility, such
Issuer for such Disbursement shall be absolute and unconditional under any and
all circumstances and irrespective of any setoff, counterclaim or defense to
payment which such Borrower or such Lender, as the case may be, may have or have
had against such Issuer or any such Lender, including any defense based upon the
failure of any Disbursement to conform to the terms of the applicable Letter of
Credit (if, in such Issuer's good faith opinion, such Disbursement is determined
to be appropriate) or any non-application or misapplication by the beneficiary
of the proceeds of such Letter of Credit; PROVIDED, HOWEVER, that after paying
in full its Reimbursement Obligation hereunder, nothing herein shall adversely
affect the right of such Borrower or such Lender, as the case may be, to
commence any proceeding against such Issuer for any wrongful Disbursement made
by such Issuer under a Letter of Credit as a result of acts or omissions
constituting gross negligence or willful misconduct on the part of such Issuer.
SECTION 4.1.4. DEEMED DISBURSEMENTS. Upon the occurrence and during the
continuation of any Event of Default of the type described in SECTION 10.1.9 or,
with notice from the U.S. Agent acting at the direction of the Required Lenders,
upon the occurrence and during the continuation of any other Event of Default,
(a) an amount equal to that portion of all Letter of Credit
Outstandings attributable to the then aggregate amount which is undrawn and
available under all Letters of Credit outstanding under each Facility
shall, without demand upon or notice to any Borrower or any other Person,
be deemed to have been paid or disbursed by the Issuer of such Letters of
Credit (notwithstanding that such amount may not in fact have been so paid
or disbursed); and
(b) upon notification by the applicable Agent to such Borrower of its
obligations under this Section, such Borrower shall be immediately
obligated to reimburse such Issuer for the amount deemed to have been so
paid or disbursed by such Issuer.
Any amounts so payable by such Borrower pursuant to this Section shall be
deposited in cash with the applicable Agent and held as collateral security for
the Obligations of such Borrower in connection with such Letters of Credit
issued by such Issuer. At such time when the Events of Default giving rise to
the deemed disbursements hereunder shall have been cured or waived, the
applicable Agent shall return to such Borrower all amounts then on deposit with
the applicable Agent pursuant to this Section, together with accrued interest at
the U.S. Federal Funds Rate, which have not been applied to the satisfaction of
such Obligations.
SECTION 4.1.5. NATURE OF REIMBURSEMENT OBLIGATIONS. Each Borrower
requesting the issuance of a Letter of Credit and, to the extent set forth in
SECTION 4.1.1, each RL Lender under the Facility pursuant to which such Letter
of Credit is issued shall assume all risks of the acts,
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omissions or misuse of such Letter of Credit by the beneficiary thereof. Each
Issuer (except to the extent of its own gross negligence or willful misconduct)
shall not be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any Letter of Credit or any document submitted by any party in
connection with the application for and issuance of a Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or the proceeds thereof in whole or in part, which may prove to be invalid
or ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise; or
(e) any loss or delay in the transmission or otherwise of any document
or draft required in order to make a Disbursement under a Letter of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted to any Issuer or any RL Lender. In furtherance and
extension and not in limitation or derogation of any of the foregoing, any
action taken or omitted to be taken by any Issuer of a Letter of Credit in good
faith (and not constituting gross negligence or willful misconduct) shall be
binding upon the Borrower requesting the issuance of such Letter of Credit, each
Obligor and each RL Lender under the Facility pursuant to which such Letter of
Credit is issued, and shall not put such Issuer under any resulting liability to
such Borrower, any Obligor or any such Lender, as the case may be.
ARTICLE V
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 5.1. REPAYMENTS AND PREPAYMENTS; APPLICATION.
SECTION 5.1.1. REPAYMENTS AND PREPAYMENTS. Each Borrower shall repay (in
U.S. Dollars with respect to U.S. Loans and in Canadian Dollars with respect to
Canadian Loans, and in U.S. Dollars or Canadian Dollars, as applicable, with
respect to Canadian Swing Line Loans) in full the unpaid principal amount of
each Loan outstanding to it upon the applicable Stated
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Maturity Date therefor. Prior thereto, payments and prepayments of Loans shall
or may be made as set forth below.
(a) From time to time on any Business Day, a Borrower may make a
voluntary prepayment, in whole or in part, of the outstanding principal
amount of any
(i) Loans (other than Canadian BAs and Swing Line Loans)
outstanding to it under either Facility; PROVIDED, HOWEVER, that
(A) any such prepayment of the Term Loans outstanding to it
shall be made PRO RATA among Term Loans outstanding to it under
such Facility of the same type and, if applicable, having the
same Interest Period of all Lenders under such Facility that have
made such Term Loans (with the amounts so allocated to such
Term Loans being applied to the remaining amortization payments
for such Term Loans in such amounts as such Borrower shall
determine) and any such prepayment of Revolving Loans outstanding
to it shall be made PRO RATA among the Revolving Loans
outstanding to it under such Facility of the same type and, if
applicable, having the same Interest Period of all Lenders under
such Facility that have made such Revolving Loans;
(B) all such voluntary prepayments shall require at least
one but no more than five Business Days' prior written notice to
the Agent under such Facility; and
(C) all such voluntary partial prepayments shall be, in the
case of LIBO Rate Loans, in an aggregate minimum amount of
$1,000,000 and an integral multiple of $500,000, in the case of
U.S. Base Rate Loans, in an aggregate minimum amount of $200,000
and an integral multiple of $200,000, and, in the case of
Canadian Prime Rate Loans, in an aggregate minimum amount of Cdn
$500,000 and an integral multiple of Cdn $250,000; and
(ii) Swing Line Loans; PROVIDED that
(A) all such voluntary prepayments shall require prior
telephonic notice to the applicable Swing Line Lender on or
before 1:00 p.m. (local time) on the day of such prepayment (such
notice to be confirmed in writing within 24 hours thereafter);
and
(B) all such voluntary partial prepayments shall be, in the
case of U.S. Swing Line Loans, in an aggregate minimum amount of
$500,000 and an integral multiple of $250,000, and, in the case
of Canadian Swing Line Loans, in an aggregate minimum amount of
Cdn $100,000 and an
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integral multiple of Cdn $100,000 (or, if made in U.S. Dollars,
in an aggregate minimum principal amount of $100,000 and an
integral multiple of $100,000).
(b) (i) On each date when the sum of (x) the aggregate outstanding
principal amount of all U.S. Revolving Loans and U.S. Swing Line Loans and
(y) the aggregate amount of all U.S. Letter of Credit Outstandings exceeds
the U.S. Revolving Loan Commitment Amount (as it may be reduced or
reallocated from time to time, including pursuant to SECTIONS 2.2 and 3.2),
the U.S. Borrower shall make a mandatory prepayment of all U.S. Revolving
Loans or all U.S. Swing Line Loans (or both) in an aggregate amount equal
to such excess; and (ii) on each date when the sum of (x) the aggregate
outstanding principal amount of all Canadian Revolving Loans and Canadian
Swing Line Loans and (y) the aggregate amount of all Canadian Letter of
Credit Outstandings exceeds the Canadian Revolving Loan Commitment Amount
(as it may be reduced or reallocated from time to time, including pursuant
to SECTIONS 2.2 and 3.2), the Canadian Borrower shall make a mandatory
prepayment of all Canadian Revolving Loans or all Canadian Swing Line Loans
(or both) in an aggregate amount equal to such excess.
(c) Concurrently with the receipt by the U.S. Borrower or any
Subsidiary of any Net Disposition Proceeds, the U.S. Borrower or, if such
Net Disposition Proceeds are received by the Canadian Borrower or one of
its Subsidiaries, the Canadian Borrower shall make a mandatory prepayment
of (or shall cash collateralize, in the case of Canadian BA's) the Term
Loans under its Facility in an amount equal to 100% of such Net Disposition
Proceeds, to be applied as set forth in SECTION 5.1.2; PROVIDED, HOWEVER,
that with respect to the U.S. Facility to the extent any or all of the Net
Disposition Proceeds attributable to dispositions by non-U.S. Subsidiaries
are prohibited or delayed by applicable local law from being repatriated to
the United States, the portion of such Net Disposition Proceeds so affected
shall, so long as no Event of Default has occurred and is continuing, to
the extent permitted by CLAUSE (d)(ii) of SECTION 9.2.11, not be required
to be applied at the time provided above, and may be (but shall not be
required to be), at the election of the U.S. Borrower, deposited in an
escrow account maintained with a U.S. Lender and under the sole dominion
and control of the U.S. Agent (such account being referred to as an "ESCROW
ACCOUNT") pursuant to the terms of an escrow agreement satisfactory in form
and substance to the U.S. Agent, until such time as the applicable local
law will permit repatriation to the United States (and the U.S. Borrower
hereby agrees that it will, and will cause the applicable Subsidiary to,
promptly take all action required by the applicable local law to permit
such repatriation). If and when repatriation of any of such affected Net
Disposition Proceeds is permitted under the applicable local law, such
repatriation shall be immediately effected and such repatriated Net
Disposition Proceeds will be applied in the manner set forth in this
Agreement; PROVIDED, FURTHER, HOWEVER, that, to the extent the Board of
Directors of the U.S. Borrower determines, in good faith, that repatriation
of any or all of the Net Disposition Proceeds attributable to dispositions
by non-U.S. Subsidiaries would have a material adverse tax
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consequence, the Net Disposition Proceeds so affected, to the extent
permitted by CLAUSE (d)(ii) of SECTION 9.2.11, shall not be required to be
applied as so provided, and may be (but shall not be required to be), at
the election of the U.S. Borrower, deposited in an Escrow Account and under
the sole dominion and control of the U.S. Agent pursuant to the terms of an
escrow agreement satisfactory in form and substance to the U.S. Agent for
so long as such material adverse tax consequence continues (and the U.S.
Borrower hereby agrees to promptly deliver to the U.S. Agent a certificate
of an Authorized Officer as to such determination, together with all
documents and calculations considered by the Board of Directors in reaching
its conclusion as to the presence of a material adverse tax consequence).
Provided that the U.S. Borrower shall have complied with its obligations
under this Agreement (A) in connection with any Permitted Disposition
consisting of the sale of all of the shares of stock of any Subsidiary that
is a party to a Subsidiary Guaranty, the obligations of such Subsidiary
that is a party to a Subsidiary Guaranty under its Subsidiary Guaranty
shall automatically be discharged and released without any further action
by the Agents or any Lender (and the Agents and the Lenders hereby agree,
upon the request (and at the expense) of the U.S. Borrower, to execute and
deliver any instrument or other document in a form acceptable to the Agents
which may reasonably be required to evidence such discharge and release)
and (B) in connection with the sale or other disposition of the Capital
Stock of a Subsidiary, the Agents shall release to the pledgor thereof,
without representation, warranty or recourse, express or implied, the
Capital Stock of such Subsidiary held by it as pledged stock, if any, under
a Pledge Agreement.
(d) On the Stated Maturity Date and on each Quarterly Payment Date
occurring during any period set forth below (or, if a Quarterly Payment
Date occurs on the next succeeding Business Day pursuant to the definition
of Quarterly Payment Date, then on such next succeeding Business Day), the
U.S. Borrower shall make a scheduled repayment of the outstanding principal
amount, if any, of all Term B Loans in an amount equal to the amount set
forth below opposite the Stated Maturity Date or such Quarterly Payment
Date, as applicable:
<TABLE>
<CAPTION>
Amount of Required
Period Principal Payment
------ -------------------
<S> <C>
Closing Date through (and
including) 06/15/03 $ 170,000
06/16/03 through (and
including) 06/15/04 $10,200,000
06/16/04 through (and
including) 9/15/04 $11,646,250
Stated Maturity Date for
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Amount of Required
Period Principal Payment
------ -----------------
Term B Loans $11,646,250, or the then
outstanding principal
amount of all Term B
Loans, if different.
</TABLE>
(e) On the Stated Maturity Date and on each Quarterly Payment Date
occurring during any period set forth below (or, if a Quarterly Payment
Date occurs on the next succeeding Business Day pursuant to the definition
of Quarterly Payment Date, then on such next succeeding Business Day), the
U.S. Borrower shall make a scheduled repayment of the outstanding principal
amount, if any, of all Term C Loans in an amount equal to the amount set
forth below opposite the Stated Maturity Date or such Quarterly Payment
Date, as applicable:
<TABLE>
<CAPTION>
Amount of Required
Period Principal Payment
------ -----------------
<S> <C>
Closing Date through (and
including) 06/15/04 $ 162,500
06/16/04 through (and
including) 06/15/05 $ 9,750,000
06/16/05 through (and
including) 9/15/05 $10,818,750
Stated Maturity Date for
Term C Loans $10,818,750 or the then
outstanding principal
amount of all Term C
Loans, if different.
</TABLE>
(f) On the Stated Maturity Date and on each Quarterly Payment Date
occurring during any period set forth below (or, if a Quarterly Payment
Date occurs on the next succeeding Business Day pursuant to the definition
of Quarterly Payment Date, then on such next succeeding Business Day), the
Canadian Borrower shall make a scheduled repayment of the outstanding
principal amount, if any, of all Canadian Term Loans in the Canadian Dollar
amount set forth below opposite the Stated Maturity Date or such Quarterly
Payment Date, as applicable:
<TABLE>
<CAPTION>
Amount of Required
Period Principal Payment
------ -----------------
<S> <C>
</TABLE>
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<TABLE>
<CAPTION>
Amount of Required
Period Principal Payment
------ -----------------
<S> <C>
Closing Date through (and
including) 06/15/03 Cdn $ 43,000
06/16/03 through (and
including) 06/15/04 Cdn $2,580,000
06/16/04 through (and
including) 9/15/04 Cdn $2,988,500
Stated Maturity Date for
Canadian Term Loans Cdn $2,988,500 or the then
outstanding principal
amount of all Canadian
Term Loans, if different.
</TABLE>
(g) Concurrently with the receipt by Parent or LHPG of any Net Equity
Proceeds, the U.S. Borrower shall make, or cause to be made, a mandatory
prepayment of the Term Loans in an amount equal to 50% of such Net Equity
Proceeds, to be applied as set forth in SECTION 5.1.2.
(h) No later than 5 Business Days following the delivery of the U.S.
Borrower's annual audited consolidated financial statements required
pursuant to CLAUSE (b) of SECTION 9.1.1 (beginning with the annual audited
consolidated financial statements delivered in respect of the Fiscal Year
ended March 31, 1998) if the U.S. Borrower's Leverage Ratio was greater
than or equal to 3.50:1 for the Fiscal Year to which such financial
statements relate, the U.S. Borrower shall deliver to the U.S. Agent a
calculation of the Excess Cash Flow for such Fiscal Year and, no later than
5 Business Days following the delivery of such calculation, make a
mandatory prepayment of the Term Loans in an amount equal to 50% of the
Excess Cash Flow (if any) for such Fiscal Year, to be applied as set forth
in SECTION 5.1.2.
(i) (i) On each date when any reduction in the U.S. Revolving Loan
Commitment Amount shall become effective, including pursuant to SECTION 2.2
or SECTION 5.1.2, the U.S. Borrower shall make a mandatory prepayment of
all U.S. Revolving Loans and U.S. Swing Line Loans, and, if required,
deliver cash collateral for U.S. Letter of Credit Outstandings, equal to
the excess, if any, of the aggregate outstanding principal amount of all
U.S. Revolving Loans, U.S. Swing Line Loans and U.S. Letter of Credit
Outstandings over the U.S. Revolving Loan Commitment Amount, as so reduced;
and (ii) on each date when any reduction in the Canadian Revolving Loan
Commitment Amount shall become effective, including pursuant to SECTION 3.2
or SECTION 5.1.2, the Canadian Borrower shall make a mandatory prepayment
of all Canadian Revolving Loans and
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Canadian Swing Line Loans, and, if required, deliver cash collateral for
Canadian Letter of Credit Outstandings, equal to the excess, if any, of the
aggregate outstanding principal amount of all Canadian Revolving Loans,
Canadian Swing Line Loans and Canadian Letter of Credit Outstandings over
the Canadian Revolving Loan Commitment Amount, as so reduced.
(j) Within one Business Day following the receipt of a notice from the
Canadian Agent that the then outstanding principal amount of Canadian
Revolving Loans is in excess of 110% of the Cdn $ Equivalent of the then
existing Canadian Revolving Loan Commitment Amount (based on a
determination made by the Canadian Agent in accordance with its customary
banking practice for determining currency exchange rates, which shall be
conclusive and binding on the Borrowers absent manifest error), the
Canadian Borrower shall make a repayment of the principal amount of the
Canadian Revolving Loans to the Canadian Agent in the amount necessary to
cause the outstanding principal amount of Canadian Revolving Loans to not
exceed the Cdn $ Equivalent of the then existing Canadian Revolving Loan
Commitment Amount. If immediate repayment is not possible because Canadian
BAs have not matured, the Canadian Borrower shall immediately pledge cash
to the Canadian Agent in the amount that would otherwise be payable, to be
held as security until the amount of the excess is paid in full.
(k) Immediately upon any acceleration of the Stated Maturity Date of
any Loans pursuant to SECTION 10.2 or SECTION 10.3, each Borrower shall
repay all the Loans outstanding to it, unless, pursuant to SECTION 10.3,
only a portion of all the Loans outstanding to it is so accelerated (in
which case the portion so accelerated shall be so prepaid).
Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by SECTION 6.4. If any such
prepayment or repayments described above relate to Canadian BAs which have not
matured, the Canadian Borrower shall at such time deposit in a cash collateral
account opened and maintained by the Canadian Agent, an amount equal to the
aggregate undiscounted face amount (or the portion thereof relating to the
portion of all Canadian Loans so accelerated, in the case of CLAUSE (i)) of all
such unmatured Canadian BAs and such amounts held in such cash collateral
account shall be applied by the Canadian Agent to the payment of maturing
Canadian BAs. No prepayment of principal of any Revolving Loans or Swing Line
Loans pursuant to CLAUSE (a) or (b) shall cause a reduction in either Revolving
Loan Commitment Amount or Swing Line Loan Commitment Amount, as the case may be.
SECTION 5.1.2. APPLICATION. Amounts prepaid shall be applied as set forth
in this Section.
(a) Subject to CLAUSE (b), each prepayment or repayment of the
principal of the Loans shall be applied, to the extent of such prepayment
or repayment, FIRST, in the case of
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U.S. Loans, to the principal amount thereof being maintained as U.S. Base
Rate Loans, and, in the case of Canadian Loans, to the principal amount
thereof being maintained as Canadian Prime Rate Loans, and SECOND, in the
case of U.S. Loans, to the principal amount thereof being maintained as
LIBO Rate Loans, and, in the case of Canadian Loans, to cash collateralize
the principal amount thereof being maintained as Canadian BAs; PROVIDED
that mandatory prepayments of LIBO Rate Loans made pursuant to CLAUSES (c),
(g) and (h) of SECTION 5.1.1, if not made on the last day of the Interest
Period with respect thereto, shall, at the U.S. Borrower's option, so long
as no Default has occurred and is continuing, be prepaid subject to the
provisions of SECTION 6.4, or the amount required to be applied to the
prepayment of LIBO Rate Loans (after application to any U.S. Base Rate
Loans) shall be deposited with the U.S. Agent as cash collateral for such
Loans on terms reasonably satisfactory to the U.S. Agent. With respect to
the amount (i) of LIBO Rate Loans cash collateralized pursuant to the
preceding sentence and (ii) to be applied to the mandatory cash
collateralization of Canadian BAs (after application to any Canadian Prime
Rate Loans), each such amount shall be applied in the order of the Interest
Periods next ending most closely to the date of receipt of the proceeds in
respect of which such prepayment or cash collateralization is required to
be made and on the last day of each such Interest Period (together with a
payment of all interest that is due on the last day of each such Interest
Period pursuant to CLAUSE (d) of SECTION 5.2.3). After such application,
unless an Event of Default shall have occurred and be continuing, any
remaining interest earned on such cash collateral shall be paid to the
applicable Borrower.
(b) Each prepayment (or cash collateralization) of U.S. Term Loans
made pursuant to CLAUSES (c), (g) and (h) of SECTION 5.1.1 and Canadian
Term Loans made pursuant to CLAUSE (c) of SECTION 5.1.1 shall be applied
(i) FIRST, PRO RATA to a mandatory prepayment (or cash collateralization,
in the case of Canadian BAs) of the outstanding principal amount of all
applicable Term Loans (with the amount of such prepayment of such
applicable Term Loans being applied to the remaining applicable Term Loan
amortization payments, unless otherwise consented to by the Required
Lenders, PRO RATA in accordance with the amount of each such remaining Term
Loan amortization payment), until all such applicable Term Loans have been
paid in full, and (ii) SECOND, once all applicable Term Loans have been
repaid in full, to the repayment of any outstanding U.S. Revolving Loans
and a reduction of the U.S. Revolving Loan Commitment Amount in accordance
with and subject to the limitations set forth in SECTION 2.2.2.
SECTION 5.2. INTEREST PROVISIONS. Interest on the outstanding principal
amount of all Loans shall accrue and be payable in accordance with this SECTION
5.2.
SECTION 5.2.1. RATES. Subject to SECTION 5.2.2, pursuant to an
appropriately delivered Borrowing Request or Continuation/Conversion Notice,
each Borrower may elect that Loans comprising a Borrowing accrue interest at a
rate per annum:
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(a) in the case of the U.S. Borrower,
(i) on that portion maintained from time to time as a U.S. Base
Rate Loan, equal to the sum of the U.S. Alternate Base Rate from time
to time in effect plus the Applicable Margin; PROVIDED that the
Applicable Margin for U.S. Swing Line Loans shall be the then
effective Applicable Margin for U.S. Revolving Loans maintained from
time to time as U.S. Base Rate Loans, and
(ii) on that portion maintained from time to time as a LIBO Rate
Loan, during each Interest Period applicable thereto, equal to the sum
of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the
Applicable Margin; and
(b) in the case of the Canadian Borrower, on that portion maintained
from time to time as a Canadian Prime Rate Loan, equal to the sum of the
Canadian Prime Rate from time to time in effect plus the Applicable Margin;
PROVIDED that the Applicable Margin for Canadian Swing Line Loans shall be
the then effective Applicable Margin for Canadian Revolving Loans
maintained from time to time as Canadian Prime Rate Loans.
All LIBO Rate Loans shall bear interest from and including the first day of
the applicable Interest Period to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such LIBO Rate
Loan.
SECTION 5.2.2. POST-MATURITY RATES. After the date any principal amount
of any Loan or Reimbursement Obligation is due and payable (whether on the
Stated Maturity Date, upon acceleration or otherwise), or after any other
monetary Obligation of any Borrower shall have become due and payable, such
Borrower shall pay, but only to the extent permitted by law, interest (after as
well as before judgment) on such amounts at a rate per annum equal to, in the
case of overdue amounts relating to the U.S. Facility, the U.S. Alternate Base
Rate from time to time in effect plus a margin of 2-1/2% and, in the case of
overdue amounts relating to the Canadian Facility, the Canadian Prime Rate from
time to time in effect plus a margin of 2-1/2%.
SECTION 5.2.3. PAYMENT DATES. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in part, of
principal outstanding on such Loan on the principal amount so paid or
prepaid;
(c) with respect to U.S. Base Rate Loans and Canadian Prime Rate
Loans, in arrears on each Quarterly Payment Date occurring after the
Effective Date;
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(d) with respect to LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed 3
months, on the third month anniversary of such Interest Period);
(e) with respect to any U.S. Base Rate Loans converted into LIBO Rate
Loans or Canadian Prime Rate Loans converted into Canadian BAs on a day
when interest would not otherwise have been payable pursuant to CLAUSE (c),
on the date of such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of which is
accelerated pursuant to SECTION 10.2 or SECTION 10.3, immediately upon such
acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 5.2.4. INTEREST ACT PROVISION.
(a) For the purposes of the Interest Act (Canada), whenever interest
payable pursuant to this Agreement is calculated with respect to any
monetary Obligation relating to the Canadian Facility on the basis of a
period other than a calendar year (the "CALCULATION PERIOD"), each rate of
interest determined pursuant to such calculation expressed as an annual
rate is equivalent to such rate as so determined, MULTIPLIED by the actual
number of days in the calendar year in which the same is to be ascertained
and DIVIDED by the number of days in the Calculation Period.
(b) The principle of deemed reinvestment of interest with respect to
any monetary Obligation relating to the Canadian Facility shall not apply
to any interest calculation under this Agreement.
(c) The rates of interest with respect to any monetary Obligation
relating to the Canadian Facility stipulated in this Agreement are intended
to be nominal rates and not effective rates or yields.
SECTION 5.3. FEES. Each Borrower agrees to pay the fees applicable to it
set forth in this SECTION 5.3. All such fees shall be non-refundable.
SECTION 5.3.1. COMMITMENT FEE. Each of the U.S. Borrower and the Canadian
Borrower agrees to pay to the Agent under its respective Facility for the
account of each Lender under such Facility, for the period (including any
portion thereof when any of its Commitments under such Facility are suspended by
reason of such Borrower's inability to satisfy any condition of ARTICLE VII)
commencing on the Effective Date and continuing through the applicable Revolving
Loan Commitment Termination Date, a commitment fee in an amount equal to the
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Applicable Commitment Fee Margin, in each case on such Lender's Percentage under
such Facility of the sum of the average daily unused portion of the applicable
Commitment Amount (net of Letter of Credit Outstandings, in the case of each
Revolving Loan Commitment Amount, and net of the average daily outstanding
principal amount of Swing Line Loans, when determining the commitment fee
payable to a Swing Line Lender on its Revolving Loan Commitment); PROVIDED, that
notwithstanding anything to the contrary contained in this Agreement, the
Canadian Borrower shall not be obligated to pay any such commitment fee that has
accrued in respect of the U.S. Revolving Loan Facility. All commitment fees
payable pursuant to this Section shall be calculated on a year comprised of
360 days and payable by the Borrowers in arrears on each Quarterly Payment Date,
commencing with the first Quarterly Payment Date following the Effective Date,
and on the applicable Revolving Loan Commitment Termination Date. The making of
Swing Line Loans shall not constitute usage of a Revolving Loan Commitment with
respect to the calculation of commitment fees to be paid by the Borrowers to the
Lenders (other than the Swing Line Lenders).
SECTION 5.3.2. AGENTS' FEES. Each Borrower severally and not jointly
agrees to pay to the Agent under its respective Facility, for such Agent's own
account, the fees in the amounts and on the dates set forth in the Fee Letter
(to the extent such Borrower is obligated to pay such fee thereunder).
SECTION 5.3.3. LETTER OF CREDIT FEES. Each Borrower agrees to pay to the
Agent under its respective Facility, for the PRO RATA account of the Issuers
under such Facility and each other Lender that has a Revolving Loan Commitment
under such Facility, a Letter of Credit fee in an amount equal to
(a) with respect to each standby Letter of Credit requested by such
Borrower, the then Applicable Margin for Revolving Loans maintained as LIBO
Rate Loans, multiplied by the Stated Amount of each such Letter of Credit;
and
(b) with respect to each documentary Letter of Credit requested by
such Borrower, 1.25% per annum multiplied by the Stated Amount of each such
Letter of Credit,
such fees being payable on the date of issuance of each Letter of Credit (for
the period from the date of issuance to the earlier of the expiration date of
the applicable Letter of Credit and the immediately succeeding Quarterly Payment
Date) and after such Quarterly Payment Date quarterly in arrears on each
subsequent Quarterly Payment Date; PROVIDED, that notwithstanding anything to
the contrary contained in this Agreement, the Canadian Borrower shall not be
obligated to pay any such fees that have accrued in respect of Letters of Credit
issued under the U.S. Facility. Each Borrower severally and not jointly further
agrees to pay to the applicable Issuer under such Facility on the date of
issuance of each Letter of Credit (for the period from the date of issuance to
the earlier of the expiration date of the applicable Letter of Credit and the
immediately succeeding Quarterly Payment Date, and after such Quarterly Payment
Date
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quarterly in arrears on each subsequent Quarterly Payment Date) an issuance fee
as specified in the Fee Letter (to the extent such Borrower is obligated to pay
such fee thereunder).
ARTICLE VI
CERTAIN LIBO RATE, CANADIAN BA AND OTHER PROVISIONS
SECTION 6.1. LIBO RATE LENDING UNLAWFUL. If any U.S. Lender shall
determine (which determination shall, upon notice thereof to the U.S. Borrower
and the U.S. Lenders, be conclusive and binding on the U.S. Borrower) that the
introduction of or any change in or in the interpretation of any law makes it
unlawful, or any central bank or other governmental authority asserts that it is
unlawful, for such U.S. Lender to make, continue or maintain any U.S. Loan as,
or to convert any U.S. Loan into, a LIBO Rate Loan, the obligations of such U.S.
Lender to make, continue, maintain or convert any such LIBO Rate Loan shall,
upon such determination, forthwith be suspended until such U.S. Lender shall
notify the U.S. Agent that the circumstances causing such suspension no longer
exist, and all outstanding LIBO Rate Loans shall automatically convert into U.S.
Base Rate Loans at the end of the then current Interest Periods with respect
thereto or sooner, if required by such law or assertion.
SECTION 6.2. DEPOSITS UNAVAILABLE; CIRCUMSTANCES MAKING CANADIAN BAS
UNAVAILABLE. (a) If the U.S. Agent shall have determined that
(i) Dollar deposits in the relevant amount and for the relevant
Interest Period are not available to the U.S. Agent in its relevant market;
or
(ii) by reason of circumstances affecting the U.S. Agent's relevant
market, adequate means do not exist for ascertaining the interest rate
applicable hereunder to LIBO Rate Loans,
then, upon notice from the U.S. Agent to the U.S. Borrower and the U.S. Lenders,
the obligations of all U.S. Lenders under SECTION 2.3 and SECTION 2.4 to make or
continue any U.S. Loans as, or to convert any U.S. Loans into, LIBO Rate Loans
shall forthwith be suspended until the U.S. Agent shall notify the U.S.
Borrower and the U.S. Lenders that the circumstances causing such suspension no
longer exist.
(b) If the Canadian Agent shall have determined that by reason of
circumstances affecting the money market, there is no market for Canadian BAs,
then the right of the Canadian Borrower to request the acceptance of Canadian
BAs and the acceptance thereof shall be suspended until the Canadian Agent
determines that the circumstances causing such suspension no longer exist and
the Canadian Agent so notifies the Canadian Borrower.
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SECTION 6.3. INCREASED LOAN COSTS, ETC. (a) The U.S. Borrower agrees to
reimburse each U.S. Lender for any increase in the cost to such U.S. Lender of,
or any reduction in the amount of any sum receivable by such U.S. Lender in
respect of, making, continuing or maintaining (or of its obligation to make,
continue or maintain) any U.S. Loans as, or of converting (or of its obligation
to convert) any U.S. Loans into, LIBO Rate Loans that arise in connection with
any change in, or the introduction, adoption, effectiveness, interpretation,
reinterpretation or phase-in after the date hereof of, any law or regulation,
directive, guideline, decision or request (whether or not having the force of
law) of any court, central bank, regulator or other governmental authority,
except for such changes with respect to increased capital costs and taxes which
are governed by SECTIONS 6.5 and 6.6, respectively. Such U.S. Lender shall
promptly notify the U.S. Agent and the U.S. Borrower in writing of the
occurrence of any such event, such notice to state, in reasonable detail, the
reasons therefor and the additional amount required to compensate fully such
U.S. Lender for such increased cost or reduced amount. Such additional amounts
shall be payable by the U.S. Borrower directly to such U.S. Lender within five
days of its receipt of such notice, and such notice shall, in the absence of
manifest error, be conclusive and binding on the U.S. Borrower.
Without limiting the foregoing, in the event that, as a result of any such
change, introduction, adoption or the like described above, the LIBOR Reserve
Percentage decreases for any U.S. Lender's LIBO Rate Loans, such U.S. Lender
shall give prompt notice thereof in writing to the U.S. Agent and the U.S.
Borrower. On the fifth day following delivery of such notice, the LIBO Rate
(Reserve Adjusted) attributable to such U.S. Lender's LIBO Rate Loans shall be
adjusted to give the U.S. Borrower the benefit of such decrease (for so long as
such decrease shall remain in effect).
(b) The Canadian Borrower agrees to reimburse each Canadian Lender for any
increase in the cost to such Canadian Lender of, or any reduction in the amount
of any sum receivable by such Canadian Lender in respect of, making, continuing
or maintaining (or of its obligation to make, continue or maintain) any Canadian
Loans to the Canadian Borrower as, or of converting (or of its obligation to
convert) any Canadian Loans into, Canadian BAs that arise in connection with any
change in, or the introduction, adoption, effectiveness, interpretation,
reinterpretation or phase-in after the date hereof of, any law or regulation,
directive, guideline, decision or request (whether or not having the force of
law) of any court, central bank, regulator or other governmental authority,
except for such changes with respect to increased capital costs and taxes which
are governed by SECTIONS 6.5 and 6.6, respectively. Such Canadian Lender shall
promptly notify the Canadian Agent and the Canadian Borrower in writing of the
occurrence of any such event, such notice to state, in reasonable detail, the
reasons therefor and the additional amount required fully to compensate such
Canadian Lender for such increased cost or reduced amount. Such additional
amounts shall be payable by the Canadian Borrower directly to such Canadian
Lender within five days of its receipt of such notice, and such notice shall, in
the absence of manifest error, be conclusive and binding on the Canadian
Borrower.
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SECTION 6.4. FUNDING LOSSES. In the event any Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a LIBO
Rate Loan or a Canadian BA, as the case may be) as a result of
(a) any conversion or repayment or prepayment of the principal amount
of any LIBO Rate Loans on a date other than the scheduled last day of the
Interest Period applicable thereto, whether pursuant to SECTION 5.1,
SECTION 6.11 or otherwise;
(b) any conversion or repayment of any Canadian BA on a date other
than the scheduled maturity date applicable thereto, whether pursuant to
SECTION 5.1 or otherwise;
(c) any U.S. Loans not being made as LIBO Rate Loans or any Canadian
Loans not being made as Canadian BAs, in each case in accordance with the
Borrowing Request therefor; or
(d) any U.S. Loans not being continued as, or converted into, LIBO
Rate Loans or any Canadian Loans not being continued as, or converted into,
Canadian BAs, in each case in accordance with the Continuation/Conversion
Notice therefor,
then, upon the written notice of such Lender to the applicable Borrower (with a
copy to the applicable Agent), such Borrower shall, within five days of its
receipt thereof, pay directly to such Lender such amount as will (in the
reasonable determination of such Lender) reimburse such Lender for such loss or
expense. Such written notice (which shall include calculations in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
such Borrower.
SECTION 6.5. INCREASED CAPITAL COSTS. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by any Lender or any Person controlling
such Lender, and such Lender determines (in good faith but in its sole and
absolute discretion) that the rate of return on its or such controlling Person's
capital as a consequence of the Commitments, acceptance of or participation in
Canadian BAs or the Loans made, or the Letters of Credit participated in, by
such Lender is reduced to a level below that which such Lender or such
controlling Person could have achieved but for the occurrence of any such
circumstance, then, in any such case upon notice from time to time by such
Lender to the applicable Borrower, such Borrower shall immediately pay directly
to such Lender additional amounts sufficient to compensate such Lender or such
controlling Person for such reduction in rate of return. A statement of such
Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on such Borrower. In determining such
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amount, such Lender may use any method of averaging and attribution that it (in
its sole and absolute discretion) shall deem applicable.
SECTION 6.6. TAXES. (a) Except as set forth in the next sentence, all
payments by each Borrower of principal of, and interest on, the Loans and all
other amounts payable hereunder (including in respect of fees and Reimbursement
Obligations) shall be made free and clear of and without deduction for any
present or future income, excise, sales, goods and services, value added or
stamp taxes and other taxes, fees, duties, withholdings or other charges of any
nature whatsoever levied or imposed with respect to such payments, in the case
of the U.S. Borrower, by the United States (or any taxing authority or political
subdivision thereof) and, in the case of the Canadian Borrower, Canada (or any
taxing authority or political subdivision thereof), and, in the case of either
Borrower, by any other jurisdiction as a result of a connection between such
Borrower and such jurisdiction, but excluding franchise taxes and taxes imposed
on or measured by net income, net receipts or capital of the applicable Agent or
any Lender (such non-excluded items being "TAXES"). In the event that any
withholding or deduction from any payment to be made by such Borrower hereunder
is required in respect of any Taxes pursuant to any applicable law, rule or
regulation, then such Borrower shall, subject to CLAUSES (b) through (f) below,
SECTION 6.10 and SECTION 6.11,
(i) pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(ii) promptly forward to the applicable Agent an official receipt or
other documentation reasonably satisfactory to the applicable Agent
evidencing such payment to such authority; and
(iii) pay to the applicable Agent for its account or the account of
the applicable Lenders, as the case may be, such additional amount or
amounts as necessary to ensure that the net amount actually received by the
applicable Agent or any such Lender, as the case may be, will equal the
full amount such Person would have received had no such withholding or
deduction been required.
Moreover, subject to CLAUSES (b) through (f) below, SECTION 6.10 and
SECTION 6.11, if any Taxes are directly asserted against the applicable Agent or
any Lender with respect to any payment received by the applicable Agent or such
Lender hereunder, and such Taxes are then due and payable in accordance with
applicable law, and the applicable Agent or such Lender, as the case may be,
shall pay such Taxes (and for purposes of this SECTION 6.6 and the rights of the
applicable Agent and the Lenders hereunder, a distribution by the applicable
Agent or any Lender to or for the account of the applicable Agent or any Lender
shall be deemed a payment by or on behalf of the applicable Borrower), such
Borrower will promptly pay such additional amounts (including any penalties,
interest or expenses with respect to such Taxes, together with interest on such
Taxes at a rate per annum equal to the highest rate per annum then in effect
pursuant to SECTION 5.2 for the period from the date such applicable Agent or
such Lender paid
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such Taxes through the date of reimbursement by such Borrower) as is necessary
in order that the total net amount received by such Person after the payment of
such Taxes (and any Taxes imposed on such additional amount) shall equal the
amount such Person would have received had no such Taxes been asserted.
If any Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the applicable Agent, for its account or the
account of the respective Lenders, as the case may be, the required receipts or
other required documentary evidence, such Borrower shall indemnify the
applicable Agent or such Lenders, as the case may be, for any incremental Taxes,
interest or penalties that may become payable by the applicable Agent or any
such Lender, as the case may be, as a result of any such failure.
(b) Each U.S. Lender and the U.S. Agent hereby severally (but not jointly)
represents that, under applicable law and treaties in effect as of the Closing
Date in the case of the original signatories to this Agreement and in effect as
of the date of the assignment or other transfer to or the appointment of a
Person that subsequently thereby becomes a U.S. Lender or the U.S. Agent, no
United States federal taxes will be required to be withheld by the U.S. Agent or
the U.S. Borrower with respect to any payments to be made to such Person in
respect of this Agreement. Each U.S. Lender that is an original signatory
hereto and the U.S. Agent agrees severally (but not jointly) that, prior to the
Closing Date, and each Person which becomes a U.S. Lender by assignment or
transfer pursuant to SECTION 12.11 hereof or becomes the U.S. Agent by
appointment pursuant to SECTION 11.4 hereof agrees that, prior to such
assignment, transfer or appointment, it will in each case deliver to the U.S.
Borrower and the U.S. Agent the following:
(i) in the case of a U.S. Lender that is a U.S. Person, two copies of
a statement certifying that such Person is a U.S. Person, which statement
shall contain the address of such Person's office or place of business in
the United States, and shall be signed by an authorized officer of such
Person, together with two duly completed copies of United States Internal
Revenue Service Form W-9 (or applicable successor form) (unless it
establishes to the reasonable satisfaction of such Borrower that it is
otherwise eligible for an exemption from backup withholding tax or other
applicable withholding tax), or
(ii) in the case of a U.S. Lender that is not a U.S. Person, either
(x) two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 (or applicable successor form) certifying in each case
that such Person is entitled to receive payments under this Agreement and
the Notes payable to it, without deduction or withholding of any United
States federal taxes or (y) in the case of a U.S. Lender that is not a
"bank" within the meaning of section 881(c)(3)(A) of the Code that does not
deliver Forms 1001 or 4224 pursuant to CLAUSE (i), two duly completed
copies of United States Internal Revenue Service Form W-8 and a certificate
of a duly authorized officer of such U.S. Lender to the effect that such
U.S. Lender (A) is not a "bank" within the meaning of section 881(c)(3)(A)
of the Code, (B) is a not a 10-percent shareholder of the U.S. Borrower
within the meaning of section 881(c)(3)(B) of the Code and (C) is not a
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controlled foreign corporation receiving interest from a related person
within the meaning of Section 881(c)(3)(C) of the Code and in either case,
if reasonably requested by such Borrower, two duly completed copies of
United States Internal Revenue Service Form W-8 or Form W-9 (or applicable
successor form) or such other forms or certificates as are prescribed by
law, regulation or administrative practice and that are necessary to
establish an exemption from U.S. federal withholding tax or backup
withholding tax.
Each Person who delivers to the U.S. Borrower and the U.S. Agent a Form W-8,
W-9, 1001 or 4224, or applicable successor form, pursuant to this CLAUSE (b),
further undertakes to deliver to the U.S. Borrower and the U.S. Agent two
further copies of said Form W-8, W-9, 1001, 4224, or applicable successor form,
or other manner of certification, as the case may be, on or before the date that
any such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by it to the
U.S. Borrower, and such extensions or renewals thereof as may reasonably be
requested by the U.S. Borrower, certifying that such Person is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal taxes, unless in any such case any change in law, rule,
regulation, treaty or directive, or in the interpretation or application thereof
(a "LAW CHANGE"), has occurred prior to the date on which any such delivery
would otherwise be required which renders all such forms inapplicable or which
would prevent such Person from duly completing and delivering any such form with
respect to it, in which event, promptly following such Law Change, but in any
event prior to the time the next payment under the Notes is due following such
Law Change, such Person shall advise the U.S. Borrower in writing that it is not
capable of receiving payments without any deduction or withholding of United
States federal tax.
(c) Each Canadian Lender and the Canadian Agent hereby severally (but not
jointly) represents that, under applicable law and treaties in effect as of the
Closing Date in the case of the original signatories to this Agreement and in
effect as of the date of the assignment or other transfer to or the appointment
of a Person that subsequently thereby becomes a Canadian Lender or the Canadian
Agent, no Canadian federal taxes will be required to be withheld by the Canadian
Agent or the Canadian Borrower with respect to any payments to be made to such
Person in respect of this Agreement.
(d) If, as a result of a Law Change, the applicable Agent or any Lender
(i) is unable to furnish a Borrower with an Internal Revenue Service form (or
other similar form) otherwise required to be delivered by it pursuant to this
SECTION 6.6 or (ii) makes any payment of Taxes, or becomes liable to make any
payment of Taxes, with respect to payments by a Borrower hereunder, such
Borrower's continuing obligation to make payments to the applicable Agent or
such Lender under the terms of CLAUSE (a) shall be conditioned on the applicable
Agent or such Lender, as the case may be, prior to the time that the next
payment under the Notes is due following such Law Change (and thereafter as is
required by applicable law), having furnished such Borrower with any necessary
certificate and having taken such other steps as may be commercially reasonably
available to it (but in no event shall the applicable Agent or any such Lender
be required to take any action which is inconsistent with its internal policies
or would be
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otherwise adverse to the applicable Agent or such Lender or its Credit
Extensions hereunder) under applicable tax laws and any applicable tax treaty or
convention to obtain an exemption from, or reduction (to the lowest applicable
rate) of, such Taxes. Notwithstanding any provision of CLAUSE (a) to the
contrary, no Borrower shall have any obligation to pay any Taxes (except to the
extent reasonably believed by such Borrower to be required by law in which event
such Taxes may be paid by withholding from amounts otherwise payable to a Lender
or the applicable Agent) pursuant to CLAUSE (a), or to pay any amount to the
applicable Agent or any Lender pursuant to CLAUSE (a), to the extent that such
amount results from (i) the failure of any Lender or the applicable Agent to
comply with its obligations pursuant to this SECTION 6.6, SECTION 2.5 or CLAUSE
(iii) or (iv) of the second proviso of the first sentence of SECTION 12.11.1,
(ii) any representation or warranty made or, pursuant to any certificate
required to be delivered hereunder or under any Lender Assignment Agreement,
deemed to be made by any Lender or the applicable Agent pursuant to this SECTION
6.6, SECTION 2.5 or CLAUSE (iii) or (iv) of the second proviso of the first
sentence of SECTION 12.11.1 proving to have been incorrect when made or deemed
to have been made in any material respect or (iii) such Person being a "conduit
entity" (a "CONDUIT ENTITY") within the meaning of U.S. Treasury Regulation
Section 1.881-3 or any successor provision thereto. Each Lender agrees to
indemnify and hold harmless each Borrower and the applicable Agent from and
against any taxes, penalties, interest or other costs or losses (including
reasonable attorneys' fees and expenses) incurred or payable by such Borrower or
the applicable Agent as a result of the failure of such Borrower or the
applicable Agent to comply with its obligations to deduct or withhold any Taxes
from any payments made pursuant to this Agreement to such Lender or the
applicable Agent which failure resulted from (i) such Borrower's or the
applicable Agent's reliance on any form, statement, certificate or other
information provided to it by, or made by, such Lender pursuant to this SECTION
6.6 or SECTION 12.11.1 or (ii) such Lender being a Conduit Entity.
(e) If any Agent or any Lender receives a refund in respect of Taxes paid
by a Borrower, such Agent or Lender shall promptly pay such refund, together
with any other amounts paid by such Borrower pursuant to CLAUSE (a) in
connection with such refunded Taxes, to such Borrower, PROVIDED, HOWEVER, that
such Borrower agrees to promptly return such refund to the applicable Agent or
the applicable Lender, as the case may be, after it receives notice from the
applicable Lender that such Lender is required to repay such refund.
(f) The agreements in this Section shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable hereunder.
SECTION 6.7. PAYMENTS, COMPUTATIONS, ETC. Unless otherwise expressly
provided, all payments by any Borrower pursuant to this Agreement, the Notes,
each Letter of Credit or any other Loan Document shall be made by such Borrower
to the applicable Agent (or, in the case of amounts received as a result of the
exercise of remedies, by such Agent to the applicable Secured Parties), in each
case, for the PRO RATA account of the applicable Secured Parties entitled to
receive such payments. All such payments required to be made to the applicable
Agent shall be made, without setoff, deduction or counterclaim, not later than
2:00 p.m. (local time) on the date due, in
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same day or immediately available funds, to such account as the applicable Agent
shall specify from time to time by notice to such Borrower. Funds received
after that time shall be deemed to have been received by the applicable Agent on
the next succeeding Business Day. The applicable Agent shall promptly remit in
same day funds to each applicable Secured Party its share, if any, of such
payments received by the applicable Agent for the account of such Secured Party.
All interest (including interest on LIBO Rate Loans) and fees shall be computed
on the basis of the actual number of days (including the first day but excluding
the last day) occurring during the period for which such interest or fee is
payable over a year comprised of 360 days (or, in the case of interest on a U.S.
Base Rate Loan (calculated at other than the Federal Funds Rate) or a Canadian
Prime Rate Loan, 365 days or, if appropriate, 366 days). Whenever any payment
to be made shall otherwise be due on a day which is not a Business Day, such
payment shall (except as otherwise required by CLAUSE (e) of the definition of
the term "INTEREST PERIOD") be made on the next succeeding Business Day and such
extension of time shall be included in computing interest and fees, if any, in
connection with such payment.
SECTION 6.8. SHARING OF PAYMENTS. If any Lender shall obtain any payment
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan or Reimbursement Obligation (other than
pursuant to the terms of SECTION 6.3, 6.4, 6.5 or 6.6) in excess of its PRO RATA
share of payments then or therewith obtained by all Lenders making Loans under
the same Facility, such Lender shall purchase from the other Lenders such
participations in Credit Extensions made by them as shall be necessary to cause
such purchasing Lender to share the excess payment or other recovery ratably
with each of them; PROVIDED, HOWEVER, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and each Lender which has sold a participation
to the purchasing Lender shall repay to the purchasing Lender the purchase price
to the ratable extent of such recovery together with an amount equal to such
selling Lender's ratable share (according to the proportion of
(a) the amount of such selling Lender's required repayment to the
purchasing Lender
TO
(b) the total amount so recovered from the purchasing Lender)
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. Each Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section may,
to the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to SECTION 6.9) with respect to such participation as fully
as if such Lender were the direct creditor of such Borrower in the amount of
such participation. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a setoff to which
this Section applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with
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the rights of the Lenders entitled under this Section to share in the benefits
of any recovery on such secured claim.
SECTION 6.9. SETOFF. Each Lender shall, upon the occurrence and during
the continuance of any Default described in CLAUSES (a) through (d) of SECTION
10.1.9 with respect to a Borrower or any Significant Subsidiary or, with the
consent of the Required Lenders, upon the occurrence and during the continuance
of any other Event of Default, have the right to appropriate and apply to the
payment of the Obligations owing to it (whether or not then due), and (as
security for such Obligations) each Borrower hereby grants to each Lender a
continuing security interest in, any and all balances, credits, deposits,
accounts or moneys of such Borrower then or thereafter maintained with such
Lender; PROVIDED, HOWEVER, that any such appropriation and application shall be
subject to the provisions of SECTION 6.8. Each Lender agrees promptly to notify
such Borrower and the applicable Agent after any such setoff and application
made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice
shall not affect the validity of such setoff and application. The rights of
each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which such
Lender may have.
SECTION 6.10. LENDER'S DUTY TO MITIGATE. Each Lender agrees that as
promptly as practicable after it becomes aware of the occurrence of an event or
the existence of a condition that would cause it to be affected under
SECTION 6.1, 6.2, 6.5 or 6.6 or that would entitle such Lender to receive
payments under SECTION 6.3, such Lender will give notice thereof to the
applicable Borrower and, to the extent not inconsistent with such Lender's
internal policies (or, even if inconsistent with such internal policies, if at
such time or at a time reasonably near to such time such Lender has taken action
similar to the action contemplated by this Section for the benefit of
substantially all of its other similarly situated commercial borrowers), such
Lender shall use all commercially reasonable efforts to make, fund or maintain
its affected LIBO Rate Loans through another lending office of such Lender if,
as a result thereof, the additional moneys which would otherwise be required to
be paid to such Lender pursuant to SECTION 6.2, 6.3, 6.5 or 6.6, as the case may
be, would be materially reduced, or the illegality or other adverse
circumstances which would otherwise require a conversion of such Loans pursuant
to SECTION 6.1 would cease to exist, and if, as determined by such Lender in its
reasonable discretion, the making, funding or maintaining of such Loans through
such other lending office would not otherwise materially adversely affect such
Loans or such Lender.
SECTION 6.11. REPLACEMENT OF LENDERS. Each Lender hereby severally
agrees as set forth in this Section.
(a) If any Lender (a "SUBJECT LENDER") makes demand upon a Borrower
for (or if a Borrower is otherwise required to pay) amounts pursuant to
SECTION 6.2, 6.3, 6.5 or 6.6, or gives notice pursuant to SECTION 6.1
requiring a conversion of such Subject Lender's LIBO Rate Loans to U.S.
Base Rate Loans or Canadian BAs to Canadian Prime Rate Loans, the
applicable Borrower may, within 90 days of receipt by such Borrower of such
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demand or notice (or the occurrence of such other event causing such
Borrower to be required to pay such compensation), as the case may be, give
notice (a "REPLACEMENT NOTICE") in writing to the applicable Agent and such
Subject Lender of its intention to replace such Subject Lender with a
financial institution designated in such Replacement Notice. If the
applicable Agent shall, in the exercise of its reasonable discretion and
within 30 days of its receipt of such Replacement Notice, notify such
Borrower and such Subject Lender in writing that the designated financial
institution is satisfactory to the applicable Agent, then such Subject
Lender shall, so long as no Default or Event of Default shall have occurred
and be continuing (and subject to the payment of any amounts due pursuant
to SECTION 6.4), assign, in accordance with SECTION 12.11.1, all of its
Commitments, Loans, Notes and other rights and obligations under this
Agreement and all other Loan Documents (including Reimbursement
Obligations) to such designated financial institution; PROVIDED, HOWEVER,
that (i) such assignment shall be without recourse, representation or
warranty (other than that such Lender owns the Commitments, Loans and Notes
being assigned, free and clear of any Liens) and shall be on terms and
conditions reasonably satisfactory to such Subject Lender and such
designated financial institution and (ii) the purchase price paid by such
designated financial institution shall be in the amount of such Subject
Lender's Loans and its Percentage of outstanding Reimbursement Obligations,
together with all accrued and unpaid interest and fees in respect thereof,
plus all other amounts (including the amounts demanded and unreimbursed
under SECTIONS 6.2, 6.3, 6.5 and 6.6), owing to such Subject Lender
hereunder.
(b) In the event that S&P or Moody's shall, after the date that any
Person becomes a Lender, downgrade the long-term certificate of deposit
ratings of such Lender, and the resulting ratings shall be below BBB- or
Baa3, respectively, or the equivalent, then the applicable Borrower and
each applicable Issuer shall each have the right, but not the obligation,
upon notice to such Lender and the applicable Agent, to replace such Lender
with a financial institution (a "REPLACEMENT LENDER") acceptable to such
Borrower and the applicable Agent (such consents not to be unreasonably
withheld or delayed; PROVIDED that no such consent shall be required if the
Replacement Lender is an existing Lender), and upon any such downgrading of
any Lender's long-term certificate of deposit rating, each such Lender
hereby agrees to transfer and assign (in accordance with and subject to the
restrictions contained in SECTION 12.11.1) its Commitments, Loans, Notes
and other rights and obligations under this Agreement and all other Loan
Documents (including Reimbursement Obligations) to such Replacement Lender;
PROVIDED, HOWEVER, that (i) such assignment shall be without recourse,
representation or warranty (other than that such Lender owns the
Commitments, Loans and Notes being assigned, free and clear of any Liens)
and (ii) the purchase price paid by the Replacement Lender shall be in the
amount of such Lender's Loans and its Percentage of outstanding
Reimbursement Obligations, together with all accrued and unpaid interest
and fees in respect thereof, plus all other amounts (other than the amounts
(if any) demanded and unreimbursed under SECTIONS 6.2, 6.3, 6.5 and 6.6,
which shall be paid by such Borrower), owing to such
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Lender hereunder. Upon any such termination or assignment, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of any provisions of this Agreement which by their terms survive
the termination of this Agreement.
(c) Upon the effective date of an assignment described in CLAUSE (a)
or (b), the applicable Borrower shall issue a replacement Note or Notes, as
the case may be, to such designated financial institution or Replacement
Lender, as applicable, and such institution shall become a "Lender" for all
purposes under this Agreement and the other Loan Documents. In the case of
CLAUSE (a), the applicable Agent agrees to use all commercially reasonable
efforts to assist such Borrower in locating a replacement financial
institution to replace any Subject Lender; PROVIDED, HOWEVER, that such
Agent shall have no obligation to become a Replacement Lender; PROVIDED,
FURTHER, HOWEVER, that such Borrower agrees to pay all reasonable costs and
expenses incurred by the applicable Agent in providing such assistance.
ARTICLE VII
CONDITIONS TO CREDIT EXTENSIONS
SECTION 7.1. INITIAL CREDIT EXTENSIONS. The obligations of each Lender
and each Issuer, as applicable, to fund the initial Credit Extensions under this
Agreement shall be subject to the prior or concurrent satisfaction of each of
the conditions precedent set forth in this SECTION 7.1.
SECTION 7.1.1. RESOLUTIONS, ETC. The Agents shall have received from
(i) each U.S. Obligor, as applicable, a copy of a good standing certificate or
similar certificate issued by the relevant jurisdiction, dated a date reasonably
close to the Effective Date, for each such Person and (ii) from each Obligor, a
certificate, dated the Closing Date and with counterparts for each Lender, duly
executed and delivered by such Person's Secretary or Assistant Secretary as to
(a) resolutions of each such Person's Board of Directors then in full
force and effect authorizing, to the extent relevant, the execution,
delivery and performance of this Agreement, the Notes and each other Loan
Document to be executed by such Person and the transactions contemplated
hereby and thereby;
(b) the incumbency and signatures of those of its officers authorized
to act, if applicable, with respect to this Agreement, the Notes and each
other Loan Document to be executed by such Person; and
(c) the full force and validity of each Organic Document of such
Person together with copies thereof,
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upon which certificates each Lender, each Issuer and each Agent may conclusively
rely until it shall have received a further certificate of the Secretary or
Assistant Secretary of any such Person canceling or amending the prior
certificate of such Person.
SECTION 7.1.2. DELIVERY OF NOTES. The Agents shall have received,
(i) for the account of each U.S. Lender that has requested a Note prior to the
Closing Date, such U.S. Lender's U.S. Notes duly executed and delivered by an
Authorized Officer of the U.S. Borrower, and (ii) for the account of each
Canadian Lender that has requested a Note prior to the Closing Date, such
Canadian Lender's Canadian Notes duly executed and delivered by an Authorized
Officer of the Canadian Borrower.
SECTION 7.1.3. COMPLIANCE CERTIFICATE. The Agents shall have received,
with counterparts for each Lender, an initial Compliance Certificate on a
consolidated pro forma basis as if the Credit Extensions to be made on the
Closing Date had been made as of March 31, 1998 evidencing PRO FORMA compliance
with the financial covenants set forth in SECTION 9.2.4 as of March 31, 1998,
and as to such items therein as the Agents reasonably request, dated the Closing
Date, duly executed (and with all schedules thereto duly completed) and
delivered by the chief executive, financial or accounting Authorized Officer of
the U.S. Borrower.
SECTION 7.1.4. FINANCIAL INFORMATION. The Agents shall have received,
with counterparts for each Lender, a pro forma consolidated balance sheet of the
U.S. Borrower and its Subsidiaries, as of March 31, 1998 (the "PRO FORMA BALANCE
SHEET"), certified by the chief financial or accounting Authorized Officer of
the U.S. Borrower, giving effect to the Credit Extensions to be made on the
Closing Date.
SECTION 7.1.5. AFFIRMATION AND CONSENT. The Agents shall have received
an affirmation and consent in form and substance satisfactory to them, executed
and delivered by an Authorized Officer of each Obligor (other than the
Borrowers) under the Existing Credit Agreement and related Loan Documents.
SECTION 7.1.6. CLOSING FEES, EXPENSES, ETC. The Agents shall have
received for their own account, or for the account of each Lender, as the case
may be, all fees, costs and expenses due and payable pursuant to SECTIONS 5.3
and 12.3, if then invoiced.
SECTION 7.1.7. OPINIONS OF COUNSEL. The Agents shall have received
opinions, dated the Closing Date and addressed to the Agents and all Lenders,
from
(a) Debevoise & Plimpton, counsel to the Obligors, in form and
substance satisfactory to the U.S. Agent; and
(b) Buchwald Asper Gallagher Henteleff, Canadian counsel to the
Obligors, in form and substance satisfactory to the Canadian Agent.
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SECTION 7.2. ALL CREDIT EXTENSIONS. The obligation of each Lender and
each Issuer to make any Credit Extension shall be subject to SECTIONS 2.1.4 and
2.1.5 or SECTIONS 3.1.4 and 3.1.5, as the case may be, and the satisfaction of
each of the conditions precedent set forth in this SECTION 7.2.
SECTION 7.2.1. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before
and after giving effect to any Credit Extension (but, if any Default of the
nature referred to in SECTION 10.1.5 shall have occurred with respect to any
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds thereof) the following statements shall be true and
correct:
(a) the representations and warranties set forth in ARTICLE VIII
(excluding, however, those contained in SECTION 8.7) and in each other Loan
Document shall, in each case, be true and correct in all material respects
with the same effect as if then made (unless stated to relate solely to an
earlier date, in which case such representations and warranties shall be
true and correct in all material respects as of such earlier date);
(b) except as disclosed by the U.S. Borrower to the Agents and the
Lenders pursuant to SECTION 8.7,
(i) no labor controversy, litigation, arbitration or governmental
investigation or proceeding shall be pending or, to the knowledge of
the U.S. Borrower, threatened against Parent or the U.S. Borrower or
any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect, or which would adversely affect the legality,
validity or enforceability of this Agreement, the Notes or any other
Loan Document; and
(ii) no development shall have occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed pursuant to SECTION 8.7 which could reasonably be expected
to have a Material Adverse Effect; and
(c) no Default shall have then occurred and be continuing, and neither
Parent nor the U.S. Borrower or any of its Subsidiaries shall be in
material violation of any law or governmental regulation or court order or
decree, which violation would, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 7.2.2. CREDIT EXTENSION REQUEST, ETC. Subject to SECTIONS 2.3
and 3.3, as the case may be, the applicable Agent shall have received a
Borrowing Request if Loans are being requested, or an Issuance Request if a
Letter of Credit is being requested or extended. Each of the delivery of a
Borrowing Request or Issuance Request and the acceptance by a Borrower of the
proceeds of such Credit Extension shall constitute a representation and warranty
by such Borrower that on the date of such Credit Extension (both immediately
before and after giving
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effect to such Credit Extension and the application of the proceeds thereof) the
statements made in SECTION 7.2.1 are true and correct in all material respects.
SECTION 7.2.3. SATISFACTORY LEGAL FORM. All documents executed or
submitted pursuant hereto by or on behalf of the U.S. Borrower or any of its
Subsidiaries or any other Obligors shall be reasonably satisfactory in form and
substance to the Agents and its counsel; the Agents and their counsel shall have
received all information, approvals, opinions, documents or instruments as the
Agents or their counsel may reasonably request.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, each Issuer and the Agents to enter into
this Agreement and to make Credit Extensions hereunder, each Borrower represents
and warrants (as applicable) unto the Agents, each Issuer and each Lender as set
forth in this ARTICLE VIII.
SECTION 8.1. ORGANIZATION, ETC. Each Borrower and each of its
Subsidiaries is a corporation validly organized and existing and in good
standing under the laws of the state or jurisdiction of its incorporation, is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction where the nature of its business requires such
qualification (except where the failure to so qualify would not, individually or
in the aggregate, have a Material Adverse Effect), and has full power and
authority and holds all requisite governmental licenses, permits and other
approvals to enter into and perform its Obligations under this Agreement, the
Notes and each other Loan Document to which it is a party (except to the extent
the failure to have any such license, permit or other approval would not have a
Material Adverse Effect or adversely affect the ability of any Borrower or any
Obligor to own and hold under lease its property and to conduct its business
substantially as currently conducted by it).
SECTION 8.2. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by each Borrower of this Agreement, the Notes and each
other Loan Document executed or to be executed by it, the execution, delivery
and performance by each other Obligor of each Loan Document executed or to be
executed by it are in each case within each such Person's corporate powers, have
been duly authorized by all necessary corporate action, and do not
(a) contravene any such Person's Organic Documents;
(b) contravene any contractual restriction (except for such
contraventions that (x) would not, singly or in the aggregate, have a
Material Adverse Effect, (y) would not result in the creation of any Lien
(except as expressly permitted by this Agreement) or
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(z) would not subject either Agent, any Issuer or any Lender to any
liability) binding on or affecting any such Person;
(c) contravene (i) any court decree or order binding on or affecting
any such Person or (ii) any law or governmental regulation binding on or
affecting any such Person; or
(d) result in, or require the creation or imposition of, any Lien on
any of such Person's properties (except as expressly permitted by this
Agreement).
SECTION 8.3. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person (other than (i) those that have
been, or on the Effective Date will be, duly obtained or made and which are, or
on the Effective Date will be, in full force and effect, (ii) following the
Closing Date, routine filings with and notices to governmental authorities,
regulatory bodies or other Persons and (iii) those the failure of which to be
obtained could not reasonably be expected individually or in the aggregate to
have a Material Adverse Effect) is required for the due execution, delivery or
performance by each Borrower of this Agreement or the Notes or by any Borrower
or any other Obligor of any other Loan Document to which it is a party. Neither
Borrower nor any Subsidiary is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 8.4. VALIDITY, ETC. This Agreement constitutes, and the Notes
and each other Loan Document executed by a Borrower will, on the due execution
and delivery thereof, constitute, the legal, valid and binding obligations of
such Borrower, enforceable against such Borrower in accordance with their
respective terms; and each other Loan Document executed pursuant hereto by each
other Obligor will, on the due execution and delivery thereof by such Obligor,
constitute the legal, valid and binding obligation of such Obligor enforceable
against such Obligor in accordance with its terms (except, in any case above, as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
principles of equity).
SECTION 8.5. FINANCIAL INFORMATION. Subject to the last sentence of
SECTION 8.15, the financial statements of the U.S. Borrower and its
Subsidiaries furnished to the U.S. Agent and each Lender pursuant to SECTION
7.1.17 have been prepared in accordance with GAAP consistently applied, and
present fairly the consolidated financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended. All balance sheets, all statements of operations,
shareholders' equity and cash flow and all other financial information of each
of the U.S. Borrower and its Subsidiaries furnished pursuant to SECTION 9.1.1
have been and will for periods following the Effective Date be prepared
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in accordance with GAAP consistently applied, and do or will present fairly the
consolidated financial condition of the corporations covered thereby as at the
dates thereof and the results of their operations for the periods then ended,
except that quarterly financial statements need not include footnote disclosure
and may be subject to ordinary year-end adjustment.
SECTION 8.6. NO MATERIAL ADVERSE CHANGE. There has been no material
adverse change in the consolidated financial condition, results of operations,
assets, business or properties or, as of the Closing Date, prospects, of the
U.S. Borrower and its Subsidiaries taken as a whole since March 31, 1997, except
to the extent that the incurrence of Indebtedness pursuant to this Agreement
and/or the Subordinated Debt, or the repayment of any Indebtedness of the U.S.
Borrower and its Subsidiaries on the Effective Date or payments to stockholders
of the U.S. Borrower and the Canadian Borrower, or of management bonuses and
transaction costs and expenses, would individually or in the aggregate be deemed
such a material adverse change.
SECTION 8.7. LITIGATION, LABOR CONTROVERSIES, ETC. There is no pending
or, to the knowledge of the U.S. Borrower, threatened litigation, action,
proceeding, or labor controversy (i) affecting the U.S. Borrower or any of its
Subsidiaries, or any of their respective properties, businesses, assets or
revenues, which would reasonably be expected to have a Material Adverse Effect,
except as disclosed in ITEM 8.7 ("Litigation") of the Disclosure Schedule or
(ii) which would adversely affect the legality, validity or enforceability of
this Agreement, the Notes or any other Loan Document.
SECTION 8.8. SUBSIDIARIES. The U.S. Borrower has no Subsidiaries,
except those Subsidiaries
(a) which are identified in ITEM 8.8 ("Existing Subsidiaries") of the
Disclosure Schedule; or
(b) which are permitted to have been organized or acquired in
accordance with SECTION 9.2.5 or 9.2.10.
SECTION 8.9. OWNERSHIP OF PROPERTIES. Except as disclosed in ITEM 8.9
("Plant Sites and Property Matters") of the Disclosure Schedule, or as permitted
pursuant to SECTION 8.13 or SECTION 9.2.3, the U.S. Borrower and each of its
Subsidiaries owns (except where the failure to own such property as provided in
this SECTION 8.9 would not reasonably be expected to have a Material Adverse
Effect) (i) in the case of owned Real Property, good and marketable fee title
to, and (ii) in the case of owned personal property, good and valid title to,
or, in the case of leased real or personal property, valid and enforceable
leasehold interests (as the case may be) in, all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever, free and
clear in each case of all Liens or claims.
SECTION 8.10. TAXES. The U.S. Borrower and each of its Subsidiaries
has filed all material tax returns and reports required by law to have been
filed by it and has paid all taxes and
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governmental charges thereby shown to be due and owing, except any such taxes or
charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
SECTION 8.11. PENSION AND WELFARE PLANS. (a) During the
twelve-consecutive-month period prior to June 30, 1997 and prior to the date of
any Credit Extension hereunder, no formal steps have been taken to terminate any
Pension Plan other than in a standard termination under Section 4041(b) of
ERISA, and no contribution failure has occurred with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA in either case
which would reasonably be expected to have a Material Adverse Effect. No
condition exists or event or transaction has occurred with respect to any
Pension Plan which (i) could reasonably be expected to result in the incurrence
by the U.S. Borrower or any Subsidiary of any liability, fine or penalty which
would have a Material Adverse Effect, or (ii) could reasonably be expected to
result in the incurrence by a member of the U.S. Borrower's Controlled Group
(other than the U.S. Borrower or the U.S. Borrower and its Subsidiaries) of any
material liability, fine or penalty which would have a Material Adverse Effect.
(b) Except for liabilities (if any) arising under the terms and conditions,
as in effect on the Closing Date, of the Plans disclosed in ITEM 8.11 ("Employee
Benefit Plan") of the Disclosure Schedule, neither the U.S. Borrower nor any
Subsidiary has any contingent liability with respect to any post-retirement
benefit under a Welfare Plan in either case which would reasonably be expected
to have a Material Adverse Effect, other than (i) liability for continuation
coverage described in Part 6 of Title I of ERISA and in Section 4980B of the
Code, (ii) liability for any Plan required by law to be extended to employees
outside of the U.S., or (iii) a modification of, or addition to, the retiree
benefit obligations disclosed in ITEM 8.11 ("Employee Benefit Plan") of the
Disclosure Schedule which when taken together with any other addition or
modification since the Closing Date do not materially increase the U.S.
Borrower's and its Subsidiaries' annual cost of providing such benefits.
SECTION 8.12. ENVIRONMENTAL WARRANTIES. Except as set forth in ITEM
8.12 ("Environmental Matters") of the Disclosure Schedule:
(a) to the best knowledge of the U.S. Borrower, all facilities and
property owned or leased by the U.S. Borrower or any of its Subsidiaries
are in compliance with all Environmental Laws the violation of which would
reasonably be expected to have a Material Adverse Effect;
(b) there are no pending or, to the best knowledge of the U.S.
Borrower, threatened
(i) claims, complaints, notices or requests for information
received by the U.S. Borrower or any of its Subsidiaries with respect
to any alleged violation of any Environmental Law, or
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(ii) complaints, notices or inquiries to the U.S. Borrower or any
of its Subsidiaries regarding potential liability under any
Environmental Law
that, in the case of CLAUSES (b)(i) and (b)(ii), singly or in the
aggregate, would have a Material Adverse Effect;
(c) there have been no Releases of Hazardous Materials (other than
pursuant to permits, licenses, approvals or other governmental consents or
authorization for any such Releases) at, on or under any property now or
previously owned or leased by the U.S. Borrower or any of its Subsidiaries
that, singly or in the aggregate, have, or may reasonably be expected to
have, a Material Adverse Effect;
(d) to the best knowledge of the U.S. Borrower, the U.S. Borrower and
its Subsidiaries have been issued and are in material compliance with all
permits, certificates, approvals, licenses and other authorizations
relating to environmental matters and necessary for their businesses,
except for those permits, certificates, approvals, licenses and
authorizations the failure to obtain which or the failure to comply with
which would not reasonably be expected to have a Material Adverse Effect;
(e) no property now or, to the best knowledge of the U.S. Borrower,
previously owned or leased by the U.S. Borrower or any of its Subsidiaries
is listed or proposed for listing on the National Priorities List pursuant
to CERCLA, or, to the best knowledge of the U.S. Borrower, on the CERCLIS
or on any similar state list of sites requiring investigation or clean-up;
(f) to the best knowledge of the U.S. Borrower, there are no
underground storage tanks, active or abandoned, including petroleum storage
tanks, on or under any property now or previously owned or leased by the
U.S. Borrower or any of its Subsidiaries that, singly or in the aggregate,
have, or may reasonably be expected to have, a Material Adverse Effect;
(g) to the best knowledge of the U.S. Borrower, neither the U.S.
Borrower, nor any Subsidiary has directly transported or directly arranged
for the transportation of any Hazardous Material to any location which is
listed or proposed for listing on the National Priorities List pursuant to
CERCLA, on the CERCLIS or on any similar state list or which is the subject
of federal, state or local enforcement actions or other investigations
which may reasonably be expected to lead to claims against the U.S.
Borrower or such Subsidiary thereof for any remedial work, damage to
natural resources or personal injury, including claims under CERCLA, which,
singly or in the aggregate, have had, or may reasonably be expected to
have, a Material Adverse Effect;
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(h) to the best knowledge of the U.S. Borrower, there are no
polychlorinated biphenyls or friable asbestos present at any property now
or previously owned or leased by the U.S. Borrower or any Subsidiary that,
singly or in the aggregate, have had, or may reasonably be expected to
have, a Material Adverse Effect; and
(i) to the best knowledge of the U.S. Borrower, no generation,
manufacture, storage, treatment, transportation or disposal of Hazardous
Material has occurred or is occurring on or from any property owned by the
U.S. Borrower or any of its Subsidiaries that, in either case above, singly
or in the aggregate, has had, or would reasonably be expected to have, a
Material Adverse Effect.
SECTION 8.13. INTELLECTUAL PROPERTY. Each of the U.S. Borrower and its
Subsidiaries owns and possesses or licenses (as the case may be) all such
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, service marks, service mark rights and copyrights as the U.S. Borrower
considers necessary for the conduct of the businesses of the U.S. Borrower and
its Subsidiaries as now conducted without, individually or in the aggregate, any
infringement upon rights of other Persons, in each case except as could not
reasonably be expected to result in a Material Adverse Effect, and there is no
individual patent, patent right, trademark, trademark right, trade name, trade
name right, service mark, service mark right or copyright the loss of which
would result in a Material Adverse Effect, except as may be disclosed in
ITEM 8.13 ("Intellectual Property") of the Disclosure Schedule.
SECTION 8.14. REGULATIONS U AND X. Neither the U.S. Borrower nor any
of its Subsidiaries is engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock, and no proceeds of any Credit
Extensions will be used for a purpose which violates, or would be inconsistent
with, F.R.S. Board Regulation U or X. Terms for which meanings are provided in
F.R.S. Board Regulation U or X or any regulations substituted therefor, as from
time to time in effect, are used in this Section with such meanings.
SECTION 8.15. ACCURACY OF INFORMATION. None of the factual information
heretofore or contemporaneously furnished by or on behalf of the U.S. Borrower
or any of its Subsidiaries in writing to the Agents, any Issuer or any Lender
for purposes of or in connection with this Agreement or any transaction
contemplated hereby, contains any untrue statement of a material fact, and none
of the other factual information hereafter furnished in connection with this
Agreement or any other Loan Document by the U.S. Borrower or any other Obligor
to the Agents, any Issuer or any Lender will contain any untrue statement of a
material fact on the date as of which such information is dated or certified
and, as of the date of the execution and delivery of this Agreement by the
Agents and each Lender, the information delivered prior to the date of execution
and delivery of this Agreement (unless such information specifically relates to
a prior date) does not, and the factual information hereafter furnished shall
not on the date as of which such information is dated or certified, omit to
state any material fact necessary to make any information not misleading.
Notwithstanding the foregoing, all projections, including forecasts, budgets,
pro formas and forward-looking statements (the "PROJECTIONS"), prepared or to be
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prepared by or on behalf of the U.S. Borrower or any other Obligor contained in
any documents or materials furnished by the U.S. Borrower or any other Obligor
to the Agents, any Issuer or any Lender (including the Projections included in
(i) the bank memorandum furnished to the Lenders with respect to the U.S.
Borrower and the PRO FORMA balance sheet furnished pursuant to CLAUSE (b) of
SECTION 7.1.17, (ii) the PRO FORMA Compliance Certificate furnished pursuant to
SECTION 7.1.12 and (iii) the budgets to be furnished pursuant to CLAUSE (i) of
SECTION 9.1.1) have been or will be prepared on the basis of assumptions
believed by the U.S. Borrower to be reasonable as of the date of preparation of
such memorandum, PRO FORMA balance sheet, PRO FORMA Compliance Certificate, or
budgets (and the foregoing sentence shall not apply to such Projections), it
being acknowledged and agreed, however, that such Projections as to future
events should not be viewed as facts and that the U.S. Borrower makes no
representation or warranty that such Projections will be realized.
SECTION 8.16. SENIOR INDEBTEDNESS, ETC. The Subordinated Indenture and
the Subordinated Notes constitute the legal, valid and binding obligation of the
U.S. Borrower enforceable against the U.S. Borrower in accordance with its
terms, subject, as to enforcement, only to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally and general equitable principles. The subordination
provisions of the Subordinated Notes and contained in the Subordinated Indenture
continue to be enforceable against the Subordinated Note Holders by the holder
of any Bank Debt (as defined in the Subordinated Indenture) which has not
effectively waived the benefits thereof. All Obligations, including those to
pay principal of and interest (including post-petition interest) on the Loans
and Reimbursement Obligations, and fees and expenses in connection therewith,
constitute Bank Debt (as defined in the Subordinated Indenture) and all such
Obligations are entitled to the benefits of the subordination created by the
Subordinated Indenture. The U.S. Borrower acknowledges that the Agents, the
Issuers and each Lender is entering into this Agreement, and is extending its
Commitments, in reliance upon the subordination provisions of the Subordinated
Indenture, the Subordinated Notes and this Section.
ARTICLE IX
COVENANTS
SECTION 9.1. AFFIRMATIVE COVENANTS. Each Borrower agrees with each
Agent, each Issuer and each Lender that, until all Commitments have terminated
and all Obligations then due and owing have been paid and performed in full,
each Borrower will perform or cause to be performed the obligations set forth in
this SECTION 9.1 that are applicable to such Borrower.
SECTION 9.1.1. FINANCIAL INFORMATION, REPORTS, NOTICES, ETC. The U.S.
Borrower will furnish, or will cause to be furnished, to each Lender, each
Issuer and each Agent copies of the following financial statements, reports,
notices and information:
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(a) as soon as available and in any event within 45 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year of the U.S.
Borrower, consolidated and, if requested by the U.S. Agent, consolidating
balance sheets of the U.S. Borrower and its Subsidiaries as of the end of
such Fiscal Quarter and consolidated and, if requested by the U.S. Agent,
consolidating statements of earnings and cash flow of the U.S. Borrower and
its consolidated Subsidiaries for such Fiscal Quarter and for the period
commencing at the end of the previous Fiscal Year and ending with the end
of such Fiscal Quarter and, in addition, commencing with the consolidated
and, if requested by the U.S. Agent, consolidating balance sheets to be
delivered hereunder for the Fiscal Quarter ending December 31, 1998, the
consolidated and, if requested by the U.S. Agent, consolidating statement
of earnings to be delivered hereunder for the Fiscal Quarter ending
December 31, 1998, and the consolidated and, if requested by the U.S.
Agent, consolidating statement of cash flow to be delivered hereunder for
the Fiscal Quarter ending December 31, 1998, comparable information
adjusted to reflect any changes at the close of and for the corresponding
Fiscal Quarter for the prior Fiscal Year and for the corresponding portion
of such Fiscal Year, in each case certified as complete and correct by the
chief financial Authorized Officer of the U.S. Borrower; PROVIDED, HOWEVER,
that for the period from the Effective Date through the date of delivery of
the financial information for the Fiscal Quarter ending September 30, 1998,
the U.S. Borrower will furnish consolidating statements of operating income
for the U.S. Borrower and its Subsidiaries and for the Canadian Borrower,
in each case for the corresponding Fiscal Quarter for the prior Fiscal Year
and for the corresponding portion of such Fiscal Year;
(b) as soon as available and in any event within 90 days after the end
of each Fiscal Year of the U.S. Borrower, a copy of the annual audited
financial statements for such Fiscal Year for the U.S. Borrower and its
consolidated Subsidiaries, including therein consolidated and, if requested
by the U.S. Agent, consolidating, balance sheets of the U.S. Borrower and
its consolidated Subsidiaries as of the end of such Fiscal Year and
consolidated and, if requested by the U.S. Agent, consolidating, statements
of earnings and cash flow of the U.S. Borrower and its consolidated
Subsidiaries for such Fiscal Year, in the case of such consolidated (but
not consolidating) statements as audited (without any Impermissible
Qualification) by independent public accountants acceptable to the U.S.
Agent, together with a certificate from such accountants to the effect
that, in making the examination necessary for the signing of such annual
report by such accountants, they have not become aware of any Default or
Event of Default that has occurred and is continuing with respect to the
provisions of SECTIONS 9.2.4, 9.2.8, 9.2.10, 10.1.5 and 10.1.7 (limited, in
the case of SECTIONS 10.1.5 and 10.1.7, to reviewing the minutes of the
board of directors of the U.S. Borrower and its Subsidiaries), or, if they
have become aware of such Default or Event of Default, describing such
Default or Event of Default;
(c) as soon as available and in any event within 45 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year of the U.S.
Borrower and within
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90 days after the end of the Fiscal Year of the U.S. Borrower, a Compliance
Certificate, executed by the chief executive, financial or accounting
Authorized Officer of the U.S. Borrower, showing (in reasonable detail and
with appropriate calculations and computations in all respects reasonably
satisfactory to the U.S. Agent) compliance with the financial covenants set
forth in ARTICLE IX;
(d) as soon as possible and in any event within five Business Days
after the U.S. Borrower or any of its Subsidiaries obtains knowledge of the
occurrence of each Default, a statement of the chief executive, financial
or accounting Authorized Officer of the U.S. Borrower setting forth details
of such Default and the action which the U.S. Borrower has taken and
proposes to take with respect thereto;
(e) as soon as possible and in any event within five Business Days
after the U.S. Borrower or any of its Subsidiaries obtains knowledge of
(x) the occurrence of any material adverse development with respect to any
litigation, action, proceeding or labor controversy of the type and
materiality described in ITEM 8.7 ("Litigation") of the Disclosure Schedule
or (y) the commencement of any litigation, action, proceeding or labor
controversy of the type and materiality described in ITEM 8.7,
("Litigation") of the Disclosure Schedule, notice thereof and, to the
extent the U.S. Agent reasonably requests, copies of all documentation
relating thereto (to the extent that such disclosure would not violate
attorney-client privilege or the work product doctrine);
(f) promptly after the sending or filing thereof, copies of all
reports and registration statements which the U.S. Borrower or any of its
Subsidiaries files with the SEC or any national securities exchange;
(g) immediately upon becoming aware of (i) the institution of any
steps by the U.S. Borrower, any of its Subsidiaries or any other Person to
terminate any Pension Plan, other than a standard termination, (ii) the
failure to make a required contribution to any U.S. Pension Plan if such
failure is sufficient to give rise to a Lien under Section 302(f) of ERISA
and if such failure continues for at least 30 days, (iii) the taking of any
action with respect to a U.S. Pension Plan which could result in the
requirement that the U.S. Borrower or any of its Subsidiaries furnish a
bond or other security to the PBGC or such U.S. Pension Plan, (iv) the
occurrence of any event with respect to any Pension Plan which could result
in the incurrence by the U.S. Borrower or any of its Subsidiaries of any
liability (other than a liability for the routine cost of maintaining such
Pension Plan), fine or penalty, or (v) any material increase in the
contingent liability of the U.S. Borrower or any of its Subsidiaries
(including the incurrence of any liability described in CLAUSE (b)(ii) of
SECTION 8.11) with respect to any post-retirement Welfare Plan benefit, to
the extent the effect of the action, occurrence or event described in
CLAUSE (g)(i), (g)(iv), or (g)(v) would reasonably be expected to have a
Material Adverse Effect, notice thereof and copies of all documentation
relating thereto;
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(h) promptly upon receipt thereof, copies of all detailed management
letters submitted to the U.S. Borrower by the independent public
accountants referred to in CLAUSE (b) in connection with each audit made by
such accountants of the books of the U.S. Borrower or any Subsidiary;
(i) promptly when available and in any event within 15 Business Days
after the last day of each Fiscal Year of the U.S. Borrower (commencing
after the Effective Date), a budget for the then current Fiscal Year of the
U.S. Borrower, which budget shall be prepared on a Fiscal Quarter basis and
shall contain a projected, consolidated balance sheet and statement of
earnings and cash flow of the U.S. Borrower and its Subsidiaries for the
then current Fiscal Year, prepared in reasonable detail by the chief
accounting, financial or executive Authorized Officer of the U.S. Borrower;
(j) promptly following the delivery or receipt, as the case may be, of
any material written notice or communication pursuant to or in connection
with the Subordinated Indenture, a copy of such notice or communication;
and
(k) such other information respecting the condition or operations,
financial or otherwise, of Parent or the U.S. Borrower or any of its
Subsidiaries as any Lender or any Issuer through the U.S. Agent may from
time to time reasonably request (including information and reports from the
chief accounting, financial or executive Authorized Officer of the U.S.
Borrower, in such detail as the U.S. Agent or any Lender or Issuer through
the U.S. Agent may reasonably request, with respect to the terms of and
information provided pursuant to the Compliance Certificate).
SECTION 9.1.2. COMPLIANCE WITH LAWS, ETC. Each Borrower will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders the noncompliance with which
would be reasonably expected to have a Material Adverse Effect, such compliance
to include (without limitation):
(a) the maintenance and preservation of each Borrower's and its
Subsidiaries' corporate existence and qualification as foreign corporations
in all jurisdictions in which the failure to be so qualified would be
reasonably expected to have a Material Adverse Effect; PROVIDED, HOWEVER,
that the Subsidiaries of the U.S. Borrower may be liquidated, dissolved or
merged as contemplated by SECTION 9.2.10 or disposed of if permitted by
SECTION 9.2.11; and, PROVIDED, FURTHER, HOWEVER, that nothing in this
SECTION 9.1.2 shall require the preservation of the corporate existence of
any Subsidiary (other than the Canadian Borrower for so long as the
Canadian Facility is outstanding) if the board of directors of the U.S.
Borrower determines in good faith that the failure to so preserve such
corporate existence would not reasonably be expected to have a Material
Adverse Effect; and
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(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by
appropriate proceedings and for which adequate reserves, if any, in
accordance with GAAP shall have been set aside on its books.
SECTION 9.1.3. MAINTENANCE OF PROPERTIES. Each Borrower will and will
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
properties in good repair, working order and condition (ordinary wear and tear
excepted), and make necessary and proper repairs, renewals and replacements so
that its business carried on in connection therewith may be properly conducted
at all times unless such Borrower determines in good faith that the continued
maintenance of any of its properties is no longer economically desirable, it
being understood that any failure to comply with the foregoing shall not result
in a Default hereunder unless such failure to comply would reasonably be
expected to have a Material Adverse Effect.
SECTION 9.1.4. INSURANCE. The U.S. Borrower shall maintain, or shall
cause to be maintained, for the benefit of the U.S. Borrower and its
Subsidiaries:
(a) products liability insurance with respect to all the products
manufactured, produced, sold or otherwise distributed by the U.S. Borrower
or any of its Subsidiaries in an amount not less than $40,000,000 per
annum;
(b) physical damage insurance on all real and personal property on an
all-risk basis (including loss in transit insurance) and public liability
insurance against claims for personal injury, death or property damage
suffered by others upon, in or about any premises occupied by it or
occurring as a result of its ownership, maintenance or operation of any
airplanes, automobiles, trucks or other vehicles or other facilities
(including, but not limited to, any machinery used therein or thereupon) or
as the result of the use of products manufactured, constructed or sold by
it or services rendered by it in an amount as is usually carried by Persons
of comparable size engaged in the same or a similar business and similarly
situated;
(c) such other types of insurance with respect to its business as are
usually carried by Persons of comparable size engaged in the same or a
similar business and similarly situated; and
(d) all worker's compensation or similar insurance as may be required
under the laws of any state or jurisdiction in which it may be engaged in
business.
All products liability insurance shall be provided (i) by insurers authorized by
Lloyds of London to underwrite such risks, (ii) by insurers having an A.M. Best
policyholders rating of not less than A- (except with respect to insurers
providing insurance of the type described in CLAUSE (d), in which case such
insurers shall have an A.M. Best policyholders rating of not less than B+) or
(iii) by such other insurers as the Agents may approve in writing; PROVIDED that
if the rating of
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any of the U.S. Borrower's products liability insurers is downgraded, the U.S.
Borrower and each of its Subsidiaries, as the case may be, shall only be
required to obtain replacement insurance with an insurer satisfying the
requirements of this clause at the stated expiration of the insurance policy
maintained with the insurer whose rating was so downgraded.
SECTION 9.1.5. BOOKS AND RECORDS. Each Borrower will, and will cause
each of its Subsidiaries to, keep books and records which accurately reflect all
of its business affairs and transactions and permit the Agents and each Lender
or any of their respective representatives, at reasonable times and intervals,
during normal business hours and upon reasonable notice, and at the Agents' or
such Lender's expense, to visit all of such Borrower's and such Subsidiaries'
offices, to discuss such Borrower's and such Subsidiaries' financial matters
with such Borrower's and such Subsidiaries' officers and independent public
accountant (and each Borrower hereby authorizes such independent public
accountant to discuss such Borrower's or such Subsidiaries' financial matters
with the Agents and each Lender or any of their respective representatives
whether or not any representative of such Borrower is present, but provided that
an officer of such Borrower or such Subsidiary shall be afforded a reasonable
opportunity to be present at any such discussion) and to examine (and, at the
expense of such Borrower, photocopy extracts from) any of such Borrower's and
its Subsidiaries' books or other corporate records. Each Borrower shall pay any
fees of such independent public accountant incurred in connection with the
Agents' or any Lender's exercise of its rights pursuant to this Section.
SECTION 9.1.6. ENVIRONMENTAL COVENANT. Each Borrower will, and will
cause each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with
all applicable Environmental Laws, except for those permits, approvals,
certificates, licenses and authorizations the failure to keep in effect
would not, or the failure to comply with which would not, or for such
Environmental Laws the failure of which to comply with which would not,
singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect;
(b) promptly notify the Agents and provide copies upon receipt of all
written claims, complaints, notices or inquiries relating to the condition
of its facilities and properties in respect of, or as to compliance with,
Environmental Laws which individually or in the aggregate would have a
Material Adverse Effect, and shall promptly resolve any non-compliance with
Environmental Laws and keep its property free of any Lien imposed by any
Environmental Law which, in either case, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect; and
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(c) provide such information and certifications which the Agents may
reasonably request from time to time to evidence compliance with this
SECTION 9.1.6.
SECTION 9.1.7. FUTURE SUBSIDIARIES, ETC. Upon any Person becoming, after
the Effective Date, either a direct or indirect Subsidiary of a Borrower, or
upon an Obligor directly or indirectly acquiring rights to additional Real
Property or acquiring additional Capital Stock of any existing Subsidiary (other
than any Receivables Co.) having voting rights or contingent voting rights, the
U.S. Borrower shall notify the Agents of such acquisition and, unless otherwise
agreed to among the U.S. Borrower, the Agents and the Required Lenders,
(a) (i) such Person shall, unless it is a Restricted Subsidiary,
execute and deliver to the Agents a Subsidiary Guaranty, (ii) to the extent
such Person or such Obligor is required to pledge stock of a Subsidiary
pursuant to CLAUSE (b) of this SECTION 9.1.7, such Person or such Obligor
shall execute and deliver a Subsidiary Pledge Agreement (or, if applicable,
a supplement to an existing Pledge Agreement), (iii) such Person shall,
unless it is a Restricted Subsidiary, execute and deliver to the Agents a
Subsidiary Security Agreement and (iv) such Person shall, unless it is a
Restricted Subsidiary, execute and deliver to the Agents a Mortgage on any
Real Property the value of which (together with improvements located
thereon) exceeds $2,000,000 it being agreed by the Lenders and the Agents
that, subject to the last sentence of this Section, non-U.S. Subsidiaries
shall not be required to deliver a guaranty of the Obligations of the U.S.
Borrower or any U.S. Subsidiary, or grant a Lien on any of their assets to
secure the Obligations of the U.S. Borrower or any U.S. Subsidiary;
(b) subject to the last sentence of this Section, (i) the U.S.
Borrower and each U.S. Subsidiary (other than a Restricted Subsidiary)
shall, pursuant to a Pledge Agreement (as supplemented, if necessary, by a
Foreign Pledge Agreement), pledge to the Agents, for their benefit and that
of the Secured Parties (as defined in such Pledge Agreement), (x) all of
the outstanding shares of Capital Stock of each Person that has become a
direct Subsidiary of the U.S. Borrower or such U.S. Subsidiary and (y) all
additional shares of Capital Stock of an existing Subsidiary owned directly
by the U.S. Borrower or such U.S. Subsidiary (PROVIDED that, for purposes
of each of the immediately preceding clauses (x) and (y), subject to the
last sentence of this Section, not more than 65% of the Capital Stock of
any non-U.S. Subsidiary shall be so pledged to the Agents to secure the
Obligations of the U.S. Borrower) and (ii) Canadian Holdings, the Canadian
Borrower and each Canadian Subsidiary and, to the extent not prohibited by
any applicable law, each other non-U.S. Subsidiary (other than a Restricted
Subsidiary) shall, pursuant to a Pledge Agreement (as supplemented, if
necessary, by a Foreign Pledge Agreement), pledge to the Canadian Agent,
for its benefit and that of the Secured Parties (as defined in such Pledge
Agreement), (x) all of the outstanding shares of Capital Stock of each
Person that has become a direct Subsidiary of Canadian Holdings, the
Canadian Borrower or such Canadian Subsidiary or, in the case of any other
non-U.S. Subsidiary that is not a Restricted Subsidiary, all of the
outstanding shares of Capital Stock acquired
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by such non-U.S. Subsidiary and (y) all additional shares of Capital Stock
of an existing Subsidiary owned directly by Canadian Holdings, the Canadian
Borrower, any such Canadian Subsidiary or such non-U.S. Subsidiary (other
than a Restricted Subsidiary) (it being understood and agreed that all of
the Capital Stock pledged pursuant to this CLAUSE (b)(ii) shall only secure
the Obligations in respect of the Canadian Facility), in the case of each
of CLAUSES (i) and (ii), together with undated stock powers for such
certificates, executed in blank (or, if any such shares of Capital Stock
are uncertificated, confirmation and evidence satisfactory to such Agent
that the security interest in such uncertificated securities has been
transferred to and perfected by such Agent, for the benefit of the Secured
Parties, in accordance with Section 8-313 and Section 8-321 of the UCC or
any other similar or local or foreign law which may be applicable); and
(c) subject to the last sentence of this Section, (i) the U.S.
Borrower and each U.S. Subsidiary shall, pursuant to a Pledge Agreement,
pledge to the Agents, for their benefit and that of the Secured Parties (as
defined in such Pledge Agreement), all intercompany notes (which shall,
unless the Agents shall otherwise agree, be in the form of Exhibit A to
such Pledge Agreement) issued to such Person pursuant to CLAUSE (e)(i) of
SECTION 9.2.2 and evidencing Indebtedness in favor of the U.S. Borrower or
such U.S. Subsidiary, as the case may be, to secure the Obligations, (ii)
Canadian Holdings, the Canadian Borrower and each Canadian Subsidiary
shall, pursuant to a Pledge Agreement, pledge to the Canadian Agent, for
its benefit and that of the Secured Parties (as defined in such Pledge
Agreement), all intercompany notes (which shall, unless the Canadian Agent
shall otherwise agree, be in the form of Exhibit A to such Pledge
Agreement) issued to such Person pursuant to CLAUSE (e)(i) of SECTION 9.2.2
and evidencing Indebtedness in favor of Canadian Holdings, the Canadian
Borrower or such Canadian Subsidiary, as the case may be, to secure the
Obligations in respect of the Canadian Facility;
together, in each case, with such opinions of legal counsel for the Borrowers
(which may be in-house counsel to the U.S. Borrower and shall otherwise be from
counsel reasonably satisfactory to the Agents) relating thereto, which legal
opinions shall be in form and substance reasonably satisfactory to the Agents.
The U.S. Borrower agrees that if, as a result of a change in law after the date
hereof, (i) a non-U.S. Subsidiary of the U.S. Borrower is permitted to execute
and deliver a U.S. Subsidiary Guaranty, a U.S. Subsidiary Pledge Agreement or a
U.S. Subsidiary Security Agreement or (ii) the U.S. Borrower or any U.S.
Subsidiary is permitted to pledge more than 66 2/3% of the Capital Stock of any
non-U.S. Subsidiary or any intercompany Indebtedness owing to any direct or
indirect non-U.S. Subsidiary of the U.S. Borrower evidenced by a note or other
instrument to secure the Obligations of the U.S. Borrower, in any such case
without material adverse tax consequences to the U.S. Borrower or such
Subsidiary, then the provisions of CLAUSE (a) of this SECTION 9.1.7 shall
thereafter apply to any non-U.S. Subsidiary and/or (as the case may be) the
provisions of CLAUSE (b) of this SECTION 9.1.7 shall thereafter apply to 100% of
the Capital Stock of such non-U.S. Subsidiary (or such lesser amount that can be
pledged without material adverse tax consequences).
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SECTION 9.1.8. USE OF PROCEEDS. The Borrowers agree to apply the
proceeds of Credit Extensions as set forth below.
(a) The U.S. Borrower shall apply the proceeds of
(i) the U.S. Revolving Loans and the U.S. Letters of Credit to
provide for the general corporate and working capital needs of the U.S.
Borrower and its Subsidiaries; and
(ii) the Incremental Term Loans to refinance certain existing
Indebtedness of the U.S. Borrower and pay fees and expenses in connection
therewith; and
(b) the Canadian Borrower shall apply the proceeds of
(i) the Canadian Revolving Loans and the Canadian Letters of Credit
to provide for the general corporate and working capital needs of the
Canadian Borrower and its Subsidiaries; and
(ii) the Canadian Term Loans to refinance certain existing
Indebtedness of the Canadian Borrower and pay fees and expenses in
connection therewith and to provide for any additional purposes for which
Canadian Revolving Loans may be used.
SECTION 9.1.9. SOUTH CAROLINA TRANSACTIONS. The U.S. Borrower has
entered into certain agreements and acquired certain interests relating to a
regional manufacturing and distribution center located at 587 Greenway
Industrial Drive, Mill Creek, York County, South Carolina and commonly known as
"Lakemont Industrial Park" (the "SOUTH CAROLINA TRANSACTIONS"). So long as the
documents relating to the South Carolina Transactions shall remain in escrow,
the U.S. Borrower shall not be required to take any action with respect to the
South Carolina Transactions; PROVIDED, that the U.S. Borrower shall, within 60
days following release from escrow of the documents relating to the South
Carolina Transactions, execute and deliver a Mortgage on any Real Property it
holds relating to the South Carolina Transactions to the extent any such
Mortgage is not prohibited by any agreement relating to the South Carolina
Transactions; PROVIDED, FURTHER, that the U.S. Borrower shall use good faith
efforts to obtain consent to such Mortgage under any agreement that would
otherwise prohibit it.
SECTION 9.2. NEGATIVE COVENANTS. Each Borrower agrees with each Agent,
each Issuer and each Lender that, until all Commitments have terminated and all
Obligations then due and owing have been paid and performed in full, each
Borrower will perform the obligations set forth in this SECTION 9.2 that are
applicable to such Borrower.
SECTION 9.2.1. BUSINESS ACTIVITIES. The U.S. Borrower will not, and will
not permit any of its Subsidiaries to, engage in any business activity, except
those described in the FIRST
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RECITAL and such activities as are reasonably incidental, reasonably similar or
reasonably related thereto.
SECTION 9.2.2. INDEBTEDNESS. The U.S. Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of (i) the Credit Extensions and other
Obligations and (ii) Hedging Obligations incurred in the ordinary course of
business of any Borrower and any Subsidiary (which shall exclude Hedging
Obligations incurred under agreements entered into for speculative purposes
or as an arbitrage of rates);
(b) (i) until the Closing Date, Indebtedness identified in ITEM
9.2.2(b)(i) ("Indebtedness to be Paid") of the Disclosure Schedule and (ii)
Indebtedness identified in ITEM 9.2.2(b)(ii) ("Ongoing Indebtedness") of
the Disclosure Schedule;
(c) Indebtedness incurred in the ordinary course of business of the
U.S. Borrower and its Subsidiaries (including open accounts extended by
suppliers on normal trade terms in connection with purchases of goods and
services, accrued liabilities and deferred income taxes, and including
Indebtedness in respect of performance, surety or appeal bonds provided in
the ordinary course of business, but excluding Indebtedness incurred
through the borrowing of money or Contingent Liabilities in respect
thereof);
(d) so long as such amounts are permitted under the terms of
Subordinated Debt, Indebtedness in respect of (i) Capitalized Lease
Liabilities, (ii) purchase money mortgages, (iii) industrial revenue bond
issues and (iv) other Indebtedness that is unsecured or incurred by
non-U.S. Subsidiaries (other than Canadian Holdings and its Subsidiaries);
PROVIDED, that the aggregate amount of all Indebtedness outstanding
pursuant to this clause at the time any of the same is created, assumed or
incurred (together with the then outstanding principal amount of all other
Indebtedness permitted under this CLAUSE (d)) shall not at any time exceed
3.75% of Total Adjusted Capital at such time after giving effect thereto
and to any concurrent repayment of other Indebtedness outstanding pursuant
to this clause; PROVIDED, FURTHER, that such non-U.S. Subsidiaries may not
incur or be liable for any such Indebtedness in an aggregate amount at any
time outstanding in excess of (x) $5,000,000 (for so long as the Leverage
Ratio is greater than or equal to 4:1, as indicated in the most recently
delivered Compliance Certificate) and (y) 1.875% of Total Adjusted Capital
(for the period subsequent to the Leverage Ratio being less than 4:1, as
indicated in the most recently delivered Compliance Certificate) at such
time; PROVIDED, FURTHER, that for purposes of the calculation of the
Leverage Ratio for this clause only, in the case where a Borrower or a
Subsidiary is incurring such Indebtedness to consummate an acquisition of
the capital stock of another Person that will thereafter become a
Subsidiary as a result, the Total Debt and EBITDA of such Person shall be
included on a PRO FORMA basis in the
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calculation of the Leverage Ratio (as if the acquisition had occurred on
the first day of the applicable period during which the Leverage Ratio is
to be calculated);
(e) Indebtedness of any Subsidiary (other than a Restricted Subsidiary
and any Receivables Co.) owing to a Borrower or any other Subsidiary, which
Indebtedness
(i) shall (except in the case of Indebtedness owing by a non-U.S.
Subsidiary to the U.S. Borrower or any U.S. Subsidiary that
individually or in the aggregate does not exceed $1,000,000) be
evidenced by one or more promissory notes (such promissory note to be,
unless otherwise agreed to by the U.S. Agent, in substantially the
form of Exhibit A to the U.S. Borrower Pledge Agreement) duly executed
and, if the payee of such promissory note is a Borrower or a U.S.
Subsidiary, delivered in pledge pursuant to a Pledge Agreement to the
applicable Agent; and
(ii) shall not be forgiven or otherwise discharged for any
consideration other than payment in full or in part (PROVIDED, that
only the amount repaid in part shall be discharged) in cash unless the
U.S. Agent otherwise consents, such consent not to be unreasonably
withheld;
(f) intercompany Indebtedness (not evidenced by a note or other
instrument) of a Borrower owing to a Subsidiary that has previously
executed and delivered to the applicable Agent a Master Subordination
Agreement, in an aggregate outstanding principal amount not to exceed
$10,000,000 at any time;
(g) Indebtedness of a Person existing at the time such Person became a
Subsidiary of a Borrower to the extent such Indebtedness was not incurred
in connection with, or in contemplation of, such Person becoming a
Subsidiary, in an amount not to exceed $3,500,000;
(h) Indebtedness of a Borrower incurred for the purpose of renewing,
extending or refinancing Indebtedness permitted by CLAUSE (b)(ii), (d),
(g), (j) or (k); PROVIDED, HOWEVER, that the principal amount of such
Indebtedness may not exceed the principal amount of the Indebtedness being
renewed or refinanced and, in the case of unsecured Subordinated Debt
permitted by CLAUSE (j), any such renewal or refinancing is upon terms and
provisions which are, in the reasonable judgment of the Required Lenders,
no less favorable to the U.S. Borrower in the aggregate than such
Indebtedness being so renewed or refinanced; PROVIDED, that in any event in
the case of any Indebtedness that renews, extends or refinances the
Subordinated Notes, such Indebtedness shall be subordinated to the Bank
Debt (as defined in the Subordinated Indenture) to the same extent and
degree as the Subordinated Notes;
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(i) (i) Indebtedness of any Receivables Co. incurred in connection
with the Permitted Receivables Transaction in an aggregate amount at any
time not to exceed $125,000,000 and (ii) other Indebtedness owing by a
Receivables Co. to a Borrower or another Subsidiary on terms satisfactory
to the U.S. Agent; PROVIDED, that (as applicable), in the case of CLAUSE
(i)(i), the provisions of CLAUSE (b) of SECTION 2.2.2 are complied with or,
if no U.S. Revolving Loan Commitment is then in effect, no Replacement
Indebtedness is (or after giving effect to the consummation of the
Permitted Receivables Transaction, will be) outstanding in an amount which,
when added to the Indebtedness of such Receivables Co., would exceed
$125,000,000;
(j) unsecured Subordinated Debt of the U.S. Borrower owing to the
Subordinated Note Holders under the Subordinated Indenture; PROVIDED,
HOWEVER, that the aggregate outstanding principal amount of such
Indebtedness shall not exceed $85,000,000;
(k) Indebtedness of the U.S. Borrower and the Canadian Borrower
(including by way of a reallocation of Indebtedness similar to the
reallocation contemplated by SECTION 3.2.2) in an aggregate principal
amount that does not, when aggregated with any Indebtedness incurred under
a Permitted Receivables Transaction, exceed $125,000,000 (the "REPLACEMENT
INDEBTEDNESS") (PROVIDED, that Indebtedness of the Canadian Borrower shall
not exceed the Canadian $ Equivalent of $32,000,000) in the form of
revolving loans and/or letters of credit, and the guaranty of such
Indebtedness by Subsidiaries of the U.S. Borrower (but only to the extent
such Subsidiaries also guaranty the Obligations of the U.S. Borrower on a
PARI PASSU basis); provided, that the Replacement Indebtedness shall only
be incurred
(i) on terms and conditions reasonably satisfactory to the U.S.
Term Loan Lenders holding at least 51% of the then outstanding
principal amount of Term Loans;
(ii) if all Revolving Loans, Swing Line Loans and Letter of
Credit Outstandings shall have been repaid, or will simultaneously be
repaid, in cash in full and each of the Revolving Loan Commitment,
Swing Line Loan Commitment and Letter of Credit Commitment have been
permanently terminated (or have expired); and
(iii) no Default would result from the incurrence of the
Replacement Indebtedness; and
(l) unsecured Indebtedness of the U.S. Borrower consisting of
Contingent Liabilities in respect of (i) up to an aggregate principal
amount of $2,000,000 of borrowings by Management Investors in connection
with the purchase of Capital Stock of LHPG by such Management Investors and
(ii) loans or advances of a type described in CLAUSE (h) of SECTION 9.2.5;
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PROVIDED, HOWEVER, that no Indebtedness otherwise permitted by CLAUSE (d), (g),
(h), or (l) shall be permitted to be incurred if such incurrence would result in
a Default hereunder.
SECTION 9.2.3. LIENS. The U.S. Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon any of its property, revenues or assets, whether now owned or hereafter
acquired, except:
(a) Liens securing payment of the Obligations, granted pursuant to any
Loan Document;
(b) until the Closing Date, Liens securing payment of Indebtedness of
the type permitted and described in CLAUSE (b)(i) of SECTION 9.2.2;
(c) Liens securing
(i) Indebtedness of the type permitted and described in any of
CLAUSES (d)(i) through (d)(iii) of SECTION 9.2.2; and
(ii) Indebtedness of non-U.S. Subsidiaries permitted and
described in CLAUSE (d)(iv) of SECTION 9.2.2 to the extent that such
Liens encumber assets of non-U.S. Subsidiaries (other than Canadian
Holdings and its Subsidiaries);
and renewals, extensions and refinancings of such Indebtedness; PROVIDED
that the Liens permitted by this clause with respect to CLAUSES (d)(i)
through (iii) of SECTION 9.2.2 shall only cover the same assets which
originally secured the Indebtedness renewed, extended or refinanced
pursuant to such clause;
(d) Liens existing as of the Effective Date and disclosed in ITEM
9.2.3(d) ("Ongoing Liens") of the Disclosure Schedule and Liens securing
any extension, renewal or replacement of any obligations secured by any
such Lien; PROVIDED, HOWEVER, that such Lien shall only cover the same
assets which originally secured the obligations being extended, renewed or
replaced;
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves, if any, in accordance with GAAP shall have been
set aside on its books;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords and similar Liens incurred in the ordinary course of business for
sums not overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves, if any, in accordance with
GAAP shall have been set aside on its books;
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(g) Liens incurred or deposits made in the ordinary course of business
in connection with workmen's compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance of
tenders, statutory and regulatory obligations, bids, leases and contracts
or other similar obligations (other than for borrowed money) entered into
in the ordinary course of business or to secure obligations on surety,
appeal, judgment, performance, return-of-money or similar bonds;
(h) judgment Liens in existence less than 45 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies or which do not
otherwise result in an Event of Default under SECTION 10.1.6;
(i) easements, rights-of-way, municipal and zoning ordinances or
similar restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect
with the ordinary conduct of the business of the U.S. Borrower or its
Subsidiaries or the value or utility of the property to which such Lien is
attached;
(j) any interest or title of a lessor under any lease of property to,
or of any consignor of goods consigned to, or of any creditor of any
consignee in goods consigned to such consignee by, the U.S. Borrower or any
Subsidiary;
(k) Liens in favor of the U.S. Borrower or any Subsidiary (other than,
in the case of any Subsidiary (and notwithstanding any other provision of
this Agreement (including SECTION 9.2.2) to the contrary), any Lien on any
assets of the U.S. Borrower);
(l) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the U.S. Borrower and its
Subsidiaries, taken as a whole;
(m) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of customs duties in connection with the
importation of goods;
(n) Liens on the property of, or securing Indebtedness to the extent
permitted by CLAUSE (g) of SECTION 9.2.2 of, any Person which becomes a
Subsidiary after the date hereof; PROVIDED that such Liens exist at the
time such Person becomes a Subsidiary and are not created in anticipation
thereof and such Liens attach only to a specific tangible asset of such
Person and not assets of such Person generally;
(o) Liens on documents of title and the property covered thereby
securing Indebtedness in respect of letters of credit which are commercial
letters of credit;
(p) Liens on Accounts or other related assets of any Receivables Co.
created in connection with the Permitted Receivables Transaction; and
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(q) Liens on the assets of the U.S. Borrower and its Subsidiaries in
favor of the lenders of the Replacement Indebtedness, but only to the
extent that such Liens (i) rank PARI PASSU (or are subordinate) to the
Liens granted in favor of the Secured Parties pursuant to the Loan
Documents and encumber only those assets in which the Secured Parties also
have been granted a Lien pursuant to the Loan Documents and (ii) are spread
between the Obligations and obligations in respect of the Replacement
Indebtedness on a PARI PASSU basis and are subject to an intercreditor
agreement reflecting the foregoing and reasonably satisfactory to the U.S.
Agent and the Lenders holding 51% or more of the then outstanding principal
amount of the Term Loans.
SECTION 9.2.4. FINANCIAL CONDITION AND OPERATIONS. The U.S. Borrower
will not permit to occur any of the events set forth below.
(a) ADJUSTED NET WORTH. The U.S. Borrower will not permit Adjusted
Net Worth at any time to be less than the sum of (i) $101,000,000 PLUS
(ii) 45% of cumulative Net Income (in excess of zero) from (and including)
July 1, 1997 to the date of determination of Adjusted Net Worth PLUS (iii)
45% of cumulative cash equity contributions received after the Effective
Date by the U.S. Borrower other than from Management Investors, as
contemplated by CLAUSE (iii) of SECTION 9.2.6.
(b) INTEREST COVERAGE RATIO. The U.S. Borrower will not permit the
Interest Coverage Ratio as of the end of any Fiscal Quarter during any
period set forth below, to be less than the ratio set forth opposite such
period:
<TABLE>
<CAPTION>
Interest Coverage
Period Ratio
------ ----------
<S> <C>
Closing Date - 03/30/99 1.80:1
03/31/99 - 03/30/00 2.00:1
03/31/00 - 03/30/01 2.20:1
03/31/01 - 03/30/02 2.50:1
03/31/02 - 03/30/03 2.75:1
03/31/03 - 03/30/04 3.00:1
03/31/04 - 03/30/05 3.25:1
03/31/05 - 03/30/06 3.25:1
03/31/06 - 03/30/07 3.25:1
</TABLE>
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(c) LEVERAGE RATIO. The U.S. Borrower will not permit the Leverage
Ratio as of the end of any Fiscal Quarter occurring during any period set
forth below to be greater than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Leverage
Period Ratio
------ --------
<S> <C>
Closing Date - 03/30/99 6.00:1
03/31/99 - 03/30/00 5.50:1
03/31/00 - 03/30/01 4.75:1
03/31/01 - 03/30/02 4.25:1
03/31/02 - 03/30/03 3.75:1
03/31/03 - 03/30/04 3.50:1
03/31/04 - 03/30/05 3.25:1
03/31/05 - 03/30/06 3.25:1
03/31/06 - 03/30/07 3.25:1
</TABLE>
(d) CASH FLOW COVERAGE RATIO. The U.S. Borrower will not permit the
Cash Flow Coverage Ratio as of the end of any Fiscal Quarter occurring
during any period set forth below to be less than the ratio set forth
opposite such period:
<TABLE>
<CAPTION>
Cash Flow
Period Coverage Ratio
------ --------------
<S> <C>
Closing Date - 3/30/99 1.10:1
03/31/99 - 03/30/00 1.15:1
03/31/00 - 03/30/01 1.15:1
03/31/01 - 03/30/02 1.20:1
03/31/02 - 03/30/03 1.20:1
03/31/03 - 03/30/04 1.20:1
03/31/04 - 03/30/05 1.05:1
03/31/05 - 03/30/06 1.00:1
03/31/06 - 03/30/07 1.00:1
</TABLE>
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SECTION 9.2.5. INVESTMENTS. The U.S. Borrower will not, and will not
permit any of its Subsidiaries to, make, incur, assume or suffer to exist any
Investment in any other Person, except:
(a) Investments existing on the Effective Date and identified in ITEM
9.2.5(a) ("Ongoing Investments") of the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) without duplication, (i) Investments to the extent permitted as
Indebtedness pursuant to SECTION 9.2.2, (ii) to the extent that any
Receivables Co. is not a Subsidiary of the U.S. Borrower, Investments in
such Receivables Co. in connection with the Permitted Receivables
Transaction made by the U.S. Borrower and its Subsidiaries on terms
satisfactory to the Agents, and (iii) Investments permitted as Capital
Expenditures pursuant to SECTION 9.2.16;
(d) Investments by way of contributions to capital or purchases of
equity (i) by the U.S. Borrower in any of its Subsidiaries (other than a
Restricted Subsidiary) or by such Subsidiary in any of its Subsidiaries
(other than a Restricted Subsidiary), or (ii) by any such Subsidiary in the
U.S. Borrower; PROVIDED, that such Investments in any Receivables Co. shall
only be made in connection with the Permitted Receivables Transaction on
terms satisfactory to the Agents;
(e) Investments constituting (i) accounts receivable arising,
(ii) trade debt granted or (iii) deposits made in connection with the
purchase price of goods or services, in each case in the ordinary course of
business (PROVIDED, that nothing in this clause shall prevent the U.S.
Borrower or any Subsidiary from offering such concessionary trade terms, or
from receiving such Investments in connection with the bankruptcy or
reorganization of their respective suppliers or customers or the settlement
of disputes with such customers or suppliers arising in the ordinary course
of business, as officers of the U.S. Borrower deem reasonable in the
circumstances);
(f) Investments constituting Permitted Acquisitions not in excess of
$35,000,000 in any single transaction; PROVIDED, that the aggregate amount
of Investments permitted under the terms of this Agreement shall not exceed
$85,000,000; PROVIDED, FURTHER, that (i) such Investments shall (if Capital
Stock is being acquired), result in the acquisition of a "Subsidiary" of
the U.S. Borrower (but not result in a Restricted Subsidiary, which shall
be exclusively governed by CLAUSE (i)) and (ii) upon making such
Investments, the provisions of SECTION 9.1.7 are complied with;
(g) Investments made in connection with Permitted Dispositions
pursuant to CLAUSE (d) of SECTION 9.2.11; PROVIDED, that to the extent the
amount or value (as
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determined by the Board of Directors of the U.S. Borrower in good faith) of
any such Investment exceeds $1,000,000, the U.S. Borrower shall use its
best efforts to (x) cause such Investment to be made in such a form that
such Investment can be pledged to the applicable Agent for the ratable
benefit of each Secured Party, and (y) if such Investment is in such form,
to pledge such Investment to the applicable Agent for the ratable benefit
of each Secured Party, on terms reasonably satisfactory to the applicable
Agent;
(h) Investments constituting payroll advances and travel and
entertainment advances and relocation loans to officers and employees of
the U.S. Borrower or any of its Subsidiaries in the ordinary course of
business in an amount (in the case of relocation loans) not to exceed
$1,000,000 at any time outstanding;
(i) Investments made by the U.S. Borrower in an amount, when
aggregated with any Investments made pursuant to CLAUSE (j) below and the
fair market value of any assets sold, transferred, leased, contributed or
otherwise conveyed pursuant to CLAUSE (f) of SECTION 9.2.11, not to exceed
$5,000,000 in the aggregate over the term of this Agreement in a Person
that, after giving effect to such Investment, becomes a non-wholly-owned
Subsidiary or a wholly-owned non-U.S. Subsidiary (if such Subsidiary is
unable to execute a Subsidiary Guaranty in respect of the U.S. Borrower's
Obligations without material adverse tax consequences) and on or prior to
the date of such Investment is designated as a "Restricted Subsidiary" by
the U.S. Borrower to the U.S. Agent; and
(j) Investments made by the U.S. Borrower in joint ventures in an
amount, when aggregated with any Investments made pursuant to CLAUSE (i)
above and the fair market value of any assets sold, transferred, leased,
contributed or otherwise conveyed pursuant to CLAUSE (f) of SECTION 9.2.11,
not to exceed $5,000,000 over the term of this Agreement;
PROVIDED, HOWEVER, that
(k) any Investment which when made complies with the requirements of
CLAUSE (a), (b) or (c) of the definition of the term "Cash Equivalent
Investment" may continue to be held notwithstanding that such Investment if
made thereafter would not comply with such requirements; and
(l) no Investment otherwise permitted by CLAUSE (f), (i) or (j) shall
be permitted to be made if, immediately before or after giving effect
thereto, any Default shall have occurred and be continuing.
SECTION 9.2.6. RESTRICTED PAYMENTS, ETC. Except as otherwise permitted
pursuant to SECTION 9.2.13, on and at all times after the Effective Date:
(a) the U.S. Borrower will not declare, pay or make any dividend or
distribution (in cash, property or obligations) on any shares of any class
of Capital Stock (now or
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hereafter outstanding) of the U.S. Borrower or on any warrants, options or
other rights with respect to any shares of any class of Capital Stock (now
or hereafter outstanding) of the U.S. Borrower (other than dividends or
distributions payable solely in its common stock or warrants to purchase
its common stock or splitups or reclassifications of its stock into
additional or other shares of its common stock, but then only to the extent
such stock or warrants, if received in respect of stock pledged under the
Parent Pledge Agreement, are pledged to the U.S. Agent for the benefit of
the Lenders pursuant to the Parent Pledge Agreement in a manner
satisfactory to the U.S. Agent) or apply, or permit any of its Subsidiaries
to apply, any of its funds, property or assets to the purchase, redemption,
sinking fund or other retirement of, or agree or permit any of its
Subsidiaries to purchase or redeem, any shares of any class of Capital
Stock (now or hereafter outstanding) of the U.S. Borrower or Parent, or
warrants, options or other rights with respect to any shares of any class
of Capital Stock (now or hereafter outstanding) of the U.S. Borrower or
Parent;
(b) the U.S. Borrower will not, and will not permit any of its
Subsidiaries to, pay, prepay or repay any principal of, or redeem, purchase
or defease any principal in respect of, any Subordinated Notes; and
(c) the U.S. Borrower will not, and will not permit any of its
Subsidiaries to, make any deposit for any of the foregoing purposes;
PROVIDED, HOWEVER, this SECTION 9.2.6 shall not prohibit:
(i) the U.S. Borrower from paying dividends to Parent in an amount
sufficient to enable Parent to pay reasonable and customary regular fees to
directors of Parent and LHPG;
(ii) the U.S. Borrower from paying dividends or other payments to
Parent or LHPG to the extent (a) permitted or required under the Tax
Sharing Agreement or (b) in respect of payments permitted pursuant to
CLAUSE (g) of SECTION 9.2.13; and
(iii) so long as no Default has occurred and is continuing or would
result therefrom, the purchase, redemption, acquisition, cancellation or
other retirement for value of shares of Capital Stock of the U.S. Borrower,
the Canadian Borrower, Parent or LHPG, or any of their respective
Subsidiaries, or warrants or options on any such shares or related stock
appreciation rights or similar securities owned by officers or employees
(or their estates or beneficiaries under their estates), or other
Management Investors in all cases only upon death, disability, retirement,
termination of employment or pursuant to the terms of such stock option
plan or any other agreement under which such shares of Capital Stock,
options, related rights or similar securities were issued or under which
they may be put or called, or the payment of dividends to Parent in an
amount sufficient to enable Parent or LHPG to effect such purchase,
redemption, acquisition, cancellation or other retirement for value by
Parent or LHPG; PROVIDED that the aggregate cash
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consideration paid for such purchase, redemption, acquisition, cancellation
or other retirement for value of such shares of Capital Stock, options,
related rights or similar securities shall not exceed (A) $4,000,000 over
the term of this Agreement (the "AGGREGATE LIMIT") and (B) $2,000,000
during any Fiscal Year; PROVIDED, FURTHER, that the Aggregate Limit on the
purchase, redemption, acquisition, cancellation or other retirement for
value set forth in the immediately preceding proviso shall be increased by
the cash proceeds of any sale after June 30, 1997 to any Management
Investors of Capital Stock, options, related rights or similar securities
of the U.S. Borrower or LHPG to the extent such cash proceeds are
contributed to the capital of the U.S. Borrower, as notified in a
certificate delivered by an Authorized Officer of the U.S. Borrower to the
U.S. Agent.
SECTION 9.2.7. STOCK OF SUBSIDIARIES. The U.S. Borrower will not permit
any Subsidiary (other than a Restricted Subsidiary) to issue any Capital Stock
(whether for value or otherwise) to any Person other than the U.S. Borrower or
another wholly-owned Subsidiary.
SECTION 9.2.8. RENTAL OBLIGATIONS. The U.S. Borrower will not, and will
not permit any of its Subsidiaries to, enter into at any time any arrangement
which does not create a Capitalized Lease Liability and which involves the
leasing by the U.S. Borrower or any of its Subsidiaries from any lessor of any
real or personal property (or any interest therein), except arrangements which,
together with all other such arrangements which shall then be in effect, will
not require the payment of an aggregate amount of Rentals by the U.S. Borrower
and its Subsidiaries at the close of any Fiscal Quarter, for the period
consisting of such Fiscal Quarter and each of the three immediately preceding
Fiscal Quarters, in excess of 7.5% of Total Adjusted Capital of the immediately
preceding Fiscal Year.
SECTION 9.2.9. TAKE OR PAY CONTRACTS. The U.S. Borrower will not, and
will not permit any of its Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other property or services
if such arrangement by its express terms requires that payment be made by the
U.S. Borrower or such Subsidiary regardless of whether such materials, supplies,
other property or services are in fact or can be required to be delivered or
furnished to it.
SECTION 9.2.10. CONSOLIDATION, MERGER, ETC. The U.S. Borrower will not,
and will not permit any of its Subsidiaries to, liquidate or dissolve,
consolidate with, or merge into or with, any other corporation, or purchase or
otherwise acquire all or substantially all of the assets of any Person (or of
any division thereof) except
(a) any such Subsidiary (other than any Receivables Co.) may liquidate
or dissolve voluntarily into, and may merge with and into, the U.S.
Borrower or any other Subsidiary (other than a Restricted Subsidiary or any
Receivables Co.), and the assets or stock of any Subsidiary may be
purchased or otherwise acquired by the U.S. Borrower or any other
Subsidiary (other than a Restricted Subsidiary or any Receivables Co.);
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PROVIDED, HOWEVER, that in no event shall any Pledged Subsidiary merge with
and into any Subsidiary other than another Pledged Subsidiary unless
(i) the Required Lenders shall have given their prior written consent
thereto, or (ii) after giving effect thereto, the applicable Agent shall
have a perfected pledge of, and security interest in and to, all (or, in
the case of a direct, non-U.S. Subsidiary (and subject to the last sentence
of SECTION 9.1.7), 65%) of the issued and outstanding shares of Capital
Stock of the surviving Person in form and substance satisfactory to such
Agent and its counsel, pursuant to such documentation and opinions as shall
be necessary and appropriate in the opinion of such Agent and its counsel
to create, perfect or maintain the collateral position of such Agent and
the Lenders therein as contemplated by this Agreement; PROVIDED, FURTHER,
that neither Canadian Holdings or any of its Subsidiaries may merge or
consolidate with the U.S. Borrower or any non-Canadian Subsidiary of the
U.S. Borrower; PROVIDED, FURTHER, that notwithstanding any of the
foregoing, the Canadian Borrower may merge or amalgamate with or liquidate
into Canadian Holdings (provided that Canadian Holdings assumes the
Obligations of the Canadian Borrower);
(b) so long as no Default has occurred and is continuing or would
occur after giving effect thereto, the U.S. Borrower or any of its
Subsidiaries may (to the extent permitted by CLAUSE (f) of SECTION 9.2.5)
purchase all or substantially all of the assets or stock of any Person (or
any division thereof), or acquire such Person by merger;
(c) the U.S. Borrower may merge with another Person so long as (i) the
U.S. Borrower is the surviving corporation of such merger, (ii) after
giving effect to such merger, the U.S. Borrower is organized under the laws
of a State of the United States, (iii) immediately prior to such merger the
Investment (if not accomplished by way of such merger) would have been
permitted under this Agreement; and (iv) no Default shall exist before and
after giving effect to such merger; and
(d) any such Subsidiary may liquidate or dissolve voluntarily into,
and may merge with and into, any corporation which is not a Subsidiary of
the U.S. Borrower; PROVIDED that (i) such transaction is a Permitted
Disposition or (ii) the following conditions are satisfied: (A) the
surviving corporation shall be a Subsidiary of the U.S. Borrower, (B) the
U.S. Borrower shall own at least the same percentage of the outstanding
voting stock of the surviving corporation as the U.S. Borrower owned of
such Subsidiary prior to such merger, liquidation or consolidation,
(C) after giving effect thereto, no Default would occur or be continuing
and (D) the surviving corporation complies with the provisions of SECTION
9.1.7.
SECTION 9.2.11. PERMITTED DISPOSITIONS. The U.S. Borrower will not, and
will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey (including by way of merger), or grant options, warrants or
other rights with respect to, all or any part of the U.S. Borrower's or such
Subsidiaries' assets (including accounts receivable or Capital Stock of
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Subsidiaries (by way of the sale or issuance in an initial public offering,
private placement or other conveyance of such Capital Stock)) to any Person
unless,
(a) such disposition is either (i) in the ordinary course of its
business or (ii) permitted by SECTION 9.2.10;
(b) such disposition is made by (i) a U.S. Subsidiary to either the
U.S. Borrower or another U.S. Subsidiary (other than any Receivables Co.,
which shall be governed by CLAUSE (g), or a Restricted Subsidiary) or (ii)
a Canadian Subsidiary to the Canadian Borrower or another Canadian
Subsidiary (other than any Receivables Co., which shall be governed by
CLAUSE (g) or a Restricted Subsidiary);
(c) such disposition is in respect of assets acquired within six
months of such disposition pursuant to or as a result of a Permitted
Acquisition;
(d) after giving effect to such disposition,
(i) the aggregate of all Disposition Percentages (as defined
below) in respect of all dispositions of Net Tangible Assets (and for
purposes of this clause, "Net Tangible Assets" shall include the fair
market value of Capital Stock of Subsidiaries that is issued, sold or
otherwise conveyed in an initial public offering, private placement or
otherwise), other than pursuant to CLAUSE (a), (b), (c), (e), (f) or
(g), (A) since the Effective Date would not exceed 15% and (B) during
any Fiscal Year would not exceed 10%; and
(ii) the aggregate amount of Net Unrepatriated Disposition
Proceeds (including any Net Unrepatriated Disposition Proceeds that
arise as a result of such disposition) does not exceed 6% of Net
Tangible Assets at the time of such disposition,
and for purposes of dispositions pursuant to this clause, "Disposition
Percentage" shall mean for any disposition a fraction (expressed as a
percentage), the numerator of which shall be the amount of Net Tangible
Assets subject to such disposition (determined as of the date of such
disposition) and the denominator of which shall be Net Tangible Assets
(determined as of the date of such disposition);
(e) such disposition is in respect of the issuance or sale (by way of
an initial public offering, private placement or otherwise) of the Capital
Stock of one or more Subsidiaries in an aggregate amount not to exceed
$5,000,000 over the term of this Agreement; PROVIDED that after such
issuance or sale, the U.S. Borrower shall continue to own, directly or
indirectly, 50% or more (on a fully diluted basis) of each such non-U.S.
Subsidiary (and each of its Subsidiaries);
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(f) such disposition (and any prior dispositions pursuant to this
clause) is in respect of a joint venture and the fair market value of the
assets being sold, transferred, leased, contributed or otherwise conveyed,
when aggregated with any Investments made pursuant to CLAUSES (i) and (j)
of SECTION 9.2.5, does not exceed $5,000,000 over the term of this
Agreement; or
(g) such disposition is in respect of Accounts or other related assets
and ancillary rights in property pursuant to the Permitted Receivables
Transaction.
SECTION 9.2.12. MODIFICATION OF CERTAIN AGREEMENTS. The U.S. Borrower
will not, and will not permit any of its Subsidiaries to,
(a) consent to any amendment, supplement, amendment and restatement,
waiver or other modification of any of, or enter into any forbearance from
exercising any rights with respect to, the terms or provisions contained
in, or applicable to, the Management Services Agreement, the Tax Sharing
Agreement, or the Merger Agreement or any schedules, exhibits or agreements
related thereto, in each case which amendment, supplement, amendment and
restatement, waiver, modification, or forbearance would adversely affect
any Borrower's ability to perform hereunder or which would increase any
Borrower's or any Subsidiary's obligations or liabilities, contingent or
otherwise, except for such amendments, supplements, amendments and
restatements, waivers, modifications or acts of forbearance which would not
cause any Borrower or any Subsidiary to breach any of their obligations set
forth herein or in any other Loan Document or which, in the reasonable
judgment of the Required Lenders, would not be likely to detrimentally and
materially affect Parent or any Borrower and any Subsidiary, or the rights,
benefits or interests of any Secured Party;
(b) consent to any amendment, supplement, amendment and restatement,
waiver or other modification of, or forbearance from exercising rights with
respect to, any of the terms or provisions contained in or applicable to
the Subordinated Indenture or the Subordinated Notes, except for such
amendments, supplements, amendments and restatements, waivers,
modifications or acts of forbearance (i) which, in the reasonable judgment
of the Required Lenders, would not be likely to detrimentally and
materially affect the rights, benefits or interests of the Agents, any
Issuer or the Lenders or (ii) to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Subordinated Indenture
under the Trust Indenture Act of 1939; and
(c) without the prior written consent of the Agents, (i) optionally
terminate the Permitted Receivables Transaction, or (ii) consent to any
amendment, supplement, or other modification to any of the terms of the
documents, instruments and agreements delivered in connection with the
Permitted Receivables Transaction, other than any such amendment,
modification or change which (A) would extend the maturity thereof or
(B) does not in any way adversely affect the interests of the Agents, the
Lenders or the
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Issuers hereunder or under the Loan Documents or (C) is of a technical or
clarifying nature).
SECTION 9.2.13. TRANSACTIONS WITH AFFILIATES. The U.S. Borrower will
not, and will not permit any of its Subsidiaries to, enter into, or cause,
suffer or permit to exist any arrangement or contract with any of its other
Affiliates unless such arrangement or contract is on fair and reasonable terms
and is an arrangement or contract of the kind which would be entered into by a
prudent Person in the position of the U.S. Borrower or such Subsidiary with a
Person which is not one of its Affiliates; PROVIDED, HOWEVER, that the foregoing
shall not prohibit
(a) transactions between the U.S. Borrower and any of its
Subsidiaries, or between such Subsidiaries, otherwise not prohibited
herein;
(b) the U.S. Borrower or its Subsidiaries from entering into and
performing the Management Services Agreement, including, so long as no
Default of any payment Obligations shall have occurred and be continuing,
and no other Event of Default shall have occurred and be continuing or
shall result therefrom, paying to North Castle, North Castle Partners or
any Affiliate thereof management and consulting fees in an aggregate amount
not to exceed $1,500,000 per annum plus reasonable expenses in an amount
not to exceed $100,000 per year;
(c) the cash capitalization of, or transfer of assets to, a joint
venture to the extent permitted by CLAUSES (i) and (j) of SECTION 9.2.5 and
CLAUSE (f) of SECTION 9.2.11;
(d) the U.S. Borrower or any of its Subsidiaries (including the
Canadian Borrower and its Subsidiaries) from entering into and performing
the Tax Sharing Agreement, including paying to LHPG or Parent, pursuant to
the Tax Sharing Agreement, amounts due and payable thereunder;
(e) loans or advances made to Management Investors, or Contingent
Liabilities in respect thereof or otherwise made on their behalf (including
any payments thereunder), to the extent permitted under CLAUSE (1) of
SECTION 9.2.2 or CLAUSE (h) of SECTION 9.2.5;
(f) dividends, distributions or payments to Parent or LHPG not to
exceed an amount necessary to permit Parent or LHPG to (i) pay costs
incurred to comply with reporting obligations under federal or state
securities or other laws, (ii) make payments in respect of indemnification
obligations under the Management Services Agreement or any of its Organic
Documents, or (iii) pay its other operational expenses (other than taxes)
incurred in the ordinary course of business and not exceeding $500,000 in
the aggregate in any Fiscal Year; and
(g) any transaction in the ordinary course of business or approved by
a majority of the independent directors of the U.S. Borrower between the
U.S. Borrower or any
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Subsidiary and any Affiliate of the U.S. Borrower controlled by the U.S.
Borrower that is a joint venture or similar entity primarily engaged in a
business related to any business of the U.S. Borrower or any of its
Subsidiaries, but only if such transaction is otherwise permitted by the
terms of this Agreement.
SECTION 9.2.14. NEGATIVE PLEDGES, RESTRICTIVE AGREEMENTS, ETC. The U.S.
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any agreement (excluding (i) this Agreement and any other Loan Document,
(ii) any agreement governing any Indebtedness permitted by CLAUSE (b) of SECTION
9.2.2 as in effect on the Effective Date, (iii) in the case of CLAUSE (a) below,
any agreement governing any Indebtedness permitted by CLAUSE (d) of SECTION
9.2.2 as to the assets financed with the proceeds of such Indebtedness, or
governing the Indebtedness permitted by CLAUSE (d)(iv) of SECTION 9.2.2, or
(iv) in the case of CLAUSE (a) or (c) below, restrictions on any Receivables Co.
contained in documentation delivered for the Permitted Receivables Transaction)
prohibiting
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired, to the extent
that any such negative pledge would effectively prohibit the creation or
first priority perfection of any Liens of the type described in CLAUSE (a)
of SECTION 9.2.3;
(b) the ability of the U.S. Borrower or any other Obligor to amend or
otherwise modify this Agreement or any other Loan Document; or
(c) the ability of any Subsidiary to make any payments, directly or
indirectly, to the U.S. Borrower by way of dividends, advances, repayments
of loans or advances, reimbursements of management and other intercompany
charges, expenses and accruals or other returns on investments.
SECTION 9.2.15. SALE AND LEASEBACK. The U.S. Borrower will not, and will
not permit any of its Subsidiaries to, enter into any agreement or arrangement
with any other Person providing for the leasing by the U.S. Borrower or any of
its Subsidiaries of real or personal property of the U.S. Borrower or any of its
Subsidiaries owned as of the Closing Date which has been or is to be sold or
transferred by the U.S. Borrower or any of its Subsidiaries to such other Person
or to any other Person to whom funds have been or are to be advanced by such
Person on the security of such property or rental obligations of the U.S.
Borrower or any of its Subsidiaries.
SECTION 9.2.16. CAPITAL EXPENDITURES. The U.S. Borrower will not, and
will not permit any of its Subsidiaries to, make Capital Expenditures in any
Fiscal Year, except
(a) Capital Expenditures (other than Capitalized Lease Liabilities
permitted pursuant to the following CLAUSE (b)) which do not aggregate in
excess of the greater of (i) 4.50% of the net sales of the U.S. Borrower
and its Subsidiaries for the previous Fiscal Year (which net sales shall be
deemed to be equal to $416,917,000 for the 1997 Fiscal
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Year) as certified to the Agent by an Authorized Officer of the U.S.
Borrower and (ii) the amount set forth below opposite such Fiscal Year:
<TABLE>
<CAPTION>
Maximum Capital
Fiscal Year Expenditures
----------- ---------------
<S> <C>
1998 $17,000,000
1999 $30,000,000
2000 $19,500,000
2001 $21,250,000
2002 $23,000,000
2003 $24,500,000
2004 $27,000,000
2005 $29,500,000
2006 $32,500,000
2007 $35,750,000
</TABLE>
PROVIDED, that
(i) to the extent Capital Expenditures are made in any Fiscal
Year in an amount less than the maximum amount permitted for such
Fiscal Year as provided in this clause, the Capital Expenditures that
the U.S. Borrower or any of its Subsidiaries may make in the next
following Fiscal Year shall be increased by an amount (the
"CARRY-FORWARD AMOUNT") equal to the amount of the permitted Capital
Expenditures not so made in the immediately preceding Fiscal year (the
"UNUSED AMOUNT") multiplied by 50%; PROVIDED that the Carry-Forward
Amount created in the 1999 Fiscal Year and first applicable to the
2000 Fiscal Year shall not exceed $3,000,000;
(ii) if all or a part of the Carry-Forward Amount is not used in
full in the immediately succeeding Fiscal Year, up to 25% of the
Unused Amount may be carried forward to the second immediately
succeeding Fiscal Year, but no further carry forward of such Unused
Amount to any other succeeding Fiscal Year shall be permitted; and
(iii) no portion of any Carry-Forward Amount shall be used in
any Fiscal Year until the entire amount of the Capital Expenditures
permitted to be made in such Fiscal Year as provided in this CLAUSE
(a) shall have been used;
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(b) Capitalized Lease Liabilities to the extent permitted as Indebtedness
pursuant to CLAUSE (d) of SECTION 9.2.2.
ARTICLE X
EVENTS OF DEFAULT
SECTION 10.1. LISTING OF EVENTS OF DEFAULT. Each of the following events
or occurrences described in this SECTION 10.1 shall constitute an "EVENT OF
DEFAULT".
SECTION 10.1.1. NON-PAYMENT OF OBLIGATIONS. Any Borrower shall default in
the payment or prepayment when due of
(a) any Reimbursement Obligation or any deposit of cash for collateral
purposes pursuant to SECTION 4.1.2 or SECTION 4.1.4, as the case may be;
(b) any principal of or interest on any Loan, except that, with
respect to any Default in the payment of interest, such Default may
continue unremedied for a period of two Business Days before an Event of
Default shall exist hereunder as a result thereof; or
(c) of any fee described in ARTICLE V or of any other Obligation and
such default shall continue unremedied for a period of five days.
SECTION 10.1.2. BREACH OF WARRANTY. Any representation or warranty of any
Borrower, Parent, any Subsidiary Guarantor or any other Obligor made or deemed
to be made hereunder or in any other Loan Document executed by it or any other
writing or certificate furnished by or on behalf of a Borrower or any other
Obligor to either Agent, any Issuer or any Lender for the purposes of or in
connection with this Agreement or any such other Loan Document (including any
certificates delivered pursuant to ARTICLE VII), is or shall be incorrect when
made or deemed to have been made in any material respect.
SECTION 10.1.3. NON-PERFORMANCE OF CERTAIN COVENANTS AND OBLIGATIONS. Any
Borrower shall default in the due performance and observance of any of its
obligations under SECTION 9.2 other than (x) CLAUSE (a) or (c) of SECTION 9.2.4
or (y) SECTION 9.2.5; or any Borrower shall default, and such default shall
continue unremedied for a period of 30 days or more, in the due performance or
observance of any of its obligations under CLAUSE (a) or (c) of SECTION 9.2.4 or
SECTION 9.2.5.
SECTION 10.1.4. NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. Any
Borrower or any other Obligor shall default in the due performance and
observance of any other agreement contained herein or in any other Loan Document
executed by it, and such default shall continue
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unremedied for a period of 30 days after notice thereof shall have been given to
such Borrower by either Agent or any Lender.
SECTION 10.1.5. DEFAULT ON OTHER INDEBTEDNESS. A default shall occur in
the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in SECTION 10.1.1) of any Borrower or any Subsidiary having a
principal amount, individually or in the aggregate, in excess of $1,000,000, or
a default shall occur in the performance or observance of any obligation or
condition with respect to such Indebtedness (subject to any applicable grace
period) if the effect of such default is to accelerate the maturity of any such
Indebtedness or such default shall continue unremedied for any applicable period
of time sufficient to permit the holder or holders of such Indebtedness, or any
trustee or agent for such holders, to cause or declare such Indebtedness to
become due and payable or to require such Indebtedness to be prepaid, redeemed,
purchased or defeased, or to cause an offer to purchase or defease such
Indebtedness to be required to be made, prior to its expressed maturity.
SECTION 10.1.6. JUDGMENTS. Any judgment or order for the payment of money
in excess of $1,000,000 (exclusive of any amounts fully covered by insurance
(less any applicable deductible) or indemnification and as to which the insurer
or the indemnifying party, as the case may be, has acknowledged its
responsibility to cover such judgment or order) shall be rendered against any
Borrower or any Subsidiary and such judgment shall not have been vacated or
discharged or stayed or bonded pending appeal within 45 days after the entry
thereof.
SECTION 10.1.7. PENSION PLANS. Any of the following events shall occur
with respect to any Pension Plan
(a) the institution of any steps by a Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, such Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan, in excess
of $1,000,000; or
(b) a contribution failure occurs with respect to any U.S. Pension
Plan sufficient to give rise to a Lien under section 302(f) of ERISA.
SECTION 10.1.8. CHANGE IN CONTROL. Any Change in Control shall occur.
SECTION 10.1.9. BANKRUPTCY, INSOLVENCY, ETC. Any Borrower, any Subsidiary
(which, either singly is or in the aggregate, would be a Significant Subsidiary)
or Parent shall
(a) become insolvent or generally fail to pay, or admit in writing its
inability or unwillingness generally to pay, debts as they become due;
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(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for any substantial part
of the property of any thereof, or make a general assignment for the
benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for a substantial part of the property of
any thereof, and such trustee, receiver, sequestrator or other custodian
shall not be discharged within 60 days, provided that each Borrower, each
such Subsidiary and Parent hereby expressly authorizes each Agent and each
Lender to appear in any court conducting any relevant proceeding during
such 60-day period to preserve, protect and defend their rights under this
Agreement and the other Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect thereof, and, if any such case or proceeding is not
commenced by any Borrower, any such Subsidiary or Parent, such case or
proceeding shall be consented to or acquiesced in by such Borrower, such
Subsidiary or Parent, as the case may be, or shall result in the entry of
an order for relief or shall remain for 60 days undismissed, provided that
each Borrower, each Subsidiary and Parent hereby expressly authorizes each
Agent and each Lender to appear in any court conducting any such case or
proceeding during such 60-day period to preserve, protect and defend their
rights under the Loan Documents; or
(e) take any corporate action authorizing, or in furtherance of, any
of the foregoing.
SECTION 10.1.10. IMPAIRMENT OF SECURITY, ETC. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; any Borrower,
any other Obligor or any other party shall, directly or indirectly, contest in
any manner such effectiveness, validity, binding nature or enforceability; or,
except as permitted under any Loan Document, any Lien securing any Obligation
shall, in whole or in part, cease to be a perfected first priority Lien.
SECTION 10.1.11. SUBORDINATED NOTES. The subordination provisions
relating to the Subordinated Indenture or any other Subordinated Debt Instrument
(the "SUBORDINATION PROVISIONS") shall fail to be enforceable by the Lenders (to
the extent they have not effectively waived in writing the benefits thereof) in
accordance with the terms thereof, or the principal or interest on any Loan,
Reimbursement Obligation or other Obligations shall fail to constitute Bank Debt
(as defined in the Subordinated Indenture (or similar term in any other
Subordinated Debt Instrument); or the U.S. Borrower or any of its Subsidiaries
shall, directly or indirectly, disavow or contest in any manner (i) the
effectiveness, validity or enforceability of any of the
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Subordination Provisions, (ii) that any of such Subordination Provisions exist
for the benefit of the Agents, each Issuer and the Lenders or (iii) that all
payments of principal or interest with respect to any such Subordinated Debt
Instrument made by the U.S. Borrower or its Subsidiaries, or realized from the
liquidation of any property of the U.S. Borrower or its Subsidiaries, shall be
subject to any of such Subordination Provisions.
SECTION 10.1.12. REDEMPTION. Any event shall occur which, under the terms
of or any Subordinated Debt Instrument, shall require the U.S. Borrower or any
of its Subsidiaries to purchase, redeem or otherwise acquire or offer to
purchase, redeem or otherwise acquire all or any portion of the principal amount
of any such Subordinated Debt prior to its final stated maturity date.
SECTION 10.1.13. TERMINATION OF RECEIVABLES FACILITY. Any event or
circumstance shall occur which permits or requires the Persons purchasing, or
financing the purchase of, Accounts under the Permitted Receivables Transaction
to stop so purchasing or financing such Accounts, other than by reason of the
occurrence of the stated expiry date of the Permitted Receivables Transaction or
the voluntary termination thereof by the U.S. Borrower; PROVIDED, that any
notices or cure periods that are conditions to the rights of such Persons to
stop purchasing, or financing the purchase of, such Accounts have been given or
have expired, as the case may be.
SECTION 10.2. ACTION IF BANKRUPTCY. If any Event of Default described in
CLAUSES (a) through (d) of SECTION 10.1.9 shall occur, the Commitments (if not
theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.
SECTION 10.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default
(other than any Event of Default described in CLAUSES (a) through (d) of SECTION
10.1.9) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the U.S. Agent, upon the direction of the Required Lenders, shall by
notice to Borrowers declare all or any portion of the outstanding principal
amount of the Loans and other Obligations to be due and payable and/or the
Commitments (if not theretofore terminated) to be terminated, whereupon the full
unpaid amount of such Loans and other Obligations which shall be so declared due
and payable shall be and become immediately due and payable, without further
notice, demand or presentment, and/or, as the case may be, the Commitments shall
terminate; PROVIDED that (i) if less than the total principal amount of all
Loans and other Obligations are declared to be due and payable, the amount so
declared due and payable shall be PRO RATA between the Facilities and (ii) the
termination of a Commitment under a Facility will automatically result in the
corresponding termination of the Commitment under the other Facility.
ARTICLE XI
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THE AGENTS
SECTION 11.1. ACTIONS. Each Lender hereby appoints Scotiabank as its U.S.
Agent, as its Canadian Agent and/or (in each case) as its collateral agent, as
the case may be, under and for purposes of this Agreement, the Notes and each
other Loan Document. Each Lender authorizes the applicable Agent to act on
behalf of such Lender under this Agreement, the Notes and each other Loan
Document and, in the absence of other written instructions from the Required
Lenders received from time to time by such Agent (with respect to which such
Agent agrees that it will comply, except as otherwise provided in this Section
or as otherwise advised by counsel in order to avoid contravention of applicable
law), to exercise such powers hereunder and thereunder as are specifically
delegated to or required of such Agent by the terms hereof and thereof, together
with such powers as may be reasonably incidental thereto. Each Lender hereby
indemnifies (which indemnity shall survive any termination of this Agreement)
each Agent, PRO RATA according to such Lender's percentage of the Total Exposure
Amount, from and against any and all liabilities, obligations, losses, damages,
claims, costs or expenses of any kind or nature whatsoever which may at any time
be imposed on, incurred by, or asserted against, either Agent in any way
relating to or arising out of this Agreement, the Notes and any other Loan
Document, including reasonable attorneys' fees, and as to which such Agent is
not reimbursed by a Borrower; PROVIDED, HOWEVER, that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, claims, costs or expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from such Agent's
gross negligence or wilful misconduct. Neither Agent shall be required to take
any action hereunder, under the Notes or under any other Loan Document, or to
prosecute or defend any suit in respect of this Agreement, the Notes or any
other Loan Document, unless it is indemnified hereunder to its satisfaction. If
any indemnity in favor of the Agents shall be or become, in either Agent's
determination, inadequate, such Agent may call for additional indemnification
from the Lenders and cease to do the acts indemnified against hereunder until
such additional indemnity is given.
SECTION 11.2. FUNDING RELIANCE, ETC. Unless the applicable Agent shall
have been notified by telephone, confirmed in writing, by any Lender by
5:00 p.m. (local time) on the Business Day prior to a Borrowing that such Lender
will not make available the amount which would constitute its Percentage of such
Borrowing on the date specified therefor, such Agent may assume that such Lender
has made such amount available to such Agent and, in reliance upon such
assumption, make available to the applicable Borrower a corresponding amount.
If and to the extent that such Lender shall not have made such amount available
to such Agent, such Lender and such Borrower severally agree to repay such Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such Agent made such amount available to such
Borrower to the date such amount is repaid to such Agent, at the interest rate
applicable at the time to Loans comprising such Borrowing (in the case of a
Borrower) and (in the case of a Lender), at the Federal Funds Rate (for the
first two Business Days after which such amount has not been repaid), and
thereafter at the interest rate applicable to Loans comprising such Borrowing.
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SECTION 11.3. EXCULPATION. Neither Agent nor any of their respective
directors, officers, employees or agents shall be liable to any Secured Party
for any action taken or omitted to be taken by it under this Agreement or any
other Loan Document, or in connection herewith or therewith, except for its own
wilful misconduct or gross negligence, nor responsible for any recitals or
warranties herein or therein, nor for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Loan Document, nor for
the creation, perfection or priority of any Liens purported to be created by any
of the Loan Documents, or the validity, genuineness, enforceability, existence,
value or sufficiency of any collateral security, nor to make any inquiry
respecting the performance by any Borrower of its obligations hereunder or under
any other Loan Document. Any such inquiry which may be made by either Agent
shall not obligate it to make any further inquiry or to take any action. Each
Agent shall be entitled to rely upon advice of counsel concerning legal matters
and upon any notice, consent, certificate, statement or writing which such Agent
believes to be genuine and to have been presented by a proper Person.
SECTION 11.4. SUCCESSOR. Either Agent may resign as such at any time upon
at least 30 days' prior notice to the Borrowers and all Lenders. If either
Agent at any time shall resign, the Required Lenders may, with the consent of
the U.S. Borrower (such consent not to be unreasonably withheld and, if the U.S.
Borrower withholds its consent, stating the reasons therefor in reasonable
detail), appoint another Lender as a successor Agent which shall thereupon
become the applicable Agent in place of the retiring Agent hereunder. If no
successor Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
notice of resignation, then the retiring Agent may, with the consent of the U.S.
Borrower (such consent not to be unreasonably withheld and, if the U.S. Borrower
withholds its consent, stating the reasons therefor in reasonable detail) and on
behalf of the Secured Parties, appoint a successor Agent, which shall be one of
the Lenders or a commercial banking institution organized under the laws of (in
the case of the U.S. Facility) the U.S. (or any State thereof) or a U.S. branch
or agency of a commercial banking institution, and (in the case of the Canadian
Facility) listed on Schedule I of the Bank Act (Canada) and (in each case)
having (x) a combined capital and surplus of at least $250,000,000 and (y) (if
such successor Agent is so rated) a credit rating of AA or better by Moody's or
a comparable rating by S&P; PROVIDED, HOWEVER, that if, after expending all
reasonable commercial efforts, such retiring Agent is unable to find a
commercial banking institution which is willing to accept such appointment and
which meets the qualifications set forth in CLAUSE (y) above, such retiring
Agent shall be permitted to appoint as its successor from all available
commercial banking institutions willing to accept such appointment such
institution having the highest credit rating of all such available and willing
institutions. Upon the acceptance of any appointment as an Agent hereunder by a
successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent such documents of transfer and assignment as such successor Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent, and the
retiring
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Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation hereunder as an Agent, the provisions of
(a) this ARTICLE XI shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was the Agent under this Agreement;
and
(b) SECTION 12.3 and SECTION 12.4 shall continue to inure to its
benefit.
SECTION 11.5. LOANS BY THE AGENTS. Each Agent shall have the same rights
and powers with respect to (x) the Credit Extensions made by it or any of its
Affiliates, and (y) the Notes held by it or any of its Affiliates as any other
Secured Party and may exercise the same as if it were not an Agent. Each Agent
and its Affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with any Borrower or any Subsidiary or Affiliate of any
Borrower as if such Agent were not an Agent hereunder.
SECTION 11.6. CREDIT DECISIONS. Each Secured Party acknowledges that it
has, independently of the Agents and each other Lender, and based on such
Lender's review of the financial information of the Borrowers, this Agreement,
the other Loan Documents (the terms and provisions of which being satisfactory
to such Secured Party) and such other documents, information and investigations
as such Secured Party has deemed appropriate, made its own credit decision to
extend its Commitments. Each Secured Party also acknowledges that it will,
independently of the Agents and each other Secured Party, and based on such
other documents, information and investigations as it shall deem appropriate at
any time, continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to it under
this Agreement or any other Loan Document.
SECTION 11.7. COPIES, ETC. The Agents shall give prompt notice to each
Secured Party of each notice or request required or permitted to be given to the
Agents by the Borrowers pursuant to the terms of this Agreement (unless
concurrently delivered to the Secured Parties by the Borrowers). The Agents
will distribute to each Secured Party each document or instrument received for
its account and copies of all other communications received by the Agents from
the Borrowers for distribution to the Secured Parties by the Agents in
accordance with the terms of this Agreement or any other Loan Document.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1. WAIVERS, AMENDMENTS, ETC. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrowers and the Required Lenders; PROVIDED, HOWEVER, that no such
amendment, modification or waiver shall:
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(a) extend any Commitment Termination Date or any interest payment
date or the date fees are payable under either Facility without the consent
of all adversely affected Lenders under that Facility or modify this
SECTION 12.1 without the consent of all Lenders;
(b) increase any Lender's Percentage of any Commitment Amount (in the
case of other than an increase in a Lender's applicable Percentage
resulting from a reallocation in accordance with SECTIONS 2.2.3 and 3.2.2),
increase the aggregate amount of any Credit Extensions required to be made
by a Lender pursuant to its Commitments or reduce any fees described in
ARTICLE V payable to any Lender without the consent of such Lender;
(c) extend the Stated Maturity Date for any Lender's Loan, or reduce
the principal amount of or rate of interest on any Lender's Loan, without
the consent of such Lender (it being understood and agreed, however, that
any vote to rescind any acceleration made pursuant to SECTION 10.2 and
SECTION 10.3 of amounts owing with respect to the Loans and other
Obligations shall only require the vote of the Required Lenders);
(d) change the definition of "Required Lenders" or any requirement
hereunder that any particular action be taken by all Lenders without the
consent of all Lenders;
(e) increase the Stated Amount of any Letter of Credit unless
consented to by each Issuer;
(f) release any of (i) the guarantees of any Guarantor or (ii) the
collateral (including any Pledged Notes (except as provided in CLAUSE
(e)(ii) of SECTION 9.2.2) or Pledged Shares, as such terms are defined in
the Pledge Agreements) (except the sale or transfer of Accounts and other
related assets in accordance with the Permitted Receivables Transaction),
in either case without the consent of all Lenders as expressly provided
herein or therein (it being understood that no consent of the Lenders is
required for a release in connection with a Permitted Disposition);
(g) change any of the terms of (i) CLAUSE (c) of SECTION 2.1.4 or
SECTION 2.3.2 without the consent of the U.S. Swing Line Lender or (ii)
CLAUSE (c) of SECTION 3.1.4 or SECTION 3.3.2 without the consent of the
Canadian Swing Line Lender;
(h) affect adversely the interests, rights or obligations of either
Agent in its capacity as an Agent, or any Issuer, unless consented to by
such Agent or such Issuer, as the case may be; or
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(i) modify CLAUSES (c), (d), (e), (f) or (g) of SECTION 5.1.1 (other
than as to the Stated Maturity Date) without the consent of Lenders holding
at least 66 2/3% of the Total Exposure Amount.
No failure or delay on the part of either Agent, any Issuer or any Lender in
exercising any power or right under this Agreement or any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on any Borrower in
any case shall entitle it to any notice or demand in similar or other
circumstances. No waiver or approval by either Agent, any Issuer or any Lender
under this Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 12.2. NOTICES. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto (in the
case of the Borrowers) and set forth in SCHEDULE II (in the case of the Agents
and the Lenders) or set forth in the Lender Assignment Agreement or at such
other address or facsimile number as may be designated by such party in a notice
to the other parties given in accordance herewith. Any notice, if mailed and
properly addressed with postage prepaid or if properly addressed and sent by
pre-paid courier service, shall be deemed given when received; any notice, if
transmitted by facsimile, shall be deemed given when the confirmation of
transmission thereof is received by the transmitter.
SECTION 12.3. PAYMENT OF COSTS AND EXPENSES. Each Borrower agrees to pay
on demand all reasonable expenses of the Agents (including the reasonable fees
and out-of-pocket expenses of New York and Canadian counsel to either Agent and
of local counsel, if any, who may be retained by counsel to either Agent) in
connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from time
to time hereafter be required, whether or not the transactions contemplated
hereby are consummated;
(b) the filing, recording, refiling or rerecording of any Loan
Document and/or any UCC financing statements relating thereto and all
amendments, supplements, amendments and restatements and other
modifications to any thereof and any and all other documents or instruments
of further assurance required to be filed or recorded or refiled or
rerecorded by the terms hereof or the terms of any Loan Document; and
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(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
Each Borrower further agrees to pay, and to save each Agent, each Issuer and the
Lenders harmless from all liability for, any stamp, registration, documentation,
issuance or other similar taxes which may be payable in connection with the
execution or delivery of this Agreement, the Credit Extensions hereunder, or the
issuance of the Notes, Letters of Credit or any other Loan Documents. Each
Borrower also agrees to reimburse each Agent, each Issuer and each Lender upon
demand for all reasonable out-of-pocket expenses (including reasonable
attorneys' fees and legal expenses of counsel to either Agent, any Issuer and
the Lenders, and, based upon the written advice of legal counsel, a copy of
which shall be provided to the Borrowers, that in such counsel's judgment having
a common counsel for either Agent, any Issuer and the Lenders would present such
counsel with a conflict of interest, of one other counsel selected by the
Required Lenders (other than the Agents)) incurred by either Agent, any Issuer
or such Lenders in connection with (x) the negotiation of any restructuring or
"work-out" with any Borrower, whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations.
SECTION 12.4. INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by each Lender, Issuer and Agent and the extension of
the Commitments, each Borrower hereby indemnifies, exonerates and holds each
Agent, each Issuer and each Lender and each of their respective officers,
directors, employees and agents (collectively, the "INDEMNIFIED PARTIES") free
and harmless from and against any and all actions, causes of action, suits,
losses, costs, liabilities and damages, and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements, whether incurred in connection with actions
between or among the parties hereto or the parties hereto and third parties
(collectively, the "INDEMNIFIED LIABILITIES"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Credit Extension;
(b) the entering into and performance of this Agreement and any other
Loan Document by any of the Indemnified Parties (including any action
brought by or on behalf of any Borrower as the result of any determination
by the Required Lenders pursuant to ARTICLE VII not to fund any Credit
Extension), provided that any such action is resolved in favor of such
Indemnified Party;
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by any Borrower or any Subsidiary of
all or any portion of the stock or assets of any Person, whether or not
either Agent, any Issuer or any Lender is party thereto;
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(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by any Borrower or any
Subsidiary of any Hazardous Material;
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by any Borrower or any Subsidiary thereof of any
Hazardous Material (including any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental Law),
regardless of whether caused by, or within the control of, such Borrower or
such Subsidiary; or
(f) each Lender's Environmental Liability (the indemnification herein
shall survive repayment of the Notes and any transfer of the property of
any Borrower or any Subsidiary by foreclosure or by a deed in lieu of
foreclosure for any Lender's Environmental Liability, regardless of whether
caused by, or within the control of, such Borrower or such Subsidiary);
except for any such Indemnified Liabilities resulting from the gross negligence
or wilful misconduct of any such Indemnified Party, or arising out of or in
connection with any claims made or proceedings commenced against any such
Indemnified Party by any securityholder or creditor of such Indemnified Party
arising out of and based upon rights afforded any such securityholder or
creditor solely in its capacity as such. Each Borrower and its successors and
assigns hereby waive, release and agree not to make any claim or bring any cost
recovery action against, either Agent, any Issuer or any Lender under CERCLA or
any state equivalent, or any similar law now existing or hereafter enacted. It
is expressly understood and agreed that to the extent that any Secured Party is
strictly liable under any Environmental Laws, each Borrower's obligation to such
Secured Party under this indemnity shall likewise be without regard to fault on
the part of such Borrower with respect to the violation or condition which
results in liability of such Secured Party. If and to the extent that the
foregoing undertaking may be unenforceable for any reason, each Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
SECTION 12.5. SURVIVAL. The obligations of each Borrower under SECTIONS
6.3, 6.4, 6.5, 6.6, 12.3 and 12.4, and the obligations of the Lenders under
SECTION 11.1, shall in each case survive any assignment from one Lender to
another (in the case of SECTIONS 12.3 and 12.4) and any termination of this
Agreement, the payment in full of all the Obligations and the termination of all
the Commitments. The representations and warranties made by each Borrower and
each other Obligor in this Agreement and in each other Loan Document shall
survive the execution and delivery of this Agreement and each such other Loan
Document.
SECTION 12.6. SEVERABILITY. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without
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invalidating the remaining provisions of this Agreement or such Loan Document or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 12.7. HEADINGS. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 12.8. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be an original and all of which shall constitute together but one
and the same agreement. This Agreement shall become effective when counterparts
hereof executed on behalf of each Borrower, each Agent and each Lender (or
notice thereof satisfactory to each Agent) shall have been received by each
Agent and notice thereof shall have been given by each Agent to each Borrower
and each Lender.
SECTION 12.9. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES
AND EACH OTHER LOAN DOCUMENT OTHER THAN THOSE THAT EXPRESSLY STATE OTHERWISE
(INCLUDING PROVISIONS WITH RESPECT TO INTEREST, LOAN CHARGES AND COMMITMENT
FEES) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS
5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF A SECURITY INTEREST
UNDER A LOAN DOCUMENT, OR REMEDIES UNDER A LOAN DOCUMENT, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. This Agreement, the Notes and the other Loan Documents
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof and thereof and supersede any prior agreements, written or
oral, with respect thereto.
SECTION 12.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED, HOWEVER, that:
(a) no Borrower may assign or transfer its rights or delegate its
obligations hereunder, except as permitted under CLAUSE (a) of SECTION
9.2.10 with respect to the Canadian Borrower, without the prior written
consent of the Agents and all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to SECTION 12.11.
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SECTION 12.11. SALE AND TRANSFER OF LOANS AND NOTES; PARTICIPATIONS IN
LOANS AND NOTES. Each Lender may assign, or sell participations in, its Loans,
Letters of Credit and Commitments to one or more other Persons in accordance
with this SECTION 12.11.
SECTION 12.11.1. ASSIGNMENTS. Upon prior notice to the applicable
Borrower and the applicable Agent, any Lender,
(a) with the consent of such Agent and, so long as no Event of Default
has occurred and is continuing, such Borrower (which consents shall not be
unreasonably delayed or withheld; PROVIDED, HOWEVER that in the event of
(i) a proposed assignment to an Assignee Lender (as defined below), the
obligations of whom do not satisfy the credit ratings set forth in CLAUSE
(b) of SECTION 6.11 or (ii) a proposed assignment to an Assignee Lender of
all or any fraction of any of such Lender's total Loans, Letter of Credit
Outstandings and Commitments in an aggregate amount less than $5,000,000,
such Agent and such Borrower may withhold such consent in their sole
discretion) may at any time assign and delegate to one or more commercial
banks or other financial institutions; and
(b) with notice to such Borrower and such Agent, but without the
consent of such Borrower or such Agent (or any other Person), may assign
and delegate to any of its Affiliates or to any other Lender (each Person
described in either of the foregoing clauses as being the Person to whom
such assignment and delegation is to be made, being hereafter referred to
as an "ASSIGNEE LENDER"),
all or any fraction of any of such Lender's total Loans, Letter of Credit
Outstandings and Commitments; PROVIDED, HOWEVER, that
(i) with respect to assignments of Revolving Loans, the
assigning Lender must assign a PRO RATA portion of each of its
Revolving Loan Commitment, Revolving Loans and interest in Letters of
Credit Outstanding;
(ii) each Assignee Lender will comply, if applicable, with the
provisions contained in SECTIONS 6.10 and 6.11;
(iii) with respect to the U.S. Facility, each Assignee Lender
that is a U.S. Lender that is a U.S. Person shall comply with the
provisions of CLAUSE (b)(i) of SECTION 6.6, and each Assignee Lender
that is a U.S. Lender that is not a U.S. Person shall comply with the
provisions of CLAUSE (b)(ii) of SECTION 6.6 (and, in any case, with
all of the other provisions of CLAUSE (b) of SECTION 6.6);
(iv) with respect to the Canadian Facility, each Assignee Lender
shall represent that, under applicable law and treaties in effect as
of the date of the assignment, no federal taxes will be required to be
withheld by the Canadian
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<PAGE>
Agent or the Canadian Borrower with respect to any payments to be made
to such Assignee Lender in respect of this Agreement; and
(v) such assignment and obligation shall be made in compliance
with all applicable laws and shall require the prior consent of the
applicable Borrower if it would require any Borrower to make any
filing with any Governmental Authority or to qualify any Loan, Letter
of Credit or Note under the laws of any jurisdiction.
The applicable Borrower and each other Obligor and each Agent shall be entitled
to continue to deal solely and directly with such Lender in connection with the
interests so assigned and delegated to an Assignee Lender until
(c) notice of such assignment and delegation, together with
(i) payment instructions, (ii) the Internal Revenue Service Forms or other
statements contemplated or required to be delivered pursuant to CLAUSE (b)
of SECTION 6.6, in each case if applicable, and (iii) addresses and related
information with respect to such Assignee Lender, shall have been delivered
to the applicable Borrower and the applicable Agent by such Lender and such
Assignee Lender;
(d) such Assignee Lender shall have executed and delivered to the
applicable Borrower and the applicable Agent a Lender Assignment Agreement
(which shall include, INTER ALIA, the Assignee Lender's representations
contemplated by CLAUSE (b) of SECTION 6.6, if applicable), accepted by such
Agent;
(e) the processing fees described below shall have been paid; and
(f) the applicable Agent shall have registered such assignment and
delegation in the applicable Register pursuant to SECTION 2.6(b) or SECTION
3.7(b).
From and after the date that the applicable Agent accepts such Lender Assignment
Agreement, and such assignment and delegation is registered in the applicable
Register pursuant to SECTIONS 2.6(b) or 3.7(b), (x) the Assignee Lender
thereunder shall be deemed automatically to have become a party hereto and to
the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee Lender in connection with such Lender Assignment
Agreement, shall have the rights and obligations of a Lender hereunder and under
the other Loan Documents, and (y) the assignor Lender, to the extent that rights
and obligations hereunder have been assigned and delegated by it in connection
with such Lender Assignment Agreement, shall be released from its obligations
hereunder and under the other Loan Documents. Within five Business Days after
its receipt of notice that the applicable Agent has received and accepted an
executed Lender Assignment Agreement, but subject to CLAUSE (d) above, the
applicable Borrower shall execute and deliver to such Agent (for delivery to the
relevant Assignee Lender) a new Note evidencing such Assignee Lender's assigned
Loans and Commitments and, if the assignor Lender has retained Loans and
Commitments hereunder, a replacement Note in the
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principal amount of the Loans and Commitments retained by the assignor Lender
hereunder (such Note to be in exchange for, but not in payment of, the Note then
held by such assignor Lender). Each such Note shall be dated the date of the
predecessor Note. The assignor Lender shall mark each predecessor Note
"exchanged" and deliver each of them to the applicable Borrower. Accrued
interest on that part of each predecessor Note evidenced by a new Note, and
accrued fees, shall be paid as provided in the Lender Assignment Agreement.
Accrued interest on that part of each predecessor Note evidenced by a
replacement Note shall be paid to the assignor Lender. Accrued interest and
accrued fees shall be paid at the same time or times provided in the predecessor
Note and in this Agreement. Such assignor Lender or such Assignee Lender must
also pay a processing fee in the amount of $3,500 to the U.S. Agent or Cdn
$4,500 to the Canadian Agent, as applicable, upon delivery of any Lender
Assignment Agreement. Any attempted assignment and delegation not made in
accordance with this SECTION 12.11.1 shall be null and void. Notwithstanding
any other term of this SECTION 12.11.1, the agreement of each Swing Line Lender
to provide its Swing Line Loan Commitment shall not impair or otherwise restrict
in any manner the ability of such Swing Line Lender to make any assignment of
its Loans or Commitments, it being understood and agreed that such Swing Line
Lender may terminate its Swing Line Loan Commitment, either in whole or in part,
in connection with the making of any assignment; PROVIDED, HOWEVER, that if
Scotiabank's U.S. Revolving Loan Commitment is greater than or equal to
$10,000,000, Scotiabank agrees, unless another U.S. RL Lender has agreed to
become the U.S. Swing Line Lender, to continue to be the U.S. Swing Line Lender.
Notwithstanding anything to the contrary set forth above, any Lender may
(without requesting the consent of the applicable Borrower or the applicable
Agent) pledge its Loans to a Federal Reserve Bank in support of borrowings made
by such Lender from such Federal Reserve Bank.
SECTION 12.11.2. PARTICIPATIONS. Any Lender may at any time sell to one
or more commercial banks or other Persons (each of such commercial banks and
other Persons being herein called a "PARTICIPANT") participating interests in
any of the Loans, Commitments, or other interests of such Lender hereunder;
PROVIDED, HOWEVER, that
(a) no participation contemplated in this SECTION 12.11 shall relieve
such Lender from its Commitments or its other obligations hereunder or
under any other Loan Document;
(b) such Lender shall remain solely responsible for the performance of
its Commitments and such other obligations;
(c) the applicable Borrower and each other Obligor and each Agent
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and each of
the other Loan Documents;
(d) no Participant, unless such Participant is an Affiliate of such
Lender or is itself a Lender, shall be entitled to require such Lender to
take or refrain from taking any action hereunder or under any other Loan
Document, except that such Lender may agree
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<PAGE>
with any Participant that such Lender will not, without such Participant's
consent, take any actions of the type described in CLAUSE (b), (f) or, to
the extent requiring the consent of each Lender, CLAUSE (c) of SECTION
12.1;
(e) no Borrower shall be required to pay any amount under this
Agreement that is greater than the amount which it would have been required
to pay had no participating interest been sold; and
(f) with respect to the Canadian Facility, under applicable law and
treaties in effect on the date of such sale, no Canadian federal taxes
shall be required to be withheld by the Canadian Agent or the Canadian
Borrower with respect to any payments to be made to such Participant in
respect of this Agreement.
Each Borrower acknowledges and agrees that each Participant, for purposes of
SECTIONS 6.3, 6.4, 6.5, 6.6, 6.8, 6.9, 9.1.1 (it being understood that it shall
be the obligation of each Lender (and not the Borrowers) to deliver to their
Participants the information and reports described in SECTION 9.1.1 to
Participants), 12.3 and 12.4, shall be considered a Lender. Each Participant
shall only be indemnified for increased costs pursuant to SECTION 6.3, 6.5 or
6.6 if and to the extent that the Lender which sold such participating interest
to such Participant concurrently is entitled to make, and does make, a claim on
the applicable Borrower for such increased costs. Any Lender that sells a
participating interest in any Loan, Commitment or other interest to a
Participant under this SECTION 12.11.2 shall indemnify and hold harmless the
applicable Borrower and the applicable Agent from and against any taxes,
penalties, interest or other costs or losses (including reasonable attorneys'
fees and expenses) incurred or payable by such Borrower or such Agent as a
result of the failure of such Borrower or such Agent to comply with its
obligations to deduct or withhold any Taxes from any payments made pursuant to
this Agreement to such Lender or such Agent, as the case may be, which Taxes,
with respect to the U.S. Facility, would not have been incurred or payable if
such Participant had been a U.S. Lender that was not a U.S. Person and that was
entitled to deliver to the U.S. Borrower, the U.S. Agent or such Lender, and did
in fact so deliver, a duly completed and valid Form 1001 or 4224 (or applicable
successor form) entitling such Participant to receive payments under this
Agreement without deduction or withholding of any United States federal taxes,
and, with respect to the Canadian Facility, would not have been incurred or
payable if such Participant had been a Canadian Person.
SECTION 12.12. OTHER TRANSACTIONS. Nothing contained herein shall
preclude either Agent, any Issuer or any other Lender from engaging in any
transaction, in addition to those contemplated by this Agreement or any other
Loan Document, with any Borrower or any of their Affiliates in which such
Borrower or such Affiliate is not restricted hereby from engaging with any other
Person.
SECTION 12.13. EXECUTION ON BEHALF OF CORPORATION. Any signature by any
Authorized Officer on this Agreement, any Loan Document and any other instrument
and certificate executed or to be executed pursuant to or in connection with
this Agreement or such
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other Loan Documents is provided only in such Authorized Officer's capacity as a
corporate officer, and not in any way in such Authorized Officer's personal
capacity.
SECTION 12.14. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE
LENDERS, ANY ISSUER OR THE BORROWERS IN CONNECTION HEREWITH OR THEREWITH SHALL
BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT EITHER AGENT'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION, SUBJECT TO SUCH BORROWER'S RIGHT TO
CONTEST SUCH JUDGMENT BY MOTION OR APPEAL ON ANY GROUNDS NOT EXPRESSLY WAIVED IN
THIS SECTION 12.14. EACH BORROWER HEREBY IRREVOCABLY APPOINTS CT CORPORATION
SYSTEM (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT
1633 BROADWAY, NEW YORK, NEW YORK 10019, UNITED STATES, AS ITS AGENT TO RECEIVE,
ON SUCH BORROWER'S BEHALF AND ON BEHALF OF SUCH BORROWER'S PROPERTY, SERVICE OF
COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN
ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR
DELIVERING A COPY OF SUCH PROCESS TO SUCH BORROWER IN CARE OF THE PROCESS AGENT
AT THE PROCESS AGENT'S ABOVE ADDRESS, AND SUCH BORROWER HEREBY IRREVOCABLY
AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF.
AS AN ALTERNATIVE METHOD OF SERVICE, EACH BORROWER FURTHER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES
SPECIFIED IN SECTION 12.2. EACH BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
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<PAGE>
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, SUCH BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST
EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 12.15. WAIVER OF JURY TRIAL. THE AGENTS, THE LENDERS, EACH
ISSUER AND EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE AGENTS, THE LENDERS, THE ISSUERS OR THE BORROWERS IN CONNECTION HEREWITH OR
THEREWITH. EACH BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH
OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENTS, THE LENDERS AND EACH ISSUER ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 12.16. ACKNOWLEDGMENTS AND REPRESENTATIONS BY LENDERS. Each
Lender represents to the Agents and each of the Obligors that, independently and
without reliance upon the Agents or any other Lender, and based on such
documents and information as it has deemed appropriate, it has made and will
make its own appraisal of and investigation into the business, operations,
property, financial and other condition and creditworthiness of each of the
Borrowers and the Obligors, it has made its own decision to make its Loans and,
in the case of an Issuer, such Issuers represents that it has made its own
decision to issue Letters of Credit, issue its Letters of Credit hereunder and
enter into this Agreement and it will make its own decisions in taking or not
taking action under this Agreement and the other Loan Documents. Each Lender
represents to each other party hereto that it is a bank, savings and loan
association or other similar savings institution, insurance company, investment
fund or company or other financial institution which makes, invests in or
acquires commercial loans in the ordinary course of its business, that it is
participating hereunder as a Lender for such commercial purposes, and that it
has the knowledge and experience to be and is capable of evaluating the merits
and risks of being a Lender hereunder.
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<PAGE>
SECTION 12.17. CONFIDENTIALITY. Each of the Lenders and the Agents
agrees (on behalf of itself and each of its affiliates, directors, officers,
employees, agents, advisors and representatives to (a) use any Confidential
Information only in connection with participating as a Lender or Agent hereunder
and not for any other purpose and (b) keep confidential any Confidential
Information, and in connection therewith comply with its customary procedures
for handling confidential information of this nature; PROVIDED that nothing
herein shall limit the disclosure of any such information (i) to the extent
required by statute, rule, regulation or judicial process, (ii) as requested or
required by any governmental agency or representative thereof, (iii) to counsel
and (if they have signed a Confidentiality Agreement) other professional
advisors for any of the Lenders or the Agents, (iv) to any Lender's or any
Agent's examiners, auditors or accountants, or to the National Association of
Insurance Commissioners, (v) to the Agents or any other Lender, (vi) by the
Agents or any Lender to an Affiliate thereof, (vii) in connection with any
litigation relating to enforcement of the Loan Documents or (viii) to any
Assignee Lender or Participant (or prospective Assignee Lender or Participant)
or to direct contractual counterparties in Rate Protection Agreements entered
into in connection with a portion or all of a Lender's rights to receive
payments hereunder (or such contractual counterparties' professional advisors),
so long as (in each case) such Person first executes and delivers to the
respective Lender a Confidentiality Agreement, in substantially the form of
Exhibit M to the Existing Credit Agreement, for the benefit of and enforceable
by the Borrowers, which Confidentiality Agreement shall be delivered to the U.S.
Borrower promptly after the execution thereof; PROVIDED that in the case of the
preceding CLAUSE (i), such Lender or Agent shall, to the extent legally
permissible, use reasonable efforts to notify the Borrowers of the proposed
disclosure as soon as is reasonably practicable under the circumstances.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
LEINER HEALTH PRODUCTS INC.
By: /s/ William B. Towne
-----------------------------------
Name: William B. Towne
Title: Executive Vice
President-Finance
Address: 901 East 233rd Street
Carson, California 90745
Facsimile No.: (310) 952-7768
Attention: William B. Towne
with a copy to:
North Castle Partners I, L .L.C.
11 Meadowcroft Lane
Greenwich, Connecticut 06830
Facsimile No.: (203) 869-4311
Attention: Charles Baird, Jr.
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<PAGE>
VITA HEALTH PRODUCTS INC.
By: /s/ William B. Towne
-----------------------------------
Name: William B. Towne
Title: Treasurer
Address: 150 Beghin Avenue
Winnipeg, Manitoba
Facsimile No.: (204) 633-8386
Attention: Rachel Cahill
with a copy to the U.S. Borrower and:
North Castle Partners I, L .L.C.
11 Meadowcroft Lane
Greenwich, Connecticut 06830
Facsimile No.: (203) 869-4311
Attention: Charles Baird, Jr.
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<PAGE>
THE BANK OF NOVA SCOTIA,
as the U.S. Agent
By: /s/ Terry Fryett
-----------------------------------
Title: Unit Head
THE BANK OF NOVA SCOTIA,
as the Canadian Agent
By: /s/ Terry Fryett
-----------------------------------
Title: Unit Head
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<PAGE>
U.S. LENDERS:
THE BANK OF NOVA SCOTIA
By: /s/ Terry Fryett
-----------------------------------
Title: Unit Head
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<PAGE>
SALOMON BROTHERS HOLDING
COMPANY INC
By: /s/ Chad Leat
-----------------------------------
Title: Managing Director
-160-
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Harold Siegel
-----------------------------------
Title: Vice President
-161-
<PAGE>
FLEET NATIONAL BANK
By: /s/ Adam Tweedy
-----------------------------------
Title: Assistant Vice President
-162-
<PAGE>
LASALLE NATIONAL BANK
By: /s/ Susan Kaminski
-----------------------------------
Title: Vice President
-163-
<PAGE>
COMERICA BANK
By: /s/ Emmanuel Skevofilax
-----------------------------------
Title: Assistant Vice President
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<PAGE>
SOCIETE GENERALE
By: /s/ J. Staley Stewart
-----------------------------------
Title: Vice President
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<PAGE>
CREDITANSTALT CORPORATE FINANCE
INC.
By: /s/ Lisa Bruno
-----------------------------------
Title: Assistant Vice President
By: /s/ Jacalyn Yang
-----------------------------------
Title: Vice President
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<PAGE>
IMPERIAL BANK, a California Banking
Corporation
By: /s/ Ray Vadalma
-----------------------------------
Title: Senior Vice President
-167-
<PAGE>
DEEPROCK & COMPANY
By: Eaton Vance Management
as Investment Advisor
By: /s/ Payson F. Swaffield
-----------------------------------
Title: Vice President
-168-
<PAGE>
FLOATING RATE PORTFOLIO
By: Chancellor LGT Senior Secured
Management Inc., as attorney in fact
By: /s/ Anne McCarthy
-----------------------------------
Title: Authorized Signatory
-169-
<PAGE>
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ John Joyce
-----------------------------------
Title: Managing Director
-170-
<PAGE>
ALLSTATE INSURANCE COMPANY
By: /s/ Patricia W. Wilson
-----------------------------------
By: /s/ Daniel Leinbach
-----------------------------------
Its Authorized Signatories
-171-
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ J. Scott Jessup
-----------------------------------
Title: Vice President
-172-
<PAGE>
KZH-CNC CORPORATION
By: /s/ Virginia Conway
-----------------------------------
Title: Authorized Agent
-173-
<PAGE>
KZH HOLDING CORPORATION III
By: /s/ Virginia Conway
-----------------------------------
Title: Authorized Agent
-174-
<PAGE>
KZH-CRESCENT CORPORATION
By: /s/ Virginia Conway
-----------------------------------
Title: Authorized Agent
-175-
<PAGE>
KZH-ING-2 CORPORATION
By: /s/ Virginia Conway
-----------------------------------
Title: Authorized Agent
-176-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Paul Peterson
-----------------------------------
Title: Vice President
-177-
<PAGE>
CERES FINANCE LTD.
By: /s/ John H. Cullinane
-----------------------------------
Title: Director
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<PAGE>
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E)
By: TCW Asset Management Company, as
attorney in fact
By: /s/ Mark L. Gold
-----------------------------------
Title: Managing Director
By: /s/ Jonathan R. Insull
-----------------------------------
Title: Vice President
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<PAGE>
CANADIAN LENDERS:
THE BANK OF NOVA SCOTIA
By: /s/ Terry Fryett
-----------------------------------
Title: Unit Head
-180-
<PAGE>
SOCIETE GENERALE (CANADA)
By: /s/ Cary Hughes
-----------------------------------
Title: Director
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<PAGE>
SCHEDULE I
DISCLOSURE SCHEDULE TO CREDIT AGREEMENT
ITEM 8.7 Litigation.
ITEM 8.8 Existing Subsidiaries.
ITEM 8.9 Plant Sites and Property Matters.
ITEM 8.10 Mortgaged Properties.
ITEM 8.11 Employee Benefit Plans.
ITEM 8.12 Environmental Matters.
ITEM 8.13 Intellectual Property.
ITEM 9.2.2(b)(i) Indebtedness to be Paid.
CREDITOR OUTSTANDING PRINCIPAL AMOUNT
-------- ----------------------------
ITEM 9.2.2(b)(ii) Ongoing Indebtedness.
CREDITOR OUTSTANDING PRINCIPAL AMOUNT
-------- ----------------------------
ITEM 9.2.3(d) Ongoing Liens.
ITEM 9.2.5(a) Ongoing Investments.
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<PAGE>
EXHIBIT A-1
U.S. REVOLVING NOTE
$________________ May __, 1998
FOR VALUE RECEIVED, the undersigned, LEINER HEALTH PRODUCTS INC., a
Delaware corporation (the "U.S. BORROWER"), promises to pay to
__________________ (the "U.S. LENDER") on the Stated Maturity Date for all U.S.
Revolving Loans, the principal sum of ______________ DOLLARS ($__________) or,
if less, the aggregate unpaid principal amount of all U.S. Revolving Loans made
by the U.S. Lender pursuant to that certain Credit Agreement, dated as of May
__, 1998 (as amended, supplemented, amended and restated or otherwise modified
from time to time, the "CREDIT AGREEMENT"), among the U.S. Borrower, Vita Health
Products Inc., a Manitoba corporation (the "CANADIAN BORROWER", and together
with the U.S. Borrower, the "BORROWERS"), the various financial institutions
(including the U.S. Lender) as are or may become parties thereto which extend a
Commitment under the U.S. Facility (collectively, the "U.S. LENDERS"), the
various financial institutions as are or may become parties thereto which extend
a Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS") and The Bank of Nova Scotia
("SCOTIABANK"), as agent for the U.S. Lenders under the U.S. Facility (in such
capacity, the "U.S. AGENT"), Scotiabank, as agent for the Canadian Lenders under
the Canadian Facility (in such capacity, the "CANADIAN AGENT", and together with
the U.S. Agent, the "AGENTS"), Merrill Lynch Capital Corporation, as
Documentation Agent, and Salomon Brothers Holding Company Inc., as Syndication
Agent, which principal amount, together with certain other information, shall be
noted by the U.S. Lender on the schedule attached hereto (and any continuation
thereof). Unless otherwise defined, terms used herein have the meanings
provided in the Credit Agreement.
The U.S. Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the U.S. Agent pursuant to the Credit Agreement.
This U.S. Revolving Note is one of the U.S. Revolving Notes referred to in,
and evidences Indebtedness incurred under, the Credit Agreement, to which
reference is made for a description of the security for this U.S. Revolving Note
and for a statement of the terms and conditions on which the U.S. Borrower is
permitted and required to make prepayments and repayments of principal of the
Indebtedness evidenced by this U.S. Revolving Note and on which such
Indebtedness may be declared to be immediately due and payable.
<PAGE>
The U.S. Borrower hereby irrevocably authorizes the U.S. Lender to make (or
cause to be made) appropriate notations on the grid attached hereto (or on any
continuation of such grid), which notations, if made, shall evidence, INTER
ALIA, the date of and the outstanding principal of, the U.S. Revolving Loans
evidenced hereby. Such notations shall be rebuttable presumptive evidence of
the accuracy of the information so set forth; PROVIDED, HOWEVER, that the
failure of the U.S. Lender to make any such notations shall not limit or
otherwise affect any Obligations of the U.S. Borrower.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS U.S. REVOLVING NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
LEINER HEALTH PRODUCTS INC.
By
------------------------------
Name:
Title:
-2-
<PAGE>
U.S. REVOLVING LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amount of U.S. Revolving Amount of Principal Unpaid Principal
Loan Made Repaid Balance
------------------------- Interest ----------------------------------------------
Date Alternate LIBO Period Alternate LIBO Alternate LIBO Notation
Base Rate Rate (If Applicable) Base Rate Rate Base Rate Rate Total Made By
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-2
CANADIAN REVOLVING NOTE
Cdn $________________ May __, 1998
FOR VALUE RECEIVED, the undersigned, VITA HEALTH PRODUCTS INC., a Manitoba
corporation (the "CANADIAN BORROWER"), promises to pay to _________________ and
its registered assigns (the "CANADIAN LENDER") on the Stated Maturity Date for
all Canadian Revolving Loans, the principal sum of ______________ CANADIAN
DOLLARS (Cdn $__________) or, if less, the aggregate unpaid principal amount of
all Canadian Revolving Loans made by the Canadian Lender pursuant to that
certain Credit Agreement, dated as of May __, 1998 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among the Canadian Borrower, Leiner Health Products Inc., a
Delaware corporation (the "U.S. BORROWER", and together with the Canadian
Borrower, the "BORROWERS"), the various financial institutions as are or may
become parties thereto which extend a Commitment under the U.S. Facility
(collectively, the "U.S. LENDERS"), the various financial institutions
(including the Canadian Lender) as are or may become parties thereto which
extend a Commitment under the Canadian Facility (collectively, the "CANADIAN
LENDERS", and together with the U.S. Lenders, the "LENDERS") and The Bank of
Nova Scotia ("SCOTIABANK"), as agent for the U.S. Lenders under the U.S.
Facility (in such capacity, the "U.S. AGENT"), Scotiabank, as agent for the
Canadian Lenders under the Canadian Facility (in such capacity, the "CANADIAN
AGENT", and together with the U.S. Agent, collectively, the "AGENTS"), Merrill
Lynch Capital Corporation, as Documentation Agent, and Salomon Brothers Holding
Company Inc., as Syndication Agent, which principal amount, together with
certain other information, shall be noted by the Canadian Lender on the schedule
attached hereto (and any continuation thereof). Unless otherwise defined, terms
used herein have the meanings provided in the Credit Agreement. The liability
of the Canadian Borrower under this Canadian Revolving Note shall not be
duplicative of Canadian Revolving Loans evidenced by Canadian BAs or Acceptance
Notes issued by the Canadian Borrower under the Credit Agreement.
The Canadian Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
Canada in same day or immediately available funds to the account designated by
the Canadian Agent pursuant to the Credit Agreement.
This Canadian Revolving Note is one of the Canadian Revolving Notes
referred to in, and evidences Indebtedness incurred under, the Credit Agreement,
to which reference is made for a
<PAGE>
description of the security for this Canadian Revolving Note and for a statement
of the terms and conditions on which the Canadian Borrower is permitted and
required to make prepayments and repayments of principal of the Indebtedness
evidenced by this Canadian Revolving Note and on which such Indebtedness may be
declared to be immediately due and payable.
The Canadian Borrower hereby irrevocably authorizes the Canadian Lender to
make (or cause to be made) appropriate notations on the grid attached hereto (or
on any continuation of such grid), which notations, if made, shall evidence,
INTER ALIA, the date of and the outstanding principal of, the Canadian Revolving
Loans evidenced hereby. Such notations shall be rebuttable presumptive evidence
of the accuracy of the information so set forth; PROVIDED, HOWEVER, that the
failure of the Canadian Lender to make any such notations shall not limit or
otherwise affect any Obligations of the Canadian Borrower.
Any assignment or transfer of this Canadian Revolving Note shall be
effective solely by registration thereof in the Register pursuant to the Credit
Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS CANADIAN REVOLVING NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
VITA HEALTH PRODUCTS INC.
By
------------------------------
Name:
Title:
-2-
<PAGE>
CANADIAN REVOLVING LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amount of Canadian Revolving Amount of Principal Unpaid Principal
Loan Made Repaid Balance
--------------------------------- --------------------------------------------------
Interest Cdn
Cdn BA Period BA Cdn BA Notation
Date Cdn Prime Rate Rate (If Applicable) Cdn Prime Rate Rate Cdn Prime Rate Rate Total Made By
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-3
TERM B NOTE
$_______________ May __, 1998
FOR VALUE RECEIVED, the undersigned, LEINER HEALTH PRODUCTS INC., a
Delaware corporation (the "U.S. BORROWER"), promises to pay to
________________________ and its registered assigns (the "U.S. LENDER") on the
Stated Maturity Date for all Term B Loans, the principal sum of
__________________ DOLLARS ($__________) or, if less, the aggregate unpaid
principal amount of the Term B Loan shown on the schedule attached hereto (and
any continuation thereof) made by the U.S. Lender pursuant to that certain
Credit Agreement, dated as of May __, 1998 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the U.S. Borrower, Vita Health Products Inc., a Manitoba corporation (the
"CANADIAN BORROWER", and together with the U.S. Borrower, the "BORROWERS"), the
various financial institutions (including the U.S. Lender) as are or may become
parties thereto which extend a Commitment under the U.S. Facility (collectively,
the "U.S. LENDERS"), the various financial institutions as are or may become
parties thereto which extend a Commitment under the Canadian Facility
(collectively, the "CANADIAN LENDERS", and together with the U.S. Lenders, the
"LENDERS") and The Bank of Nova Scotia ("SCOTIABANK"), acting through its New
York Agency, as agent for the U.S. Lenders under the U.S. Facility (in such
capacity, the "U.S. AGENT"), Scotiabank, acting through its executive offices in
Toronto, Ontario, as agent for the Canadian Lenders under the Canadian Facility
(in such capacity, the "CANADIAN AGENT", and together with the U.S. Agent, the
"AGENTS"), Merrill Lynch Capital Corporation, as Documentation Agent, and
Salomon Brothers Holding Company Inc., as Syndication Agent. Unless otherwise
defined, terms used herein have the meanings provided in the Credit Agreement.
The U.S. Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the U.S. Agent pursuant to the Credit Agreement.
This Term B Note is one of the Term B Notes referred to in, and evidences
Indebtedness incurred under, the Credit Agreement, to which reference is made
for a description of the security for this Term B Note and for a statement of
the terms and conditions on which the U.S. Borrower is permitted and required to
make prepayments and repayments of principal of the Indebtedness
<PAGE>
evidenced by this Term B Note and on which such Indebtedness may be declared to
be immediately due and payable.
The U.S. Borrower hereby irrevocably authorizes the U.S. Lender to make (or
cause to be made) appropriate notations on the grid attached hereto (or on any
continuation of such grid), which notations, if made, shall evidence, INTER
ALIA, the date of and the outstanding principal of, the Term B Loans evidenced
hereby. Such notations shall be rebuttable presumptive evidence of the accuracy
of the information so set forth; PROVIDED, HOWEVER, that the failure of the U.S.
Lender to make any such notations shall not limit or otherwise affect any
Obligations of the U.S. Borrower.
Any assignment or transfer of this Term B Note shall be effective solely by
registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS TERM B NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
LEINER HEALTH PRODUCTS INC.
By
------------------------------
Name:
Title:
-2-
<PAGE>
TERM B LOAN AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amount of Term B Loan Amount of Principal Unpaid Principal
Made Repaid Balance
------------------------------ Interest --------------------------------------------------
Alternate LIBO Period Alternate LIBO Alternate LIBO Notation
Date Base Rate Rate (If Applicable) Base Rate Rate Base Rate Rate Total Made By
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
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- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
<PAGE>
EXHIBIT A-4
TERM C NOTE
$___________ May __, 1998
FOR VALUE RECEIVED, the undersigned, LEINER HEALTH PRODUCTS INC., a
Delaware corporation (the "U.S. BORROWER"), promises to pay to
________________________ and its registered assigns (the "U.S. LENDER") on the
Stated Maturity Date for all Term C Loans, the principal sum of
__________________ DOLLARS ($__________) or, if less, the aggregate unpaid
principal amount of the Term C Loan shown on the schedule attached hereto (and
any continuation thereof) made by the U.S. Lender pursuant to that certain
Credit Agreement, dated as of May __, 1998 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the U.S. Borrower, Vita Health Products Inc., a Manitoba corporation (the
"CANADIAN BORROWER", and together with the U.S. Borrower, the "BORROWERS"), the
various financial institutions (including the U.S. Lender) as are or may become
parties thereto which extend a Commitment under the U.S. Facility (collectively,
the "U.S. LENDERS"), the various financial institutions as are or may become
parties thereto which extend a Commitment under the Canadian Facility
(collectively, the "CANADIAN LENDERS", and together with the U.S. Lenders, the
"LENDERS") and The Bank of Nova Scotia ("SCOTIABANK"), acting through its New
York Agency, as agent for the U.S. Lenders under the U.S. Facility (in such
capacity, the "U.S. AGENT"), Scotiabank, acting through its executive offices in
Toronto, Ontario, as agent for the Canadian Lenders under the Canadian Facility
(in such capacity, the "CANADIAN AGENT", and together with the U.S. Agent, the
"AGENTS"), Merrill Lynch Capital Corporation, as Documentation Agent, and
Salomon Brothers Holding Company Inc., as Syndication Agent. Unless otherwise
defined, terms used herein have the meanings provided in the Credit Agreement.
The U.S. Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the U.S. Agent pursuant to the Credit Agreement.
This Term C Note is one of the Term C Notes referred to in, and evidences
Indebtedness incurred under, the Credit Agreement, to which reference is made
for a description of the security for this Term C Note and for a statement of
the terms and conditions on which the U.S. Borrower is permitted and required to
make prepayments and repayments of principal of the Indebtedness evidenced by
this Term C Note and on which such Indebtedness may be declared to be
immediately due and payable.
<PAGE>
The U.S. Borrower hereby irrevocably authorizes the U.S. Lender to make (or
cause to be made) appropriate notations on the grid attached hereto (or on any
continuation of such grid), which notations, if made, shall evidence, INTER
ALIA, the date of and the outstanding principal of, the Term C Loans evidenced
hereby. Such notations shall be rebuttable presumptive evidence of the accuracy
of the information so set forth; PROVIDED, HOWEVER, that the failure of the U.S.
Lender to make any such notations shall not limit or otherwise affect any
Obligations of the U.S. Borrower.
Any assignment or transfer of this Term C Note shall be effective solely by
registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS TERM C NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
LEINER HEALTH PRODUCTS INC.
By
------------------------------
Name:
Title:
-2-
<PAGE>
TERM C LOAN AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amount of Term C Loan Amount of Principal Unpaid Principal
Made Repaid Balance
---------------------------- Interest -----------------------------------------------
Alternate LIBO Period Alternate LIBO Alternate LIBO Notation
Date Base Rate Rate (If Applicable) Base Rate Rate Base Rate Rate Total Made By
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-5
U.S. SWING LINE NOTE
$_____________ May __, 1998
FOR VALUE RECEIVED, the undersigned, LEINER HEALTH PRODUCTS INC., a
Delaware corporation (the "U.S. BORROWER"), promises to pay to the order of THE
BANK OF NOVA SCOTIA and its registered assigns (the "U.S. SWING LINE LENDER") on
the Stated Maturity Date for all U.S. Revolving Loans, the principal sum of
_____________ DOLLARS ($_____________) or, if less, the aggregate unpaid
principal amount of all U.S. Swing Line Loans made by the U.S. Swing Line Lender
pursuant to that certain Credit Agreement, dated as of May __, 1998 (as amended,
supplemented, amended and restated, restructured or otherwise modified from time
to time, including any refinancing in whole or in part thereof, the "CREDIT
AGREEMENT"), among the U.S. Borrower, Vita Health Products Inc., a Manitoba
corporation (the "CANADIAN BORROWER", and together with the U.S. Borrower, the
"BORROWERS"), the various financial institutions as are or may become parties
thereto which extend a Commitment under the Canadian Facility (collectively, the
"CANADIAN LENDERS", and together with the U.S. Lenders, the "LENDERS") and The
Bank of Nova Scotia ("SCOTIABANK"), as agent for the U.S. Lenders under the U.S.
Facility (in such capacity, the "U.S. AGENT"), Scotiabank, as agent for the
Canadian Lenders under the Canadian Facility (in such capacity, the "CANADIAN
AGENT", and together with the U.S. Agent, the "AGENTS"), Merrill Lynch Capital
Corporation, as Documentation Agent, and Salomon Brothers Holding Company Inc.,
as Syndication Agent, which principal amount, together with certain other
information, shall be noted by the U.S. Swing Line Lender on the schedule
attached hereto (and any continuation thereof). Unless otherwise defined, terms
used herein have the meanings provided in the Credit Agreement.
The U.S. Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the U.S. Agent pursuant to the Credit Agreement.
This U.S. Swing Line Note is the U.S. Swing Line Note referred to in, and
evidences Indebtedness incurred under, the Credit Agreement, to which reference
is made for a description of the security for this U.S. Swing Line Note and for
a statement of the terms and conditions on which the U.S. Borrower is permitted
and required to make prepayments and repayments of
<PAGE>
principal of the Indebtedness evidenced by this U.S. Swing Line Note and on
which such Indebtedness may be declared to be immediately due and payable.
Unless otherwise defined, terms used herein have the meanings provided in the
Credit Agreement.
The U.S. Borrower hereby irrevocably authorizes the U.S. Swing Line Lender
to make (or cause to be made) appropriate notations on the grid attached hereto
(or on any continuation of such grid), which notations, if made, shall evidence,
INTER ALIA, the date of and the outstanding principal of, the U.S. Swing Line
Loans evidenced hereby. Such notations shall be rebuttable presumptive evidence
of the accuracy of the information so set forth; PROVIDED, HOWEVER, that the
failure of the U.S. Swing Line Lender to make any such notations shall not limit
or otherwise affect any Obligations of the U.S. Borrower.
Any assignment or transfer of this U.S. Swing Line Note shall be effective
solely by registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS U.S. SWING LINE NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSES SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
LEINER HEALTH PRODUCTS INC.
By
------------------------------
Name:
Title:
-2-
<PAGE>
SWING LINE LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Amount of Interest Amount of Unpaid
Swing Line Period (If Principal Principal Notation
Date Loan Made Applicable) Repaid Balance Total Made By
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-6
CANADIAN SWING LINE NOTE
$_____________ May __, 1998
FOR VALUE RECEIVED, the undersigned, VITA HEALTH PRODUCTS INC., a Manitoba
corporation (the "CANADIAN BORROWER"), promises to pay to the order of THE BANK
OF NOVA SCOTIA and its registered assigns (the "CANADIAN SWING LINE LENDER") on
the Stated Maturity Date for all Canadian Revolving Loans, the principal sum of
__________ CANADIAN DOLLARS (Cdn $_________) or, if less, the aggregate unpaid
principal amount of all Canadian Swing Line Loans made by the Canadian Swing
Line Lender pursuant to that certain Credit Agreement, dated as of May __, 1998
(as amended, supplemented, amended and restated, restructured or otherwise
modified from time to time, including any refinancing in whole or in part
thereof, the "CREDIT AGREEMENT"), among among the Canadian Borrower, Leiner
Health Products Inc., a Delaware corporation (the "U.S. BORROWER", and together
with the Canadian Borrower, the "BORROWERS"), the various financial institutions
as are or may become parties thereto which extend a Commitment under the U.S.
Facility (collectively, the "U.S. LENDERS"), the various financial institutions
(including the Canadian Lender) as are or may become parties thereto which
extend a Commitment under the Canadian Facility (collectively, the "CANADIAN
LENDERS", and together with the U.S. Lenders, the "LENDERS") and The Bank of
Nova Scotia ("SCOTIABANK"), as agent for the U.S. Lenders under the U.S.
Facility (in such capacity, the "U.S. AGENT"), Scotiabank, as agent for the
Canadian Lenders under the Canadian Facility (in such capacity, the "CANADIAN
AGENT", and together with the U.S. Agent, collectively, the "AGENTS"), Merrill
Lynch Capital Corporation, as Documentation Agent, and Salomon Brothers Holding
Company Inc., as Syndication Agent, which principal amount, together with
certain other information, shall be noted by the Canadian Lender on the schedule
attached hereto (and any continuation thereof). Unless otherwise defined, terms
used herein have the meanings provided in the Credit Agreement. The liability
of the Canadian Borrower under this Canadian Revolving Note shall not be
duplicative of Canadian Revolving Loans evidenced by Canadian BAs or Acceptance
Notes issued by the Canadian Borrower under the Credit Agreement.
The Canadian Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
<PAGE>
Payments of both principal and interest are to be made in lawful money of
Canada in same day or immediately available funds to the account designated by
the Canadian Agent pursuant to the Credit Agreement.
This Canadian Swing Line Note is the Canadian Swing Line Note referred to
in, and evidences Indebtedness incurred under, the Credit Agreement, to which
reference is made for a description of the security for this Canadian Swing Line
Note and for a statement of the terms and conditions on which the Canadian
Borrower is permitted and required to make prepayments and repayments of
principal of the Indebtedness evidenced by this Canadian Swing Line Note and on
which such Indebtedness may be declared to be immediately due and payable.
Unless otherwise defined, terms used herein have the meanings provided in the
Credit Agreement.
The Canadian Borrower hereby irrevocably authorizes the Canadian Swing Line
Lender to make (or cause to be made) appropriate notations on the grid attached
hereto (or on any continuation of such grid), which notations, if made, shall
evidence, INTER ALIA, the date of and the outstanding principal of, the Canadian
Swing Line Loans evidenced hereby. Such notations shall be rebuttable
presumptive evidence of the accuracy of the information so set forth; PROVIDED,
HOWEVER, that the failure of the Canadian Swing Line Lender to make any such
notations shall not limit or otherwise affect any Obligations of the Canadian
Borrower.
Any assignment or transfer of this Canadian Swing Line Note shall be
effective solely by registration thereof in the Register pursuant to the Credit
Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS CANADIAN SWING LINE NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSES SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
VITA HEALTH PRODUCTS INC.
By
-------------------------------
Name:
Title:
-2-
<PAGE>
CANADIAN SWING LINE LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Amount of Interest Amount of Unpaid
Swing Line Period (If Principal Principal Notation
Date Loan Made Applicable) Repaid Balance Total Made By
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A-7
ACCEPTANCE NOTE
FOR VALUE RECEIVED, the undersigned, VITA HEALTH PRODUCTS INC., a Manitoba
corporation (the "CANADIAN BORROWER"), hereby unconditionally promises to pay to
the order of _________________ and its registered assigns (the "CANADIAN
LENDER") the principal sum of ______________ CANADIAN DOLLARS (Cdn $__________).
The undiscounted principal amount hereof shall be repaid on ________ __, ____.
The Canadian Borrower further agrees that interest shall be paid herein by the
Canadian Lender discounting the face amount of this Note in the manner described
in Section 3.6 of the Credit Agreement described below.
This Note is one of the Acceptance Notes referred to in, and evidences
Indebtedness incurred under, that certain Credit Agreement, dated as of May __,
1998 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among the Canadian Borrower, Leiner
Health Products Inc., a Delaware corporation (the "U.S. BORROWER", and together
with the Canadian Borrower, the "BORROWERS"), the various financial institutions
as are or may become parties thereto which extend a Commitment under the U.S.
Facility (collectively, the "U.S. LENDERS"), the various financial institutions
(including the Canadian Lender) as are or may become parties thereto which
extend a Commitment under the Canadian Facility (collectively, the "CANADIAN
LENDERS", and together with the U.S. Lenders, the "LENDERS") and The Bank of
Nova Scotia ("SCOTIABANK"), as agent for the U.S. Lenders under the U.S.
Facility (in such capacity, the "U.S. AGENT"), Scotiabank, as agent for the
Canadian Lenders under the Canadian Facility (in such capacity, the "CANADIAN
AGENT", and together with the U.S. Agent, collectively, the "AGENTS"), Merrill
Lynch Capital Corporation, as Documentation Agent, and Salomon Brothers Holding
Company Inc., as Syndication Agent, to which reference is made for a description
of the security for this Note and for a statement of the terms and conditions on
which the Canadian Borrower is permitted and required to make prepayments and
repayments of principal of the Indebtedness evidenced by this Note and on which
such Indebtedness may be declared to be immediately due and payable. Unless
otherwise defined, terms used herein have the meanings provided in the Credit
Agreement.
Payments of both principal and interest are to be made in lawful money of
Canada in same day or immediately available funds to the account designated by
the Canadian Agent pursuant to the Credit Agreement.
Any assignment or transfer of this Acceptance Note shall be effective
solely by registration thereof in the Register pursuant to the Credit Agreement.
<PAGE>
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK).
VITA HEALTH PRODUCTS INC.
By
-------------------------------
Name:
Title:
-2-
<PAGE>
EXHIBIT A-8
CANADIAN TERM NOTE
Cdn $________________ May __, 1998
FOR VALUE RECEIVED, the undersigned, VITA HEALTH PRODUCTS INC., a Manitoba
corporation (the "CANADIAN BORROWER"), promises to pay to _________________ and
its registered assigns (the "CANADIAN LENDER") on the Stated Maturity Date for
all Canadian Term Loans, the principal sum of ______________ CANADIAN DOLLARS
(Cdn $__________) or, if less, the aggregate unpaid principal amount of all
Canadian Term Loans made by the Canadian Lender pursuant to that certain Credit
Agreement, dated as of May __, 1998 (as amended, supplemented, amended and
restated or otherwise modified from time to time, the "CREDIT AGREEMENT"), among
the Canadian Borrower, Leiner Health Products Inc., a Delaware corporation (the
"U.S. BORROWER", and together with the Canadian Borrower, the "BORROWERS"), the
various financial institutions as are or may become parties thereto which extend
a Commitment under the U.S. Facility (collectively, the "U.S. LENDERS"), the
various financial institutions (including the Canadian Lender) as are or may
become parties thereto which extend a Commitment under the Canadian Facility
(collectively, the "CANADIAN LENDERS", and together with the U.S. Lenders, the
"LENDERS") and The Bank of Nova Scotia ("SCOTIABANK"), as agent for the U.S.
Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"),
Scotiabank, as agent for the Canadian Lenders under the Canadian Facility (in
such capacity, the "CANADIAN AGENT", and together with the U.S. Agent,
collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent, which
principal amount, together with certain other information, shall be noted by the
Canadian Lender on the schedule attached hereto (and any continuation thereof).
Unless otherwise defined, terms used herein have the meanings provided in the
Credit Agreement. The liability of the Canadian Borrower under this Canadian
Term Note shall not be duplicative of Canadian Term Loans evidenced by Canadian
BAs or Acceptance Notes issued by the Canadian Borrower under the Credit
Agreement.
The Canadian Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
Canada in same day or immediately available funds to the account designated by
the Canadian Agent pursuant to the Credit Agreement.
This Canadian Term Note is one of the Canadian Term Notes referred to in,
and evidences Indebtedness incurred under, the Credit Agreement, to which
reference is made for a
<PAGE>
description of the security for this Canadian Term Note and for a statement of
the terms and conditions on which the Canadian Borrower is permitted and
required to make prepayments and repayments of principal of the Indebtedness
evidenced by this Canadian Term Note and on which such Indebtedness may be
declared to be immediately due and payable.
The Canadian Borrower hereby irrevocably authorizes the Canadian Lender to
make (or cause to be made) appropriate notations on the grid attached hereto (or
on any continuation of such grid), which notations, if made, shall evidence,
INTER ALIA, the date of and the outstanding principal of, the Canadian Term
Loans evidenced hereby. Such notations shall be rebuttable presumptive evidence
of the accuracy of the information so set forth; PROVIDED, HOWEVER, that the
failure of the Canadian Lender to make any such notations shall not limit or
otherwise affect any Obligations of the Canadian Borrower.
Any assignment or transfer of this Canadian Term Note shall be effective
solely by registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS CANADIAN TERM NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
VITA HEALTH PRODUCTS INC.
By
-----------------------------------
Name:
Title:
-2-
<PAGE>
CANADIAN TERM LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amount of Canadian Amount of Principal Unpaid Principal
Term Loan Made Repaid Balance
---------------------------- Interest ---------------------------------------------
Cdn BA Period Cdn BA Cdn BA Notation
Date Cdn Prime Rate Rate (If Applicable) Cdn Prime Rate Rate Cdn Prime Rate Rate Total Made By
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B-1
U.S. BORROWING REQUEST
The Bank of Nova Scotia,
as U.S. Agent
One Liberty Plaza
New York, New York 10006
Attention: _______________
LEINER HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to Section 2.3 of the
Credit Agreement, dated as of May __, 1998 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among Leiner Health Products Inc., a Delaware corporation (the "U.S. BORROWER"),
Vita Health Products Inc., a Manitoba corporation (the "CANADIAN BORROWER", and
together with the U.S. Borrower, the "BORROWERS"), the various financial
institutions as are or may become parties thereto which extend a Commitment
under the U.S. Facility (collectively, the "U.S. LENDERS"), the various
financial institutions as are or may become parties thereto which extend a
Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS"), Scotiabank, as agent for the
U.S. Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"), and
Scotiabank, as agent for the Canadian Lenders under the Canadian Facility (in
such capacity, the "CANADIAN AGENT", and together with the U.S. Agent,
collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The U.S. Borrower hereby requests that a [U.S. Revolving Loan] [Term B
Loan] [Term C Loan] [U.S. Swing Line Loan] be made in the aggregate principal
amount of $__________ on ________ __, ____ as a *[LIBO Rate Loan having an
Interest Period of [one] [two] [three] [six] month(s)] [Base Rate Loan].
- -----------------------
* Insert appropriate interest rate option and, if applicable, the number of
months with respect to LIBO Rate Loans. Note that Swing Line Loans must be
made as Base Rate Loans.
<PAGE>
The U.S. Borrower hereby acknowledges that, pursuant to Section 7.2.2 of
the Credit Agreement, each of the delivery of this Borrowing Request and the
acceptance by the U.S. Borrower of the proceeds of the U.S. Loans requested
hereby constitute a representation and warranty by the U.S. Borrower that, on
the date of such Loans, and immediately before and after giving effect thereto
and to the application of the proceeds therefrom, the statements set forth in
Section 7.2.1 of the Credit Agreement are true and correct in all material
respects.
The U.S. Borrower agrees that if prior to the time of the Borrowing
requested hereby any matter certified to herein by it will not be true and
correct in all material respects at such time as if then made, it will
immediately so notify the U.S. Agent. Except to the extent, if any, that prior
to the time of the Borrowing requested hereby the U.S. Agent shall receive
written notice to the contrary from the U.S. Borrower, each matter certified to
herein shall be deemed once again to be certified as true and correct in all
material respects at the date of such Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the accounts of the
following persons at the financial institutions indicated respectively:
<TABLE>
<CAPTION>
Amount to be Name, Account No.,
Transferred Person to be Paid Address, etc
----------- ------------------------------- ---------------
<S> <C> <C>
$
---------------- --------------------------
--------------------------
Attention:
----------------
$
---------------- --------------------------
--------------------------
Attention:
----------------
$
---------------- --------------------------
--------------------------
Attention:
----------------
Balance of such
proceeds The U.S. Borrower
</TABLE>
-2-
<PAGE>
IN WITNESS WHEREOF, the U.S. Borrower has caused this Borrowing Request to
be executed and delivered, and the certification and representations and
warranties contained herein to be made, by its duly Authorized Officer this ____
day of ________, ____.
LEINER HEALTH PRODUCTS INC.
By
---------------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT B-2
CANADIAN BORROWING REQUEST
The Bank of Nova Scotia,
as Canadian Agent
44 King Street West
14th Floor
Toronto, Ontario
Canada, M5H 1H1
Attention: _______________
VITA HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to Section 3.3 of the
Credit Agreement, dated as of May __, 1998 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among Leiner Health Products Inc., a Delaware corporation (the "U.S. BORROWER"),
Vita Health Products Inc., a Manitoba corporation (the "CANADIAN BORROWER", and
together with the U.S. Borrower, the "BORROWERS"), the various financial
institutions as are or may become parties thereto which extend a Commitment
under the U.S. Facility (collectively, the "U.S. LENDERS"), the various
financial institutions as are or may become parties thereto which extend a
Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS"), Scotiabank, as agent for the
U.S. Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"),
Scotiabank, as agent for the Canadian Lenders under the Canadian Facility (in
such capacity, the "CANADIAN AGENT", and together with the U.S. Agent,
collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The Canadian Borrower hereby requests that a [Canadian Term Loan] [Canadian
Revolving Loan] [Canadian Swing Loan] be made in the aggregate principal amount
of Cdn $__________ on ________ __, ____ as a *[Canadian BA having an Interest
Period of [30] [60] [90] [180] days] [Canadian Prime Rate Loan].
- --------------------
* Insert appropriate interest rate option and, if applicable, the number of
days with respect to Canadian Bas.
<PAGE>
The Canadian Borrower hereby acknowledges that, pursuant to Section 7.2.2
of the Credit Agreement, each of the delivery of this Borrowing Request and the
acceptance by the Canadian Borrower of the proceeds of the Canadian Loans
requested hereby constitute a representation and warranty by the Canadian
Borrower that, on the date of such Loans, and immediately before and after
giving effect thereto and to the application of the proceeds therefrom, the
statements set forth in Section 7.2.1 of the Credit Agreement are true and
correct in all material respects.
The Canadian Borrower agrees that if prior to the time of the Borrowing
requested hereby any matter certified to herein by it will not be true and
correct in all material respects at such time as if then made, it will
immediately so notify the Canadian Agent. Except to the extent, if any, that
prior to the time of the Borrowing requested hereby the Canadian Agent shall
receive written notice to the contrary from the Canadian Borrower, each matter
certified to herein shall be deemed to be certified as true and correct in all
material respects at the date of such Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the accounts of the
following persons at the financial institutions indicated respectively:
<TABLE>
<CAPTION>
Amount to be Name, Account No.,
Transferred Person to be Paid Address, etc
----------- ------------------------------ ---------------
<S> <C> <C>
$
---------------- --------------------------
--------------------------
Attention:
----------------
$
---------------- --------------------------
--------------------------
Attention:
----------------
$
---------------- --------------------------
--------------------------
Attention:
----------------
Balance of such
proceeds The Canadian Borrower
</TABLE>
-2-
<PAGE>
IN WITNESS WHEREOF, the Canadian Borrower has caused this Borrowing Request
to be executed and delivered, and the certification and representations and
warranties contained herein to be made, by its duly Authorized Officer this
____day of ________, ____.
VITA HEALTH PRODUCTS INC.
By
--------------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT B-3
U.S. ISSUANCE REQUEST
The Bank of Nova Scotia,
as U.S. Agent
One Liberty Plaza
New York, New York 10006
Attention: _______________
LEINER HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This Issuance Request is delivered to you pursuant to Section 4.1 of the
Credit Agreement, dated as of May __, 1998 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among Leiner Health Products Inc., a Delaware corporation (the "U.S. BORROWER"),
Vita Health Products Inc., a Manitoba corporation (the "CANADIAN BORROWER", and
together with the U.S. Borrower, the "BORROWERS"), the various financial
institutions as are or may become parties thereto which extend a Commitment
under the U.S. Facility (collectively, the "U.S. LENDERS"), the various
financial institutions as are or may become parties thereto which extend a
Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS"), Scotiabank, as agent for the
U.S. Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"),
Scotiabank, as agent for the Canadian Lenders under the Canadian Facility (in
such capacity, the "CANADIAN AGENT", and together with the U.S. Agent,
collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The U.S. Borrower hereby requests that the Issuer *[issue a [standby]
[documentary] Letter of Credit on ________ __, ____ (the "DATE OF ISSUANCE") in
the initial Stated Amount of $____________ with a Stated Expiry Date (as defined
therein) of ________ __, ____] **[extend the Stated Expiry Date (as defined
under Letter of Credit No.__, issued on ________ __, ____ in
- --------------------------
* Insert and complete as appropriate.
** Applicable only to standby Letters of Credit.
<PAGE>
the initial Stated Amount of $____________) to a revised Stated Expiry Date (as
defined therein) of ________ __, ____].
*[The beneficiary of the requested Letter of Credit will be
______________________.]
The U.S. Borrower hereby acknowledges that, pursuant to Section 7.2.2 of
the Credit Agreement, each of the delivery of this Issuance Request and the
**[issuance] [extension] of the Letter of Credit requested hereby, all
statements set forth in Section 7.2.1 of the Credit Agreement are true and
correct in all material respects.
The U.S. Borrower agrees that if, prior to the time of the [issuance]
[extension] of the Letter of Credit requested hereby, any matter certified to
herein by it will not be true and correct in all material respects at such time
as if then made, it will immediately so notify the U.S. Agent. Except to the
extent, if any, that prior to the time of the [issuance] [extension] of the
Letter of Credit requested hereby the U.S. Agent and the Issuer shall receive
written notice to the contrary from the U.S. Borrower, each matter certified to
herein shall be deemed to be certified as true and correct in all material
respects at the date of such [issuance] [extension].
IN WITNESS WHEREOF, the U.S. Borrower has caused this Issuance Request to
be executed and delivered, and the certification and representations and
warranties contained herein to be made, by its duly Authorized Officer this ____
day of ________, ____.
LEINER HEALTH PRODUCTS INC.
By
--------------------------------
Name:
Title:
- ---------------------------
* Delete if Issuance Request is for an extension.
** Insert as appropriate.
-2-
<PAGE>
EXHIBIT B-4
CANADIAN ISSUANCE REQUEST
The Bank of Nova Scotia,
as Canadian Agent
44 King Street West
14th Floor
Toronto, Ontario
Canada, M5H 1H1
Attention: _______________
VITA HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This Issuance Request is delivered to you pursuant to Section 4.1 of the
Credit Agreement, dated as of May __, 1998 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among Leiner Health Products Inc., a Delaware corporation (the "U.S. BORROWER"),
Vita Health Products Inc., a Manitoba corporation (the "CANADIAN BORROWER", and
together with the U.S. Borrower, the "BORROWERS"), the various financial
institutions as are or may become parties thereto which extend a Commitment
under the U.S. Facility (collectively, the "U.S. LENDERS"), the various
financial institutions as are or may become parties thereto which extend a
Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS"), Scotiabank, as agent for the
U.S. Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"),
Scotiabank, as agent for the Canadian Lenders under the Canadian Facility (in
such capacity, the "CANADIAN AGENT", and together with the U.S. Agent,
collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The Canadian Borrower hereby requests that the Issuer *[issue a
[standby] [documentary] Letter of Credit on ________ __, ____ (the "DATE OF
ISSUANCE") in the initial Stated Amount of Cdn $____________ with a Stated
Expiry Date (as defined therein) of ________ __, ____]
- -----------------------
* Insert and complete as appropriate.
<PAGE>
*[extend the Stated Expiry Date (as defined under Letter of Credit No.__,
issued on ________ __, ____, in the initial Stated Amount of Cdn $____________)
to a revised Stated Expiry Date (as defined therein) of ________ __, ____].
**[The beneficiary of the requested Letter of Credit will be
_____________________.]
The Canadian Borrower hereby acknowledges that, pursuant to Section 7.2.2
of the Credit Agreement, each of the delivery of this Issuance Request and the
[issuance] [extension] of the Letter of Credit requested hereby, all statements
set forth in Section 7.2.1 of the Credit Agreement are true and correct in all
material respects.
The Canadian Borrower agrees that if, prior to the time of the [issuance]
[extension] of the Letter of Credit requested hereby, any matter certified to
herein by it will not be true and correct in all material respects at such time
as if then made, it will immediately so notify the Canadian Agent. Except to
the extent, if any, that prior to the time of the [issuance] [extension] of the
Letter of Credit requested hereby the Canadian Agent and the Issuer shall
receive written notice to the contrary from the Canadian Borrower, each matter
certified to herein shall be deemed to be certified as true and correct in all
material respects at the date of such [issuance] [extension].
IN WITNESS WHEREOF, the Canadian Borrower has caused this Issuance Request
to be executed and delivered, and the certification and representations and
warranties contained herein to be made, by its duly Authorized Officer this ____
day of ________, ____.
VITA HEALTH PRODUCTS INC.
By
------------------------------------
Name:
Title:
- ----------------------
* Applicable only to standby Letters of Credit.
** Delete if Issuance Request is for an extension.
-2-
<PAGE>
EXHIBIT C-1
U.S. CONTINUATION/CONVERSION NOTICE
The Bank of Nova Scotia,
as U.S. Agent
One Liberty Plaza
New York, New York 10006
Attention: _______________
LEINER HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This U.S. Continuation/Conversion Notice is delivered to you pursuant to
Section 2.4 of the Credit Agreement, dated as of May __, 1998 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among Leiner Health Products Inc., a Delaware corporation
(the "U.S. BORROWER"), Vita Health Products Inc., a Manitoba corporation (the
"CANADIAN BORROWER", and together with the U.S. Borrower, the "BORROWERS"), the
various financial institutions as are or may become parties thereto which extend
a Commitment under the U.S. Facility (collectively, the "U.S. LENDERS"), the
various financial institutions as are or may become parties thereto which extend
a Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS"), Scotiabank, as agent for the
U.S. Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"),
Scotiabank, as agent for the Canadian Lenders under the Canadian Facility (in
such capacity, the "CANADIAN AGENT", and together with the U.S. Agent,
collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The U.S. Borrower hereby requests that on ________ __, ____,
[(1) *$____________ of the presently outstanding principal amount
of the [U.S. Revolving Loans] [Term B Loans] [Term C Loans] originally made
on ________ __, ____,]
- -------------------------
* Subject to minimum amounts and multiples contemplated in Section 2.4.
<PAGE>
[(2) and all Loans presently being maintained as [Base Rate Loans]
[LIBO Rate Loans],]
(3) be [converted into] [continued as],
(4) [LIBO Rate Loans having an Interest Period of [one] [two] [three]
[six] month(s)] [Base Rate Loans].
*[The U.S. Borrower hereby:
(a) certifies and warrants that no Default has occurred and is
continuing or will (immediately after giving effect to the continuation or
conversion requested hereby) occur and be continuing; and
(b) agrees that if prior to the time of such continuation or
conversion any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the
U.S. Agent.
Except to the extent, if any, that prior to the time of the continuation or
conversion requested hereby the U.S. Agent shall receive written notice to the
contrary from the U.S. Borrower, each matter certified to herein shall be deemed
to be certified at the date of such continuation or conversion as if then made.]
- -----------------------------
* Applicable only if U.S. Loans are being continued as, or converted into,
LIBO Rate Loans.
-2-
<PAGE>
IN WITNESS WHEREOF, the U.S. Borrower has caused this
Continuation/Conversion Notice to be executed and delivered, and the
certification and representations and warranties contained herein to be made, by
its duly Authorized Officer this ____ day of ________, ____.
LEINER HEALTH PRODUCTS INC.
By
-----------------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT C-2
CANADIAN CONTINUATION/CONVERSION NOTICE
The Bank of Nova Scotia,
as Canadian Agent
44 King Street West
14th Floor
Toronto, Ontario
Canada M5H 1H1
Attention: _______________
VITA HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This Canadian Continuation/Conversion Notice is delivered to you pursuant
to Section 3.4 of the Credit Agreement, dated as of May __, 1998 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among Leiner Health Products Inc., a Delaware corporation
(the "U.S. BORROWER"), Vita Health Products Inc., a Manitoba corporation (the
"CANADIAN BORROWER", and together with the U.S. Borrower, the "BORROWERS"), the
various financial institutions as are or may become parties thereto which extend
a Commitment under the U.S. Facility (collectively, the "U.S. LENDERS"), the
various financial institutions as are or may become parties thereto which extend
a Commitment under the Canadian Facility (collectively, the "CANADIAN LENDERS",
and together with the U.S. Lenders, the "LENDERS"), Scotiabank, as agent for the
U.S. Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"),
Scotiabank, as agent for the Canadian Lenders under the Canadian Facility (in
such capacity, the "CANADIAN AGENT", and together with the U.S. Agent,
collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The Canadian Borrower hereby requests that on ________ __, ____,
[(1) Cdn $____________ of the presently outstanding principal amount
of the [Canadian Term Loans] [Canadian Revolving Loans] originally made on
________ __, ____,]
[(2) and all Loans presently being maintained as [Canadian Prime Rate
Loans] [Canadian BAs],]
<PAGE>
(3) be [rolled over as] [converted into] [continued as],
(4) [Canadian Prime Rate Loans] [Canadian BAs having an Interest
Period of [30] [60] [90] [180] days].
*[The Canadian Borrower hereby:
(a) certifies and warrants that no Default has occurred and is
continuing; and
(b) agrees that if prior to the time of such continuation or
conversion any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the
Canadian Agent.]
Except to the extent, if any, that prior to the time of the continuation or
conversion requested hereby the Canadian Agent shall receive written notice to
the contrary from the Canadian Borrower, each matter certified to herein shall
be deemed to be certified at the date of such continuation or conversion as if
then made.
- -------------------------
* Applicable only if U.S. Loans are being continued as, or converted into
LIBO Rate Loans.
<PAGE>
IN WITNESS WHEREOF, the Canadian Borrower has caused this
Continuation/Conversion Notice to be executed and delivered, and the
certification and warranties contained herein to be made, by its duly Authorized
Officer this ____ day of ________, ____.
VITA HEALTH PRODUCTS INC.
By
------------------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT D
LENDER ASSIGNMENT AGREEMENT
________ __, ____
To: *[Leiner Health Products Inc.,]
[Vita Health Products Inc.]
as [U.S.] [Canadian] Borrower
[ADDRESS]
Attention: _______________
The Bank of Nova Scotia,
as [U.S.] [Canadian] Agent
[ADDRESS]
Attention: _______________
[LEINER HEALTH PRODUCTS INC.]
[VITA HEALTH PRODUCTS INC.]
Gentlemen and Ladies:
We refer to clause (d) of Section 12.11.1 of the Credit Agreement, dated as
of May __, 1998 (as amended, supplemented, amended and restated or otherwise
modified from time to time, the "CREDIT AGREEMENT"), among Leiner Health
Products Inc., a Delaware corporation (the "U.S. BORROWER"), Vita Health
Products Inc., a Manitoba corporation (the "CANADIAN BORROWER", and together
with the U.S. Borrower, the "BORROWERS"), the various financial institutions as
are or may become parties thereto which extend a Commitment under the U.S.
Facility (collectively, the "U.S. LENDERS"), the various financial institutions
as are or may become parties thereto which extend a Commitment under the
Canadian Facility (collectively, the "CANADIAN LENDERS", and together with the
U.S. Lenders, the "LENDERS"), The Bank of Nova Scotia ("SCOTIABANK"), as agent
for the U.S. Lenders under the U.S. Facility (in such capacity, the "U.S.
AGENT"), and Scotiabank, as agent for the Canadian Lenders under the Canadian
Facility (in such capacity, the "CANADIAN AGENT", and together with the U.S.
Agent, collectively, the "AGENTS"), Merrill Lynch Capital Corporation, as
Documentation Agent, and Salomon Brothers Holding Company Inc., as
- -------------------
* Throughout document, use first alternative for assignments relating to U.S.
Loans.
<PAGE>
Syndication Agent. Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.
As of ________ __, ____ (the "ASSIGNMENT DATE"), ____________ (the
"ASSIGNOR") irrevocably sells, transfers, conveys and assigns, without recourse,
representation or warranty (except as expressly set forth herein), to
____________ (the "ASSIGNEE") and the Assignee irrevocably purchases from the
Assignor _____% (the "ASSIGNED PORTION") of the [U.S.] [Canadian] Credit
Extensions and [U.S.] [Canadian] Commitments of the Assignor outstanding under
the Credit Agreement. After giving effect to the foregoing assignment and
delegation, the Assignor's and the Assignee's Percentages for the purposes of
the Credit Agreement and each other Loan Document will be as set forth on
Schedule I hereto.
In addition, this agreement constitutes notice to each of you, pursuant to
clause (c) of Section 12.11.1 of the Credit Agreement, of the assignment and
delegation to the Assignee of the Assigned Portion of the [U.S.] [Canadian]
Credit Extensions and [U.S.] [Canadian] Commitments of the Assignor outstanding
under the Credit Agreement as of the Assignment Date.
The Assignee shall pay to the Assignor on the Assignment Date an amount
equal to (a) all accrued and unpaid interest on the Assigned Portion and (b) all
accrued and unpaid commitment fees payable under Section 5.3.1 of the Credit
Agreement and Letter of Credit fees payable under Section 5.3.3 of the Credit
Agreement with respect to the Assigned Portion. In addition, the Assignor shall
pay to the Assignee on the Assignment Date an amount equal to all unearned
Letter of Credit fees, if any, which have been paid in advance pursuant to
Section 5.3.3 of the Credit Agreement for the period from and after the
Assignment Date. In any event, the Assignee is entitled to receive all payments
on account of interest, principal and fees accrued with respect to the Assigned
Portion for the period from and after the Assignment Date.
The Assignee hereby acknowledges and confirms that it has received a copy
of the Credit Agreement and the exhibits related thereto, together with copies
of the documents which were required to be delivered under the Credit Agreement
as a condition to the making of the [U.S.] [Canadian] Credit Extensions
thereunder. The Assignee further confirms and agrees that in becoming a [U.S.]
[Canadian] Lender and in making its [U.S.] [Canadian] Commitments and [U.S.]
[Canadian] Credit Extensions under the Credit Agreement, such actions have and
will be made without recourse to, or representation or warranty by, the [U.S.]
[Canadian] Agent.
The Assignor represents and warrants that it is legally authorized to enter
into and deliver this agreement and represents that it is the legal and
beneficial owner of the Assigned Portion. Except as set forth in the previous
sentence, the Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made pursuant to or in connection with this agreement, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
agreement, the Credit Agreement, any
-2-
<PAGE>
other Loan Document or any other instrument or document furnished pursuant
hereto or thereto, including the financial condition of the Borrowers or any of
their Subsidiaries or the performance or observance by any Lender of any of its
obligations under the Credit Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto. The Assignee
represents and warrants that it is legally authorized to enter into and deliver
this agreement and confirms that it has received a copy of the Credit Agreement,
together with copies of the most recent financial statements delivered pursuant
to Section 9.1.1 of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this agreement. In addition, the Assignee independently
and without reliance upon the Assignor, the Agents or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, shall continue to make its own credit decisions in taking or not taking
action under the Credit Agreement, the other Loan Documents and the other
instruments and documents delivered in connection therewith.
Except as otherwise provided in the Credit Agreement, effective as of the
Assignment Date
(a) the Assignee
(i) shall be deemed automatically to have become a party to the
Credit Agreement and shall have all the rights and obligations of a
"Lender" under the Credit Agreement and the other Loan Documents as if
it were an original signatory thereto to the extent specified in the
second paragraph hereof;
(ii) agrees to be bound by the terms and conditions set forth in
the Credit Agreement and the other Loan Documents as if it were an
original signatory thereto; and
(b) the Assignor shall be released from its obligations under the
Credit Agreement and the other Loan Documents to the extent specified in
the second paragraph hereof.
The Assignor and the Assignee hereby agree that the *[Assignor]
[Assignee] will pay to the Agents the processing fee referred to in Section
12.11.1 of the Credit Agreement.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned [U.S.] [Canadian] Credit Extensions and
[U.S.] [Canadian] Commitments and requests the Agents to acknowledge receipt of
this document:
- --------------------
* Insert as appropriate.
-3-
<PAGE>
(A) Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
LIBOR Office:
Telephone:
Facsimile:
(B) Payment Instructions:
The Assignee agrees (for the benefit of the Assignor, the Borrowers and the
Agents) to furnish, if required by clause (b) of Section 6.6 of the Credit
Agreement, the applicable Internal Revenue Service forms or other forms required
thereunder no later than the date of acceptance hereof by the Agents. In
addition, the Assignee represents and warrants (for the benefit of the Assignor,
the Borrowers and the Agents) that, under applicable law and treaties in effect
as of the date hereof, no United States federal taxes will be required to be
withheld by the Agents or the Borrowers with respect to any payments to be made
to the Assignee in respect of the Credit Agreement.
Notwithstanding any other provisions hereof, if the consents of the [U.S.]
[Canadian] Borrower and the [U.S.] [Canadian] Agent are required under
Section 12.11.1 of the Credit Agreement, the assignment and delegation
contemplated in this agreement shall not be effective unless such consents shall
have been obtained.
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed and delivered this
Lender Assignment Agreement as of the date first written above.
[THE ASSIGNOR]
By:
-----------------------------------
Name:
Title:
[THE ASSIGNEE]
By:
-----------------------------------
Name:
Title:
Accepted and Acknowledged
this ____ day of ________, ____
THE BANK OF NOVA SCOTIA,
as [U.S.] [Canadian] Agent
By:
------------------------------
Name:
Title:
[LEINER HEALTH PRODUCTS INC.]
[VITA HEALTH PRODUCTS INC.]
By:
------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADJUSTED
ORIGINAL ADJUSTED ASSIGNEE
PERCENTAGE ASSIGNOR PERCENTAGE PERCENTAGE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CANADIAN
LOANS
- -------------------------------------------------------------------------------
CANADIAN
COMMITMENT
- -------------------------------------------------------------------------------
U.S.
LOANS
- -------------------------------------------------------------------------------
U.S.
COMMITMENT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
EXHIBIT E
COMPLIANCE CERTIFICATE
The Bank of Nova Scotia,
as U.S. Agent
One Liberty Plaza
New York, New York 10006
Attention: ________________
LEINER HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This Compliance Certificate is delivered to you pursuant to [Section 7.1.3]
[clause (c) of Section 9.1.1] of the Credit Agreement, dated as of May __, 1998
(as amended, supplemented, amended and restated or otherwise modified from time
to time, the "CREDIT AGREEMENT"), among Leiner Health Products Inc., a Delaware
corporation (the "U.S. BORROWER"), Vita Health Products Inc., a Manitoba
corporation (the "CANADIAN BORROWER", and together with the U.S. Borrower, the
"BORROWERS"), the various financial institutions as are or may become parties
thereto which extend a Commitment under the U.S. Facility (collectively, the
"U.S. LENDERS"), the various financial institutions as are or may become parties
thereto which extend a Commitment under the Canadian Facility (collectively, the
"CANADIAN LENDERS", and together with the U.S. Lenders, the "LENDERS"), The Bank
of Nova Scotia ("SCOTIABANK"), as agent for the U.S. Lenders under the U.S.
Facility (in such capacity, the "U.S. AGENT"), and Scotiabank, as agent for the
Canadian Lenders under the Canadian Facility (in such capacity, the "CANADIAN
AGENT"; and together with the U.S. Agent, collectively, the "AGENTS"). Unless
otherwise defined in this Compliance Certificate, terms used herein (including
the Attachments hereto) have the meanings provided in the Credit Agreement.
Each reference to a Section is to the relevant Section in the Credit Agreement.
The U.S. Borrower hereby certifies and warrants that [this Compliance
Certificate has been calculated on a PRO FORMA basis as if the Credit Extension
to be made on the Closing Date had been made as of March 31, 1998] [as of
________ __, ____] (the "COMPUTATION DATE"):
1. The aggregate amount of Indebtedness of the U.S. Borrower and its
Subsidiaries in respect of (i) Capitalized Lease Liabilities, (ii) purchase
money mortgages, (iii) industrial revenue bond issues and (iv) other
Indebtedness that is unsecured or incurred by non-U.S.
<PAGE>
Subsidiaries (other than Canadian Holdings and its Subsidiaries) was
$_______ (___% of Total Adjusted Capital).
The maximum aggregate amount of the aforementioned Indebtedness permitted
pursuant to clause (d) of Section 9.2.2 (together with the principal amount
of all other Indebtedness permitted thereunder) is ___% of Total Adjusted
Capital at such time after giving effect thereto and, accordingly, this
covenant [has] [has not] been complied with.
2. The aggregate amount of intercompany Indebtedness (not evidenced by a note
or other instrument) of a Borrower owing to a Subsidiary that has
previously executed and delivered to the applicable Agent the Master
Subordination Agreement was $_______.
The maximum aggregate amount of the aforementioned Indebtedness permitted
pursuant to clause (f) of Section 9.2.2 is $_______ and, accordingly, the
aforementioned requirement [has] [has not] been satisfied.
3. Adjusted Net Worth was $_______, as computed on ATTACHMENT 1 hereto.
The minimum Adjusted Net Worth permitted pursuant to clause (a) of Section
9.2.4 is $_______, as computed on ATTACHMENT 1 hereto, and, accordingly,
this covenant [has] [has not] been complied with.
4. The Interest Coverage Ratio was ____:1, as computed on ATTACHMENT 2 hereto.
The minimum Interest Coverage Ratio permitted pursuant to clause (b) of
Section 9.2.4 is ____:1 and, accordingly, this covenant [has] [has not]
been complied with.
5. The Leverage Ratio was ____:1, as computed on ATTACHMENT 3 hereto.
The maximum Leverage Ratio permitted pursuant to clause (c) of Section
9.2.4 is ____:1 and, accordingly, this covenant [has] [has not] been
complied with.
Based on such Leverage Ratio:
(a) the Applicable Margin for U.S. Base Rate Loans and Canadian
Prime Rate Loans is ___%;
(b) the Applicable Margin for LIBO Rate Loans is ___%;
(c) the Applicable Canadian BA Stamping Fee is ___%; and
(d) the Applicable Commitment Fee Margin is ___%.
-2-
<PAGE>
6. The Cash Flow Coverage Ratio was ____:1, as computed on ATTACHMENT 4
hereto.
The minimum Cash Flow Coverage Ratio permitted pursuant to clause (d) of
Section 9.2.4 is ____:1 and, accordingly, this covenant [has] [has not]
been complied with.
7. The aggregate amount of Investments of the type described in clauses (i)
and (j) of Section 9.2.5 was $_______.
The maximum aggregate amount of the aforementioned Investments permitted
pursuant to clauses (i) and (j) of Section 9.2.5 is $_______ and,
accordingly, these covenants [have] [have not] been complied with.
8. The aggregate amount of restricted payments of the type described in
clause (c)(iii) of Section 9.2.6 was $_______ during the current Fiscal
Year and $_______ since the Effective Date.
The maximum aggregate amount of the aforementioned payments permitted
pursuant to clause (c)(iii) of Section 9.2.6 is $_______ during any Fiscal
Year and $_______ since the Effective Date and, accordingly, this covenant
[has] [has not] been complied with.
9. The aggregate amount of Rentals during the current Fiscal Year was $_______
(__% of Total Adjusted Capital).
The maximum aggregate amount of Rentals permitted pursuant to Section 9.2.8
is ___% of Total Adjusted Capital during any Fiscal Year and, accordingly,
this covenant [has] [has not] been complied with.
10. The aggregate amount of Net Tangible Assets subject to a disposition (other
than assets subject to a disposition pursuant to clauses (a), (b), (c), (e)
or (f) of Section 9.2.11) was $_______ during the current Fiscal Year and
$_______ since the Effective Date and, accordingly, the aggregate
Disposition Percentages were ___% during the current Fiscal Year and ___%
since the Effective Date.
The maximum aggregate amount of all Disposition Percentages in respect of
all dispositions of Net Tangible Assets (other than pursuant to clauses
(a), (b), (c), (e) or (f) of Section 9.2.11) permitted pursuant to clause
(d)(i) of Section 9.2.11 is ___% since the Effective Date and ___% during
any Fiscal Year and, accordingly, this covenant [has] [has not] been
complied with.
11. The aggregate amount of Net Unrepatriated Disposition Proceeds from the
Effective Date through the Computation Date was $_______ (___% of Net
Tangible Assets).
-3-
<PAGE>
The maximum aggregate amount of Net Unrepatriated Disposition Proceeds
permitted pursuant to clause (d)(ii) of Section 9.2.11 is ___% of Net
Tangible Assets and, accordingly, this covenant [has] [has not] been
complied with.
-4-
<PAGE>
IN WITNESS WHEREOF, the U.S. Borrower has caused this Certificate to be
duly executed and delivered by its chief executive, financial or accounting
Authorized Officer this ____ day of ________, ____.
LEINER HEALTH PRODUCTS INC.
By:
-----------------------------------------------
Name:
Title:
<PAGE>
ATTACHMENT 1
(to __/__/__ Compliance
Certificate)
ADJUSTED NET WORTH
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
1. $110,000,000, plus an amount equal to cumulative Net
Income, computed in accordance with GAAP, from July 1,
1997 to the Computation Date . . . . . . . . . . . . $
--------
2. The cumulative adjustments due to foreign currency
translation required by FASB 52 arising after June 30,
1997 . . . . . . . . . . . . . . . . . . . . . . . . $
--------
3. The amount deducted, in determining Net Income, of all
Specified Adjustments (on an after-tax basis), to the
extent incurred . . . . . . . . . . . . . . . . . . . $
--------
4. ADJUSTED NET WORTH: ITEM 1 (exclusive of ITEMS 2 and
3) . . . . . . . . . . . . . . . . . . . . . . . . . $
--------
</TABLE>
ADJUSTED NET WORTH COVENANT
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
1. $101,000,000 $101,000,000
2. 45% of cumulative Net Income (in excess of zero)
from (and including) July 1, 1997 to the date of
determination of Adjusted Net Worth . . . . . . . . $
--------
3. 45% of cumulative cash equity contributions received
after the Effective Date by the U.S. Borrower . . . $
--------
4. Minimum Adjusted Net Worth pursuant to clause (a) of
Section 9.2.4: The sum of ITEMS 1 through 3 . . . $
--------
</TABLE>
<PAGE>
ATTACHMENT 2
(to __/__/__ Compliance
Certificate)
INTEREST COVERAGE RATIO
(in thousands, except ratio)
<TABLE>
<CAPTION>
<S> <C>
1. EBITDA for such Fiscal Quarter and the three
immediately preceding Fiscal Quarters:
(a) Net Income: the aggregate of all amounts
(exclusive of (i) all amounts in respect of any
extraordinary gains or extraordinary losses, (ii)
gains and losses arising from the sale of
material assets not in the ordinary course of
business and (iii) earnings and losses from
discontinued operations) which, in accordance
with GAAP, would be included as net income on the
consolidated financial statements of the U.S.
Borrower and its Subsidiaries for such period
(including, for periods prior to the Fiscal
Quarter ended June 30, 1998, the Canadian
Borrower and its Subsidiaries as if the Canadian
Transaction had occurred at the beginning of such
period) . . . . . . . . . . . . . . . . . . . . $
-------
(b) the amount deducted, in determining Net Income,
representing amortization of assets (including
amortization with respect to goodwill, deferred
financing costs, other non-cash interest and all
other intangible assets) . . . . . . . . . . . . $
-------
(c) the amount deducted, in determining Net Income,
of all income taxes (whether paid or deferred) of
the U.S. Borrower and its Subsidiaries . . . . . $
-------
(d) the amount deducted, in determining Net Income,
of Interest Expense of the U.S. Borrower and its
Subsidiaries (including, for purposes of the
definition of EBITDA only, the Canadian Borrower
and its Subsidiaries as if the Canadian
Transaction had occurred at the beginning of the
applicable period), to the extent incurred, plus,
without duplication, any non-cash interest
expense . . . . . . . . . . . . . . . . . . . . $
-------
<PAGE>
(e) the amount deducted, in determining Net Income,
representing depreciation of assets . . . . . . $
-------
(f) the amount deducted, in determining Net Income,
of all management fees paid in cash in accordance
with clause (b) of Section 9.2.13 . . . . . . . $
-------
(g) the amount deducted, in determining Net Income,
due to foreign currency translation required by
FASB 52 arising after the date of the initial
Credit Extensions . . . . . . . . . . . . . . . $
-------
(h) the amount deducted, in determining Net Income,
of all Specified Adjustments . . . . . . . . . . $
-------
(i) the aggregate amount of payments made in
accordance with clause (f)(i) and clause (f)(iii)
of Section 9.2.13 . . . . . . . . . . . . . . . $
-------
(j) EBITDA: The sum of ITEMS 1(a) through 1(h) LESS
ITEM 1(i) . . . . . . . . . . . . . . . . . . . $
-------
2. *Interest Expense for such Fiscal Quarter and the
three immediately preceding Fiscal Quarters: the
aggregate interest expense (net of interest income) of
the U.S. Borrower and its Subsidiaries paid in cash
for such period, as determined in accordance with
GAAP, including (i) the portion of any payments made
in respect of Capitalized Lease Liabilities allocable
to interest expense and (ii) interest (or other fees
in the nature of interest or discount accrued and paid
or payable in cash for such Fiscal Quarter) in respect
of the Permitted Receivables Transaction, but
excluding deferred financing costs and other non-cash
interest expense . . . . . . . . . . . . . . . . . . $
-------
3. INTEREST COVERAGE RATIO: The ratio of ITEM 1(i) to
Item 2 . . . . . . . . . . . . . . . . . . . . . . . :1
-----
</TABLE>
- -------------------------
* In computing the Interest Coverage Ratio for the fourth Fiscal Quarter of
the 1998 Fiscal Year, Interest Expense shall equal (a) Interest Expense for
the second, third and fourth Fiscal Quarters of the 1998 Fiscal Year,
multiplied by (b) 1.333.
-2-
<PAGE>
ATTACHMENT 3
(to __/__/__ Compliance
Certificate)
LEVERAGE RATIO
(in thousands, except ratio)
<TABLE>
<CAPTION>
<S> <C>
1. Total Debt: The outstanding principal amount of all
Indebtedness of the U.S. Borrower and its Subsidiaries
on the last day of such Fiscal Quarter in respect of
the following (exclusive of intercompany Indebtedness
between the U.S. Borrower and any of its Subsidiaries
or between any Subsidiaries of the U.S. Borrower):
(a) all obligations of such Person for borrowed money
and all obligations of such Person evidenced by
bonds, debentures, notes or other similar
instruments . . . . . . . . . . . . . . . . . . $
-------
(b) all obligations, contingent or otherwise,
relative to the face amount of all letters of
credit, whether or not drawn, and banker's
acceptances, in each case issued for the account
of such Person (including the U.S. $ Equivalent
amount (on such date of determination) of the
Letter of Credit Outstandings) . . . . . . . . . $
-------
(c) all obligations of such Person as lessee under
leases which have been or should be, in
accordance with GAAP, recorded as Capitalized
Lease Liabilities . . . . . . . . . . . . . . . $
-------
(d) all Receivables Facility Outstandings . . . . . $
-------
(e) without duplication, all Contingent Liabilities
of the U.S. Borrower or its subsidiaries in
respect of any of the foregoing types of
obligations of such Person or any other Person . $
-------
(f) Total Debt: The sum of ITEMS 1(a) through 1(e) $
-------
2. EBITDA (see ITEM 1(j) of Attachment 2) . . . . . . . $
-------
3. LEVERAGE RATIO: The ratio of ITEM 1(f) to ITEM 2 . . :1
-----
</TABLE>
<PAGE>
ATTACHMENT 4
(to __/__/__ Compliance
Certificate)
*CASH FLOW COVERAGE RATIO
(in thousands, except ratio)
<TABLE>
<CAPTION>
<S> <C>
1. (a) EBITDA (see ITEM 1(j) of Attachment 2) MINUS (b)
Capital Expenditures (the aggregate amount of all
expenditures of the U.S. Borrower and its Subsidiaries
for fixed or capital assets made during such period
which, in accordance with GAAP, would be classified as
capital expenditures (excluding (i) with respect to
all leasing or similar arrangements entered into
during such period which, in accordance with GAAP,
would be classified as a capitalized lease, the
aggregate capitalized amount of all rental payments
payable during the term of such lease (including the
portion of such payments allocable to interest
expense) and (ii) expenditures made in connection with
the replacement or restoration of assets, to the
extent (A) of the sales price received for the assets
being restored or replaced at the time of such
expenditure or the credit granted by the seller of
such assets for the assets being traded in at such
time or (B) such replacement or restoration is
financed with (x) insurance proceeds paid on account
of the loss of or damage to the assets so replaced or
restored or (y) awards of compensation arising from
the taking by condemnation or eminent domain of the
assets so replaced) . . . . . . . . . . . . . . . . . $
-------
2. Interest Expense paid in cash . . . . . . . . . . . . $
-------
- ----------------------------
* In computing the Cash Flow Coverage Ratio for (a) the fourth Fiscal Quarter
of the 1998 Fiscal Year, the amount set forth in ITEM 5 shall equal (i)
such amount for the second, third and fourth Fiscal Quarters of the 1998
Fiscal Year, multiplied by (ii) 1.333; (b) the first Fiscal Quarter of the
1999 Fiscal Year, Capital Expenditures for expanding capacity of up to
$30,420,000 shall be excluded from the amount set forth in ITEM 1(b); (c)
the second Fiscal Quarter of the 1999 Fiscal Year, Capital Expenditures for
expanding capacity of up to $28,810,000 shall be excluded from the amount
set forth in ITEM 1(b); and (d) the third Fiscal Quarter of the 1999 Fiscal
Year, Capital Expenditures for expanding capacity of up to $26,920,000
shall be excluded from the amount set forth in ITEM 1(b).
-1-
<PAGE>
3. scheduled principal repayments of Debt (including
scheduled principal repayments of the Term Loans
pursuant to the provisions of clauses (d) and (e) of
Section 5.1.1, but excluding the amount of Debt which
is refinanced with other Debt pursuant to Section
9.2.2, to the extent so refinanced (including the
principal repayments of Subordinated Debt issued to
refinance or replace such original Subordinated Debt
in accordance with the terms of the Credit Agreement)) $
-------
4. all federal, state, provincial, local and foreign
income taxes actually paid in cash by the U.S.
Borrower and its Subsidiaries . . . . . . . . . . . . $
-------
5. the sum of ITEMS 2 through 4 . . . . . . . . . . . . $
-------
6. CASH FLOW COVERAGE RATIO: The ratio of ITEM 1 to ITEM
5 . . . . . . . . . . . . . . . . . . . . . . . . . . :1
-----
</TABLE>
-2-
<PAGE>
EXHIBIT 4.6
[EXECUTION COPY]
AFFIRMATION AND CONSENT
May 15, 1998
The Bank of Nova Scotia,
as U.S. Agent under the Credit
Agreement referred to below
-and-
Each of the Lenders party
to the Credit Agreement
referred to below.
LEINER HEALTH PRODUCTS INC.
Gentlemen and Ladies:
This Affirmation and Consent is delivered to you pursuant to Section 7.1.5
of the Amended and Restated Credit Agreement, dated as of May 15, 1998 (as
further amended, supplemented, amended and restated or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among Leiner Health Products Inc., a
Delaware corporation (the "U.S. BORROWER"), Vita Health Products Inc., a
Manitoba corporation (the "CANADIAN BORROWER", and together with the U.S.
Borrower, the "BORROWERS"), the various financial institutions as are or may
become parties thereto which extend a Commitment under the U.S. Facility
(collectively, the "U.S. LENDERS"), the various financial institutions as are or
may become parties hereto which extend a Commitment under the Canadian Facility
(collectively, the "CANADIAN LENDERS", and together with the U.S. Lenders, the
"LENDERS"), The Bank of Nova Scotia ("SCOTIABANK"), as agent for the U.S.
Lenders under the U.S. Facility (in such capacity, the "U.S. AGENT"),
Scotiabank, currently acting through its executive offices in Toronto, Ontario,
as agent for the Canadian Lenders under the Canadian Facility (in such capacity,
the "CANADIAN AGENT", and together with the U.S. Agent, collectively, the
"AGENTS"), Merrill Lynch Capital Corporation, as Documentation Agent, and
Salomon Brothers Holding Company Inc, as Syndication Agent, amending and
restating in its entirety the Credit Agreement, dated as of June 30, 1997 (as
amended or otherwise modified prior to the Effective Date, the "EXISTING CREDIT
AGREEMENT"). Unless otherwise defined herein or the context otherwise requires,
terms used herein have the meanings provided in the Credit Agreement.
By its signature below, each of the undersigned Obligors hereby
acknowledges, consents and agrees to the amendment and restatement of the
Existing Credit Agreement and the other Loan Documents pursuant to the terms and
provisions set forth in the Credit Agreement.
<PAGE>
Each of the undersigned Obligors hereby reaffirms, as of the Effective
Date, (i) the covenants and agreements contained in each Loan Document to which
it is a party, including, in each case, as such covenants and agreements may be
modified by the Credit Agreement and the transactions contemplated thereby, (ii)
its guarantee of payment of the Obligations pursuant to the applicable Guaranty
to which such Obligor is a party and (iii) its pledges and other grants of Liens
and security interests in respect of the Obligations pursuant to the applicable
Loan Documents to which such Obligor is a party.
Each of the undersigned Obligors hereby certifies that, as of the date
hereof (both before and after giving effect to the occurrence of the Effective
Date and the effectiveness of the Credit Agreement), the representations and
warranties made by it contained in the Loan Documents to which it is a party are
true and correct in all material respects with the same effect as if made on the
date hereof, except to the extent any such representation or warranty refers or
pertains solely to a date prior to the date hereof (in which case such
representation and warranty was true and correct in all material respects as of
such earlier date).
Each of the undersigned Obligors further confirms that each Loan Document
to which it is a party is and shall continue to be in full force and effect and
the same are hereby ratified and confirmed in all respects, except that upon the
occurrence of the Effective Date, all references in such Loan Documents to the
"Credit Agreement", "Loan Documents", "thereunder", "thereof", or words of
similar import shall mean the Credit Agreement and the Loan Documents, as the
case may be, in each case after giving effect to the amendments and other
modifications provided for in the Credit Agreement.
Each of the undersigned Obligors hereby acknowledges and agrees that the
acceptance by the Agents, the Documentation Agent, the Syndication Agent, and
each Lender of this document shall not be construed in any manner to establish
any course of dealing on any Agent's, the Documentation Agent's, the Syndication
Agent's or any Lender's part, including the providing of any notice or the
requesting of any acknowledgment not otherwise expressly provided for in any
Loan Document with respect to any future amendment, waiver, supplement or other
modification to any Loan Document or any arrangement contemplated by any Loan
Document.
THIS AFFIRMATION AND CONSENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-2-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed and delivered this
Affirmation and Consent as of the date first above written.
PLI HOLDINGS INC.
By /s/ William B. Towne
--------------------------------------
Name:
Title:
VH HOLDINGS INC.
By /s/ William B. Towne
--------------------------------------
Name:
Title:
64804 MANITOBA LTD.
By /s/ William B. Towne
--------------------------------------
Name:
Title:
WESTCAN PHARMACEUTICALS LTD.
By /s/ William B. Towne
--------------------------------------
Name:
Title:
ACKNOWLEDGED AND ACCEPTED
as of the date first above written:
THE BANK OF NOVA SCOTIA,
as U.S. Agent and Canadian Agent
By: /s/ Robert Mustard
---------------------------------
Name: Robert Mustard
Title: Authorized Signatory
<PAGE>
EXHIBIT 12.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEINER HEALTH PRODUCTS INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
1994 1995 1996 1997(1) 1998
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 3,417 $ 3,813 $ 1,166 $ 7,638 ($17,417)
Extraordinary item - - - 2,756 1,109
Income taxes 3,573 3,524 4,686 8,028 1,196
Fixed charges 8,627 10,863 11,484 9,866 21,306
----------- ----------- ----------- ----------- ----------
Earnings $ 15,617 $ 18,200 $ 17,336 $ 28,288 $ 6,194
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Fixed charges:
Interest expense $ 7,144 $ 9,010 $ 9,924 $ 8,281 $ 19,494
Interest portion of rent expense 1,483 1,853 1,560 1,585 1,748
----------- ----------- ----------- ----------- ----------
Total fixed charges $ 8,627 $ 10,863 $ 11,484 $ 9,866 $ 21,242
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Ratio of earnings to fixed charges (2) 1.8 1.7 1.5 2.9 --
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
</TABLE>
- -----------
(1) On January 30, 1997, the Company purchased Vita Health. The Vita Health
acquisition was accounted for under the purchase method of accounting.
Consequently, the results of operations of Vita Health were included in the
consolidated financial results of the Company for the two months ended
March 31, 1997.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
income before taxes plus fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing fees, whether capitalized or
expensed, plus one-third of rental expense under operating leases (the
portion that has been deemed by the Company to be representative of an
interest factor). Earnings were inadequate to cover fixed charges by
$15.0 million for the year ended March 31, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 12.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEINER HEALTH PRODUCTS INC.
COMPUTATION OF EBITDA TO INTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
1994 1995 1996 1997(1) 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 3,417 $ 3,813 $ 1,166 $ 7,638 $ (17,417)
Add back:
Interest expense, net 7,144 9,010 9,924 8,281 19,494
Income taxes 3,573 3,524 4,686 8,028 1,196
Depreciation and amortization 7,247 10,514 12,288 12,309 13,349
Extraordinary item - - - 295 1,109
Compensation related to stock options 264 132 132 99 8,300
Impairment and closure of facilities - - 4,730 1,416 1,221
Other non-cash charges 1,753 - - 18 -
----------- ----------- ----------- ----------- -----------
Subtotal 19,981 23,180 31,760 30,446 44,669
----------- ----------- ----------- ----------- -----------
EBITDA (2) $ 23,398 $ 26,993 $ 32,926 $ 38,084 $ 27,252
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Interest expense, net (2) $ 7,144 $ 9,010 $ 9,924 $ 8,281 $ 19,494
Less amortization of deferred financing charges - 184 212 239 1,331
----------- ----------- ----------- ----------- -----------
Adjusted interest expense, net $ 7,144 $ 8,826 $ 9,712 $ 8,042 $ 18,163
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Ratio of EBITDA to interest expense 3.3 3.1 3.4 4.7 1.5
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
- -----------
(1) On January 30, 1997, the Company purchased Vita Health. The Vita Health
acquisition was accounted for under the purchase method of accounting.
Consequently, the results of operations of Vita Health were included in
the consolidated financial results of the Company for the two months
ended March 31, 1997.
(2) For purposes of calculating the ratio of EBITDA to interest expense,
interest expense excludes the amortization of deferred financing fees,
which is included in interest expense in the income statement in the
audited consolidated financial statements.
"EBITDA," as presented, represents earnings before interest expense,
income taxes, depreciation and amortization and other non-cash charges,
consisting of (i) the write off of deferred financing charges, net of
income taxes, included as an extraordinary item in the statements of
operations for fiscal 1997 and the first quarter of fiscal 1998, (ii) the
non-cash stock compensation charges, including that which was recorded in
connection with the Recapitalization, (iii) expenses related to the
impairment and closure of the OTC liquid pharmaceuticals manufacturing
facility in fiscal 1996 and 1997, and (iv) other non-cash charges in
fiscal 1994 and fiscal 1997. Although EBITDA (as well as related EBITDA
ratios) is a non-GAAP measurement, EBITDA, EBITDA margin, the ratio of
total debt to EBITDA and the ratio of EBITDA to interest expense are
included because management understands that such information is
considered by certain investors to be an additional basis for evaluating
the Company's ability to pay interest, repay debt and make capital
expenditures. EBITDA should not be considered an alternative to measures
of operating performance as determined in accordance with generally
accepted accounting principles, including net income as a measure of the
Company's operating results and cash flows as a measure of the Company's
liquidity. Because EBITDA is not calculated identically by all companies,
the presentation herein may not be comparable to other similarly titled
measures of other companies.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIST OF SUBSIDIARIES
The subsidiaries of the Registrant and their respective jurisdictions are
as follows:
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION
- ---------- ------------
<S> <C>
VH Holdings Inc. Manitoba (Canada)
Vita Health Products Inc. Manitoba (Canada)
64804 Manitoba Ltd. Manitoba (Canada)
Westcan Pharmaceuticals Ltd. Manitoba (Canada)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,026
<SECURITIES> 0
<RECEIVABLES> 94,071
<ALLOWANCES> 4,713
<INVENTORY> 137,853
<CURRENT-ASSETS> 239,113
<PP&E> 75,986
<DEPRECIATION> 27,087
<TOTAL-ASSETS> 365,826
<CURRENT-LIABILITIES> 133,058
<BONDS> 257,059
0
0
<COMMON> 1
<OTHER-SE> (29,916)
<TOTAL-LIABILITY-AND-EQUITY> 365,826
<SALES> 502,110
<TOTAL-REVENUES> 502,110
<CGS> 368,599
<TOTAL-COSTS> 368,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,494
<INCOME-PRETAX> (15,112)
<INCOME-TAX> 1,196
<INCOME-CONTINUING> (16,308)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,109)
<CHANGES> 0
<NET-INCOME> (17,417)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
