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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1999
Commission file number 333-37135
_____________________________________________________
Omega Cabinets, Ltd.
____________________________________________
(Exact name of registrant as specified in its charter)
Delaware 42-1423186
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State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
1205 Peters Drive, Waterloo, Iowa 50703
___________________________________________________________________________
(Address of principal executive offices)
Registrant's telephone number, including area code: (319) 235-5700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 II of this Form 10-K or any amendment to this
Form 10-K. [ X ]
On March 15, 1999, all of the voting stock of Omega Cabinets, Ltd. was held by
Omega Holdings, Inc. ("Holdings"), a Delaware corporation.
As of March 15, 1999, Omega Cabinets, Ltd. had 1,000 shares of Common Stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
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FORM 10-K INDEX
Page
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Part I ................................................................. 3
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 13
Item 3. Legal Proceedings................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.............. 14
Part II ................................................................. 14
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................ 14
Item 6. Selected Financial Data.......................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation....................................... 16
Item 8. Financial Statements and Supplementary Data...................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... 25
Part III ................................................................. 25
Item 10. Directors and Executive Officers of the Registrant.............. 25
Item 11. Executive Compensation.......................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 34
Item 13. Certain Relationships and Related Transactions.................. 38
Part IV ................................................................ 40
Item 14. Exhibits, Financial Statements Schedules, and Reports
on Form 8-K................................................... 40
Reference in this Annual Report on Form 10-K is made to the Omega(TM),
HomeCrest(TM), Kitchen Craft(R), and Kitchen Craft (registered in Canada)
trademarks, which are owned by Holdings.
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Part I
Item 1. Business.
Omega Cabinets, Ltd. (the "Company" or "Omega") is a leading manufacturer
of wood and laminate kitchen cabinetry, bathroom vanities and related
accessories. Headquartered in Waterloo, Iowa, the Company produces a wide array
of custom, semi-custom and stock kitchen cabinetry and bathroom vanities
primarily for use in residential remodeling and, to a lesser extent, in new
construction. Omega manufactures its products in state-of-the-art, highly-
integrated facilities under the Omega (custom), Dynasty (semi-custom), Embassy
(semi-custom), and Legend (stock) brand names. Omega's HomeCrest division
("HomeCrest") manufactures its products under the HomeCrest (stock) brand name.
The Company sells to a broad network of kitchen and bath dealers, home centers,
builders/contractors and independent distributors.
Kitchen Craft of Canada Ltd., based in Winnipeg, Manitoba, and an indirect
subsidiary of the Company, is the second largest manufacturer of kitchen
cabinetry and laminated countertops in Canada and the largest Canadian
manufacturer of semi-custom kitchen cabinetry. Kitchen Craft is also a leading
competitor in the United States semi-custom cabinet market. In contrast to the
Company, 100% of Kitchen Craft's cabinetry sales are generated by full access
products.
Company History
Omega was founded in 1977 by Robert J. Bertch. In its early years, Omega
principally manufactured bath vanities. In 1984, Omega began manufacturing
custom kitchen cabinetry under the Omega Custom brand name. In 1990, Omega
introduced a semi-custom kitchen cabinetry line under the Dynasty brand name as
a lower price alternative to the Omega Custom line.
In June 1994, Code, Hennessy & Simmons, Inc. led a group of private investors,
including the Company's current senior management team, in the acquisition of
Omega from its founder. In May 1995, Omega acquired HomeCrest Corporation, a
manufacturer of stock cabinetry under the HomeCrest brand name.
On or about April 28, 1997, Omega Holdings, Inc. ("Holdings"), the sole
stockholder of the Company, and Holdings' stockholders entered into a
recapitalization agreement (as amended to date, the "Merger Agreement") with
Omega Merger Corp. ("OMC"), a Company formed by affiliates of Butler Capital
Corporation ("BCC"), which provided for a merger (the "Merger") of OMC with and
into Holdings, and a recapitalization (the "Recapitalization") of Holdings, with
Holdings as the surviving corporation (the "OMC Merger"). Concurrently with the
OMC Merger, which occurred on June 13, 1997, aggregate consideration of
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approximately $201.9 million was paid to certain selling stockholders of
Holdings, including approximately $89.3 million of debt which was repaid in
connection therewith. The merger consideration was subject to a post-closing
working capital adjustment of $2.0 million, which was paid by the Company in
March 1998.
On January 29, 1999, the Company consummated the acquisition of Kitchen Craft
of Canada Ltd. In a series of transactions described more fully below, the
Company, through certain of its subsidiaries, acquired all of the outstanding
capital stock (the "Kitchen Craft Stock") of Kitchen Craft of Canada Ltd.
As contemplated by the Master Transaction Agreement dated as of January 29,
1999 (the "Master Transaction Agreement") among (i) 3578275 Canada Inc., a
Canadian corporation and an indirect subsidiary of the Company; (ii) Holdings;
and (iii) the Selling Participants (as defined in the Master Transaction
Agreement), the following transactions occurred in the following order:
(1) Omega Kitchen Craft Holdings Corp., a Delaware corporation and a direct
wholly owned subsidiary of the Company, purchased 100,000 shares of Class A
Common Stock of 3578275 Canada Inc. representing all of the issued and
outstanding shares of Class A Common Stock of 3578275 Canada Inc. other than
1 share issued to the incorporator of 3578275 Canada Inc.
(2) Omega Kitchen Craft U.S. Corp., a Delaware corporation and an indirect
wholly owned subsidiary of the Company, acquired all of the outstanding
capital stock of Bulrad Illinois, Inc., an Illinois corporation, from
Kitchen Craft of Canada Ltd. for cash consideration equal to approximately
$600,000.
(3) 3578275 Canada Inc. acquired all of the outstanding Kitchen Craft Stock and
retired all related party indebtedness of Kitchen Craft of Canada Ltd. in
exchange for approximately (Cdn) $70.4 million and 2,904.7728 shares of
Class B Common Stock of 3578275 Canada Inc., exchangeable on a 1-for-1 basis
into shares of common stock, $.01 par value per share (the "Common Stock"),
of Holdings. In addition, all other indebtedness of Kitchen Craft of Canada
Ltd. existing as of January 29, 1999 was retired in exchange for
approximately (Cdn) $4.5 million cash.
(4) 3578275 Canada Inc. and Kitchen Craft of Canada Ltd. amalgamated under
Canadian law to form a new corporation, Kitchen Craft of Canada Ltd., a
Canadian corporation ("Kitchen Craft"). In the amalgamation (i) each
outstanding share of Class A Common Stock of 3578275 Canada Inc. was
converted into one share of Class A Common Stock of Kitchen Craft, (ii) each
outstanding share of Class B Common Stock of 3578275 Canada Inc. was
converted into one share of Class B Common Stock of Kitchen Craft, which
shares are exchangeable on a 1-for-1 basis into shares of Holdings Common
Stock, and (iii) each outstanding share of Kitchen Craft of Canada Ltd.
owned by 3578275 Canada Inc. was canceled for no consideration.
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In order to finance the transactions described above, (i) Holdings sold
9,674.5734 shares of its Common Stock to Mezzanine Lending Associates III, L.P.
("MLA III") for aggregate consideration of $13,272,296.14 and a portion of such
consideration was contributed down to 3578275 Canada Inc. through the Company
and Omega Kitchen Craft Holdings Corp.; (ii) the Company amended and restated
its existing senior credit agreement to provide for an additional term loan of
$25.0 million and the Company borrowed $25.0 million under the new term loan and
loaned the proceeds therefrom to 3578275 Canada Inc. in return for an
intercompany note (the "Intercompany Note"); and (iii) 3578275 Canada Inc.
entered into a Canadian dollar denominated senior credit agreement (the
"Canadian Senior Credit Agreement") supplemental to the amended and restated
senior credit agreement of the Company pursuant to which it borrowed
approximately (Cdn) $22.0 million under a term loan and approximately (Cdn) $2.0
under a revolving loan. The proceeds from the sale of Holdings Common Stock to
MLA III together with the borrowings evidenced by the Intercompany Note and the
borrowings under the Canadian Senior Credit Agreement were used to pay the
purchase price to the selling stockholders of Kitchen Craft of Canada Ltd. and
to pay certain related fees and expenses.
In connection with the transactions contemplated by the Master Transaction
Agreement, the Company solicited the consent of the holders of its 10-1/2%
Senior Subordinated Notes due 2007 (the "Notes") to certain amendments to the
Indenture dated as of July 24, 1997 (the "Indenture") between the Company,
Panther Transport, Inc., HomeCrest Corporation and The Chase Manhattan Bank, as
trustee. On January 28, 1999, the Company, Panther Transport, Inc. and The Chase
Manhattan Bank, as trustee, entered into the First Supplemental Indenture to
effect the amendments to the Indenture described in the Company's Consent
Solicitation Statement dated January 12, 1999, as supplemented by Supplement No.
1 thereto dated January 26, 1999, Supplement No. 2 thereto dated January 27,
1999, and Supplement No. 3 thereto dated January 27, 1999.
Immediately following consummation of the acquisition of Kitchen Craft
pursuant to the terms of the Master Transaction Agreement, the Company, Panther
Transport, Inc., Omega Kitchen Craft U.S. Corp., Bulrad Illinois, Inc., and The
Chase Manhattan Bank, as trustee, entered into the Second Supplement Indenture
dated January 29, 1999 pursuant to which each of Omega Kitchen Craft U.S. Corp.
and Bulrad Illinois, Inc. agreed to guarantee the Company's obligations under
the Notes and the Indenture in accordance with the terms and provisions of the
Indenture.
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Products
The Company specializes in manufacturing kitchen cabinetry and bathroom
vanities and accessories. The Company offers its customers one of the most
extensive product lines in the cabinetry industry and believes that it is one of
only two national manufacturers that produces a full line of kitchen cabinetry
for all three market price points: custom, semi-custom and stock. The Company's
cabinetry is distinguished by its high quality materials, superior finishes and
expert construction. The following chart illustrates the Company's fiscal 1998
sales by product line:
Sales by Product Line (1)
(dollars in millions)
<TABLE>
<CAPTION>
Product 1996 1997 1998
- ------- --------------- ---------------- ----------------
% of % of % of
$ Sales $ Sales $ Sales
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Custom Cabinetry $ 11.4 8.4% $ 12.3 7.9% $ 13.1 7.7%
Semi-Custom Cabinetry $ 41.7 30.6% $ 44.3 28.4% $ 50.7 30.0%
Stock Cabinetry $ 67.0 49.2% $ 82.9 53.1% $ 87.8 51.9%
Bath Vanities & Other $ 16.1 11.8% $ 16.4 10.6% $ 17.6 10.4%
------ ----- ------ ----- ------ -----
Total $136.2 100.0% $155.9 100.0% $169.2 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
(1) These sales do not include Kitchen Craft which was acquired on January 29,
1999.
Custom Cabinetry. The Company manufactures and markets custom kitchen
cabinetry under the Omega Custom brand name. Omega Custom cabinets are
manufactured for each individual customer and are distinguished by their high
quality design, premium materials and superior construction. Omega Custom offers
the consumer the widest choice of cabinetry configurations, door styles and wood
species within the Company's product lines. The Company believes it is one of
the few custom cabinetry manufacturers capable of offering national distribution
as well as an unlimited choice of finishes through its "custom color match"
program. The Company's custom cabinetry is primarily sold to kitchen and bath
dealers and is also sold through Home Depot Expo locations.
Semi-Custom Cabinetry. The Company manufactures and markets semi-custom
kitchen cabinetry under the Dynasty and Embassy brand names. Dimensional
modifications of size are available in both the Dynasty and Embassy lines, but
not to the extent available with the Omega Custom line. Approximately 34% of
Dynasty/Embassy cabinetry sales are produced from maple, with the balance made
up of oak (33%), cherry (18%) and pecan (15%). The Dynasty line is sold
primarily to kitchen and bath dealers, while the Embassy line is sold primarily
through home centers and lumber yards such as Home Depot/Home Depot Expo.
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Stock Cabinetry. The Company manufactures and markets stock cabinetry under
the HomeCrest and Legend brand names. The HomeCrest brand is sold through
HomeCrest's distribution network of dealers, builder/contractors and independent
distributors. In September 1995, the Company launched its Legend line of stock
cabinetry that was developed subsequent to the acquisition of HomeCrest in order
to cross-sell stock cabinetry through the Omega dealer network.
The Company provides a number of options and option combinations for its
stock cabinetry. These options include dovetailed wood drawers, plywood
cabinetry side material options (instead of furniture board) and premium drawer
slides, which allow for a level of customization even at this lowest price
point. The Company manufactures 54 different stock door styles in six types of
wood including oak (46%), maple (13%), hickory (10%), ash (3%) and others (10%),
as well as white foil on medium-density fiberboard (18%).
Bathroom Vanities and Accessories. The Company manufactures and markets
bathroom vanities under a variety of brand names, including Classic, Coventry,
Hallmark, Lancaster, Monticello, Montrose, Omega Custom, and Sunrise. The
Company's vanity line has ten different price points covering the market from
value-priced, frameless cabinetry through high-end, furniture quality custom
vanities. The Company's vanity line includes the same materials, construction
and finishes found in the Company's kitchen cabinetry lines. Vanities are sold
to kitchen and bath dealers, home centers and, on a private-label basis, to one
distributor.
Full Access Cabinetry. Kitchen Craft manufactures and markets full access
semi-custom and stock kitchen cabinetry under the Integra and Aurora brand
names. Full access, or European style, cabinetry differs from framed cabinetry
in that front frames are not used during cabinet construction and appearance is
similar to a full-overlay framed cabinet. Integra retails at a higher price
point than Aurora resulting from a broader range of styles, all-wood door
construction, and quality of the drawer boxes. Both product lines are sold
primarily through kitchen and bath dealers and company-owned retail stores
located in Canada and the United States.
New/Other Products. Although the Company manufactures numerous standard
wall and base cabinetry sizes, the Company also manufactures various corner
cabinets, peninsula cabinets, special wall cabinets, medicine cabinets, special
use cabinets, sink bases, appliance cabinets and tall storage cabinets. The
Company also manufactures furniture products, such as bookcases, entertainment
centers, hutches and desks and offers a line of kitchen and bath-related
accessory products.
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In December 1996, the Company began marketing a line of all-wood, value-
priced home entertainment centers. The Company currently offers this line in
five styles. Initial distribution plans include some of the larger selling
locations in the Company's distribution network.
Kitchen Craft manufactures laminated countertops which are sold through
company-owned retail stores in Canada.
The markets for the Company's cabinetry products are cyclical and are
affected by the same economic factors that affect the remodeling and housing
industries in general, including the availability of credit, changes in interest
rates, market demand and general economic conditions, all of which are beyond
the Company's control. Any deterioration in these markets could have a
material adverse effect on the Company's business, financial conditions and
results of operations.
Manufacturing
General. The Company operates four manufacturing facilities located in
Waterloo, Iowa; Goshen, Indiana; Clinton, Tennessee; and Winnipeg, Manitoba.
Custom and semi-custom kitchen cabinetry and bathroom vanities are manufactured
in Waterloo, and stock cabinetry and vanities are manufactured and assembled in
Goshen. Finished cabinetry frames and flat panel doors for stock cabinetry are
manufactured in Clinton. Full access cabinetry and laminated countertops are
manufactured in Winnipeg.
The plants are primarily machining, assembly and finishing operations. Raw
materials used by the plants consist of raw, kiln-dried lumber and plywood. At
the Waterloo facility, the lumber is cut and molded in a manner designed to
maximize material usage and minimize waste. At the Goshen facility, dimensioned
lumber and particle board is supplied by third-party vendors and the Waterloo
facility. Prior to assembly, plywood and furniture board is laminated and
machined. Panels, shelves, drawers, drawer fronts, floors and back parts are
then assembled. Semi-custom and stock cabinetry are finished (sanded, stained,
varnished and cured) and then assembled. Custom products are finished after
assembly. Hardware is then added, and the final product is inspected, packaged
and staged for shipment.
Suppliers and Raw Materials. In 1998, the Company purchased roughly $60
million of lumber and other raw materials from approximately 60 different
suppliers, the largest of which represented approximately 6% of such purchases.
The Company is not dependent upon any specific supplier for any of its raw
materials or component parts. The Company believes that its sources of supply
are adequate for its needs. Additionally, the Company recently formed a
dedicated materials management team to monitor its materials purchasing with the
goal of reducing costs.
The Company's results of operations are affected significantly by fluctuations
in the market prices of hardwood lumber, which represent approximately 20% of
the total cost of goods sold by the Company. The Company buys its hardwood
supplies at market-based prices from numerous
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independent sawmill operators. The cost of hardwood lumber is subject to
fluctuation and is affected by levels of supply as well as development in the
timber cutting industry. Significant increases in the price of lumber would
increase the cost of goods sold. Unless the Company was able to increase the
prices of its products, such price increases could have a materially adverse
affect on the Company's results of operation.
Transportation/Freight. Panther Transport, Inc. ("Panther"), a wholly-owned
subsidiary of the Company, provides trucking and freight services to the Company
for its Omega product lines. Panther leases 31 tractors, two trucks and 51
trailers. HomeCrest and Kitchen Craft products are primarily shipped through
contract carriers to customers.
Sales and Marketing - Omega
The Company sells its products in the United States principally through its
network of nearly 1,300 active kitchen and bath dealer locations, as well as
through home centers, builder/contractors and independent distributors. An
individual dealer may maintain more than one store location. Active kitchen and
bath dealer selling locations are defined by the Company as only those dealer
locations which have purchased over $10,000 of products in the past year. The
sales force and distribution network for the Company's Omega product lines is
separate and distinct from the distribution of stock product lines manufactured
by HomeCrest. The following chart illustrates the growth in the Company's active
selling locations from 1996 to 1998:
Active Selling Locations
<TABLE>
<CAPTION>
Kitchen & Home
Year Bath Dealers Centers Other(1) Total Locations
- ---- ------------- ------- -------- ---------------
<S> <C> <C> <C> <C>
1996 1,119 243 17 1,379
1997 1,248 235 20 1,503
1998 1,297 276 27 1,600
</TABLE>
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(1) Includes independent distributors and builders/contractors.
In 1998, approximately 81% of the Company's sales were through kitchen and
bath dealers. The Company has established strong relationships with its dealers
through superior customer service, timely delivery, quality products and
competitive pricing. Extensive interviews of kitchen and bath cabinetry dealers
indicate that service, timeliness of delivery, perceived value, and product
quality are all more important than price in choosing a cabinetry supplier. In
1998 the Company had an on-time, accurate completion record of 95%, which is
aided by its bar coding systems for tracking work-in-progress and finished goods
inventory. These systems enable the Company to provide its dealers with rapid
order status and product
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information and options. The Company seeks to establish long-term relationships
with quality dealers and has experienced very low dealer turnover rates,
creating what management believes is a significant competitive advantage within
the industry.
Kitchen and bath dealers primarily service the remodeling market and provide
design consultation services to the consumer. These dealers primarily sell
custom and semi-custom products. The Company added 330 new kitchen and bath
dealer selling locations in 1998 and believes that the addition of new dealers
is important to future sales growth. It has been the Company's experience that
new selling locations generally mature within a 9- to 18-month time period. The
Company has focused particularly on adding dealers for its stock products in an
effort to increase sales of stock cabinetry into the remodeling market which is
less cyclical than the new construction market.
The Company further markets its products through home centers such as Home
Depot, Home Depot Expo, Sears' The Great Indoors, Menards and Eagle. The Company
has selectively targeted certain national and regional chains to distribute its
custom and semi-custom cabinetry and bath vanities. In 1998, the Company
increased sales through its home center channel by 17.1% by adding 41 new home
center locations to its distribution network. In 1998, sales in the home center
distribution channel represented approximately 9% of the Company's total net
sales.
The Company also sells products through two independent distributors which
accounted for approximately 10% of total sales in 1998.
In early 1996, the Company also began targeting the manufactured housing
market and generated $3.5 million in sales in fiscal 1998 from one manufacturer.
The Company is uniquely positioned to serve the manufactured housing segment
through its Goshen, Indiana stock cabinetry manufacturing facility, which
geographically neighbors Elkhart, Indiana, the center of the U.S. manufactured
housing industry.
The Company produces its cabinetry primarily in response to firm orders. By
producing products only to order, the Company reduces its inventory risk by
lowering its work-in-progress inventory and improving inventory turns, all of
which contribute to the Company's low overall working capital requirements. The
Company generally ships its custom cabinetry within five weeks of order, its
semi-custom cabinetry within four weeks of order and its stock cabinetry within
10 days of order. The Company possesses an on-time, accurate order completion
record of over 95% which management believes is among the highest in the
industry. Order accuracy and lead times have been enhanced by the implementation
of the bar code system.
The Company maintains separate sales forces for products produced by Omega and
HomeCrest consisting of 80 independent sales representatives, five Company-
employed salespersons and 30 customer service professionals. The sales force
assists the Company's dealers with training, promotions, cabinetry displays and
other services. All orders are placed directly with the Company.
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Sales and Marketing - Kitchen Craft
Kitchen Craft sells it products in Canada and the United States principally
through its network of 430 kitchen dealer locations and 14 company-owned retail
stores. In 1998, dealer locations contributed 60% of sales, retail stores 37%,
and one regional homecenter, Beaver Lumber, contributed 3%.
Kitchen Craft generates approximately 54% of its sales from the Canadian
market, which is supported by a broad distribution network including 180
dealers, 12 company-owned retail stores, and Beaver Lumber. The retail stores
were created due to the lack of a strong distribution channel of independent
kitchen and bath dealers in Canada. Management attributes this industry dynamic
primarily to the prevalence of nearly exclusive manufacturer representation by
dealers and the lack of population density in Canada. Kitchen Craft's company-
owned stores function in essentially the same manner and provide substantially
equivalent customer services as independent dealers.
The United States generates approximately 46% of Kitchen Craft sales and is
supported by 250 dealers and 2 company-owned stores located in Seattle and
Austin. In 1992, the company aggressively expanded its United States
distribution network and the company-owned stores were created to overcome
initial difficulties in penetrating the independent dealer network.
Kitchen Craft maintains a sales force consisting of 21 company-employed
salespersons. The sales force assists the company's dealers with training,
promotion, cabinetry displays and other services.
Employees
As of January 2, 1999, the Company employed approximately 1,675 people of
which 238 were salaried and 1,437 were hourly, none of whom are covered by a
union or collective bargaining agreement. In addition, Kitchen Craft has
approximately 1,050 workers, none of whom are covered by a union or a collective
bargaining agreement.
Industry Overview
The kitchen and bath cabinetry industry consists of three primary price
points: custom, semi-custom and stock. Custom cabinetry is made-to-order and is
offered in an unlimited choice of design and construction styles, wood species,
configurations, finishes and colors. Semi-custom cabinetry is less expensive and
is made-to-order from a more limited set of options than custom cabinetry. Stock
cabinetry is the least expensive price point and offers the fewest number of
styles, wood species and finishes, with choices generally limited to the
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standard guidelines established by the manufacturer. Kitchen cabinetry and
bathroom vanities are generally distributed through four separate channels:
kitchen and bath dealers, home centers, builders/contractors and independent
distributors. Management estimates that there are over 10,000 kitchen and bath
dealers in the United States.
The United States kitchen and bath cabinetry industry is highly fragmented
with over 4,700 manufacturers. However, management believes that the industry
continues to consolidate, and that this trend toward industry consolidation will
continue as larger competitors with broader product offerings and more extensive
distribution networks will displace smaller, less-capable competitors.
Competition
The cabinetry industry is mature, competitive, regional and fragmented, with
approximately 4,700 manufacturers, many of which are small and compete primarily
on a local or regional basis. There are relatively low capital requirements for
cabinetry assembly, and therefore it is relatively easy for small competitors to
enter the industry.
Despite the relatively low barriers to entry facing small potential industry
entrants, ongoing consolidation is occurring due to customer demands for shorter
lead times and product innovation and the need for manufacturers to invest in
automation and technology. Such consolidation is making it more difficult for
smaller players to compete with larger, more integrated manufacturers on a cost-
effective basis. Management therefore believes that its principal competitors
include only those cabinetry manufacturers with strong dealer networks and
adequate capital supplies to invest in technology and develop the economies of
scale in manufacturing and purchasing required to deliver the important
combination of service, product quality and competitive pricing demanded by
customers.
Key competitive factors in the cabinetry industry include product quality,
breadth of offering, customer service, speed of delivery, value and price. The
cabinetry industry is subject to price competition, especially in the stock
cabinetry price point of the market. The Company believes that it competes
favorably with other manufacturers due to the breadth of its product offerings,
its production capacity and its delivery and service. Some of the Company's
competitors, however, are larger and have greater financial resources than the
Company.
Intellectual Property
Holdings, the Company's sole stockholder, owns the Omega, HomeCrest and
Kitchen Craft trademarks. The Company believes that its trademarks are
important to its business operations and that the expiration or loss of such
trademarks could have a material adverse effect on the Company.
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Environmental Matters
The Company's operations are subject to extensive federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Permits are
required for certain of the Company's operations, and these permits are subject
to revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations, and
violations may result in the payment of fines or the entry of injunctions, or
both. The Company does not believe it will be required under existing
environmental laws and enforcement policies to expend amounts that will have a
material adverse effect on its results of operations or financial condition. The
requirements of such laws and enforcement policies, however, have generally
become stricter in recent years. Accordingly, the Company is unable to predict
the ultimate cost of compliance with environmental laws and enforcement
policies.
Item 2. Properties.
The following are the Company's principal manufacturing facilities and
properties:
<TABLE>
<CAPTION>
Location Owned/Leased Products Square Ft.
- -------------------- ------------ ------------------------ ----------
<S> <C> <C> <C>
Waterloo, Iowa (1) Owned Custom and semi-custom 366,323
cabinetry and vanities
Goshen, Indiana Owned Stock cabinetry 476,607
Clinton, Tennessee Owned Finished frames and 200,757
(2) flat panel doors
Winnipeg, Manitoba Owned Stock and semi-custom 300,000
cabinetry
Winnipeg, Manitoba Leased Laminated countertops 30,000
</TABLE>
(1) The square footage of the Waterloo property excludes an additional 50,000
sq. ft. facility expected to be completed in 1999 to expand rough mill
operations.
(2) The Clinton property is a flexible facility currently utilized for the sub-
assembly of cabinetry and vanities.
The Company believes that its plants and properties are generally very well
maintained and in excellent operating condition. While the Company maintains
adequate insurance coverage on all of its properties, the loss of those
facilities could have an adverse effect on the Company's operations.
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Item 3. Legal Proceedings.
The Company is a party to various legal actions arising in the ordinary course
of its business. The Company believes that the resolution of these legal actions
will not have a material adverse effect on the Company's financial position or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of March 15, 1999, Omega had 10,000 authorized shares of common stock, par
value $.01 per share, of which 1,000 were issued and outstanding and held by
Holdings. There is no established public trading market for Omega common stock.
Omega's ability to pay dividends is limited under the Indenture, as amended.
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Item 6. Selected Financial Data
Set forth below is selected financial data of the Company and its predecessor.
The Statement of Income and Balance Sheet Data of the Company for the periods
from June 17, 1994 (the date of the acquisition by the Company of its
predecessor) to January 2, 1999 have been derived from the Company's audited
consolidated financial statements for those periods. The Statement of Income
Sheet Data of the predecessor for the period from January 1, 1994 through
June 16, 1994 have been derived from its audited financial statements for that
period. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Predecessor (1) The Company (1)
------------- ------------------------------------------------------------------
Period Period
from from
January 1, June 17, Year Ended
1994 to 1994 to ---------------------------------------------------
June 16, December December December December January
1994 31, 1994 30, 1995 28, 1996 27, 1997 2, 1999
---------- ------------ ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except ratios and statistical data)
Statement of Income Data
Net sales $ 24,917 $ 33,893 $ 97,958 $ 136,225 $ 155,899 $ 169,220
Cost of goods sold 17,564 22,485 72,690 97,287 112,557 121,767
--------- ------------ --------- --------- --------- -----------
Gross profit 7,353 11,408 25,268 38,938 43,342 47,453
Selling, general and administrative
expenses 5,235 3,708 10,964 15,309 22,171(4) 20,101
Amortization of goodwill - 519 1,163 1,332 1,398 1,440
--------- ------------ --------- --------- --------- -----------
Operating income 2,118 7,181 13,141 22,297 19,773(4) 25,912
Interest expense 22 4,123 9,701 10,441 16,313 15,074
--------- ------------ --------- --------- --------- -----------
2,096 3,058 3,440 11,856 3,460 10,838
Income tax expense -- 1,110 1,360 4,700 1,695 4,180
--------- ------------ --------- --------- --------- -----------
Income before extraordinary item 2,096 1,948 2,080 7,156 1,765 6,658
Extraordinary loss on debt refinancing (5) -- -- -- -- 947 --
--------- ------------ --------- --------- --------- -----------
Net income $ 2,096(3) $ 1,948 $ 2,080 $ 7,156 $ 818 $ 6,658
========= ============ ========= ========= ========= ===========
Ratio of earnings to fixed charges (6) 14.3x 1.7x 1.3x 2.1x 1.2x 1.7x
Other Data
EBITDA (3), (7) $ 2,643 $ 7,993 $ 15,500 $ 25,527 $ 28,710 $ 29,703
EBITDA margin (3), (7) 10.6% 23.6% 15.8% 18.7% 18.4% 17.6%
Gross margin 29.5% 33.7% 25.8% 28.6% 27.8% 28.0%
Capital expenditures 1,727 2,565 3,045 1,421 3,041 3,932
Depreciation and amortization 538 964 2,781 3,731 4,067 4,527
Net cash provided (used) by:
Operating activities 3,635 6,088 9,077 13,262 849 13,220
Investing activities (1,727) (58,598) (33,175) (2,181) (6,673) (3,932)
Financing activities (2,134) 52,510 24,103 (11,083) 5,978 (8,795)
Ratio of EBITDA to interest expense 1.9x 1.6x 2.4x 1.8x 2.0x
Number of active selling locations 1,057 1,097 1,379 1,503 1,600
(at end of year) (8)
Balance Sheet Data (at end of period)
Working capital (deficit) $ (4,101) $ (1,971) $ (850) $ 1,951 $ 5,225
Total assets 69,434 102,206 103,577 117,346 114,208
Long-term debt, including current portion 68,000 92,539 81,636 146,120 141,855
Stockholder's equity (deficit) (7,084) (4,354) 2,790 (43,152) (40,309)
</TABLE>
(1) The Company commenced operations on June 17, 1994, upon acquiring its
predecessor, Omega Cabinets, Ltd. The Company has not paid or declared any
cash dividends during the periods presented and is restricted in paying cash
dividends under the terms of its borrowing agreements. Beginning in fiscal
year 1995, the Company follows a 52/53 week fiscal year. Fiscal 1998
consisted of 53 weeks and all other periods since fiscal 1995 consisted of
52 weeks.
(2) In May 1995, the Company acquired the operating assets of HomeCrest
Corporation in a transaction accounted for as a purchase.
(3) In the predecessor period from January 1, 1994 to June 16, 1994, net income,
EBITDA and EBITDA margin were adversely affected due to special employee
bonuses totaling $2,231 which were paid in connection with the sale of the
predecessor. Excluding the effect of such bonuses, EBITDA and EBITDA margin
would have been $4,874 and 19.6%, respectively.
-15-
<PAGE>
(4) Selling, general and administrative expenses for the year ended December 27,
1997 includes non-cash expenses relating to stock option and warrant grants
of $5,481 (before related income tax benefit of $1,972).
(5) As a result of the 1997 recapitalization and related refinancing, in June
1997 the Company wrote off existing unamortized deferred financing costs of
$1,554, resulting in an extraordinary loss of $947 (net of a related income
tax benefit of $607).
(6) For purposes of calculating the ratio, earnings consist of income or loss
before income taxes plus fixed charges. Fixed charges consist of interest
expense, amortization of deferred financing costs, and 25% of the rent
expense from operating leases which management believes is a reasonable
approximation of the interest factor included in the rent.
(7) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA
represents income from operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation,
amortization of goodwill and non-cash stock option and warrant expense. Non-
cash expense of $57, $5,481, and $4 relating to stock option and warrant
grants was incurred in fiscal years ended December 28, 1996, December 27,
1997 and January 2, 1999, respectively. EBITDA is presented because it is a
widely accepted financial indicator of a leveraged company's ability to
service and/or incur indebtedness and because management believes that
EBITDA is a relevant measure of the Company's ability to generate cash
without regard to the Company's capital structure or working capital needs.
EBITDA as presented may not be comparable to similarly titled measures used
by other companies, depending upon the non-cash charges included. When
evaluating EBITDA, investors should consider that EBITDA (i) should not be
considered in isolation but together with other factors which may influence
operating and investing activities, such as changes in operating assets and
liabilities and purchase of property and equipment, (ii) is not a measure of
performance calculated in accordance with generally accepted accounting
principles, (iii) should not be construed as an alternative or substitute
for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial
position or cash flows and (iv) should not be used as an indicator of the
Company's operating performance or as a measure of its liquidity.
(8) Active selling locations represent customer locations which have purchased
over ten thousand dollars of product in the prior year.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following is management's discussion and analysis of the financial
condition and results of operations of the Company for the fiscal years ended
January 2, 1999, December 27, 1997 and December 28, 1996. This discussion and
analysis should be read in conjunction with, and is qualified in its entirety
by, the sections entitled "Selected Financial Data" and the Consolidated
Financial Statements of the Company and its predecessor and the notes thereto
including elsewhere in this annual report on Form 10-K.
Previous Acquisitions
In June 1994, Omega acquired all of the outstanding common stock of the
predecessor to Omega for an aggregate purchase price of approximately $71.1
million. The transaction was accounted for by the purchase method and resulted
in goodwill of approximately $43.1 million, which is being amortized over 40
years. In May 1995, Omega acquired HomeCrest for a total purchase price of $29.8
million, which was accounted for by the purchase method and resulted in goodwill
of approximately $13.5 million, which is being amortized over 40 years.
-16-
<PAGE>
Potential Acquisitions
The Company plans to capitalize on its position as one of the largest domestic
manufacturers of kitchen cabinetry and bathroom vanities by acquiring other
cabinetry companies as the industry consolidates. The Company currently is
exploring potential acquisition opportunities and evaluates potential
acquisition candidates on a regular basis. The Company believes that acquiring
additional cabinetry manufacturers will facilitate growth in product line,
broaden its geographic distribution and promote additional operating
efficiencies.
1997 Merger
Concurrently with the OMC Merger, Mezzanine Lending Associates III, L.P. ("MLA
III"), an affiliate of BCC, purchased stock of Holdings for approximately $61.9
million and loaned Holdings an additional $10.0 million represented by a junior
subordinated note, and existing management shareholders and the Company's
founder retained approximately 11.1% of common stock with a fair value of
approximately $7.8 million in Holdings. In addition, the Company entered into an
agreement with various banks including First Bank National Association as a bank
lender and as agent for the bank lenders party thereto (the "New Bank Credit
Facility"). The OMC Merger was accounted for as a recapitalization. As a result,
the historical basis of the Company's assets and liabilities was not affected by
the OMC Merger.
1999 Kitchen Craft Acquisition
On January 29, 1999, the Company consummated the acquisition of Kitchen Craft
for $53.4 million. Concurrently with the acquisition, (i) MLA III purchased
stock of Holdings for approximately $13.3 million, (ii) the Company amended and
restated its existing senior credit agreement to provide for an additional term
loan of $25.0 million, (iii) the Company entered into the Canadian Senior Credit
Agreement pursuant to which it borrowed (Cdn) $22.0 million under a term loan
and approximately (Cdn) $2.0 million under a revolving loan and (iv) the
existing Kitchen Craft management received shares of Class B Common Stock of
Kitchen Craft with a fair value of approximately $4.0 million, which are
exchangeable on a 1-for-1 basis into shares of common stock of Holdings. The
transaction was accounted for as a purchase and accordingly the results of
Kitchen Craft will be consolidated with the Company in fiscal 1999 effective
from the acquisition date forward.
Results of Operations
Fiscal 1998 Compared to Fiscal 1997
Net Sales for fiscal 1998 were $169.2 million compared to $155.9 million
for 1997, an increase of 8.5%. Net sales of the Omega traditional lines (custom
and semi-custom cabinetry and bath vanities) were $81.4 million in 1998 compared
to $73.0 in fiscal 1997, an increase of 11.4%, with sales increases in all three
lines. This increase in net sales reflects an increase in
-17-
<PAGE>
the number of dealer locations, further penetration in specialty home centers
such as Home Depot Expo and Sears' The Great Indoors, and favorable customer
reaction to upgraded Omega Bath and Custom offerings. Net sales of stock
cabinetry were $87.8 million in fiscal 1998 compared to $82.9 million in fiscal
1997, a 6.0% increase, as a result of an increase in dealer locations and the
introduction of 17 new product lines, which was partially offset by an unplanned
sales decline at the largest customer (due to customer's system implementation
issues).
Gross Profit for fiscal 1998 was $47.5 million compared to $43.3 million in
fiscal 1997, an increase of 9.5%. As a percentage of net sales, gross profit
increased to 28.0% in fiscal 1998 from 27.8% in fiscal 1997 primarily as a
result of a larger share of the sales coming from the Omega product lines which
carries higher margins.
Selling, General and Administrative Expenses for fiscal 1998 were $20.1
million, compared to $22.2 million in fiscal 1997, a decrease of 9.3%. Fiscal
1997 included non-cash stock option and warrant expense of $5.5 million. Fiscal
1998 included certain non-recurring acquisition and severance expenses of $1.1
million. Selling, general and administrative expenses without giving effect to
these charges would have been $19.0 million in fiscal 1998 compared to $16.7
million in 1997, an increase of 13.7%. As a percentage of net sales, selling,
general and administrative expenses, excluding the charges referred to above,
increased to 11.2% in fiscal 1998 from 10.7% in fiscal 1997 primarily due to
higher salary expenses to support sales growth initiatives and improve customer
support and training; higher advertising costs for cooperative advertising
participation; higher literature expense associated with new product
introductions; and higher legal and accounting expenses incurred from increased
external reporting requirements.
Operating Income for fiscal 1998 was $25.9 million, or 15.3% of net sales,
compared to $19.8 million, or 12.7% of net sales, for fiscal 1997, an increase
of 31.1%. The increase in operating income in fiscal 1998 was primarily due to
higher sales and favorable product mix in 1998 and non-cash stock option and
warrant expenses in 1997 as discussed above. For fiscal 1998, operating income,
without giving effect to non-recurring acquisition and severance costs referred
to above, was $27.0 million, or 16.0% of net sales, compared to $25.2 million,
or 16.1% of net sales for fiscal 1997 (as adjusted for non-cash stock option and
warrant expense). The primary reason for this decrease in operating income as a
percentage of net sales was higher selling, general and administrative expenses
referred to above.
Interest Expense for fiscal 1998 was $15.1 million compared to $16.3
million for fiscal 1997, a decrease of 7.6%, primarily due to bridge loan
expenses incurred in fiscal 1997 associated with the recapitalization, partially
offset by higher full year interest on increased borrowings from
recapitalization.
Income Taxes for fiscal 1998 were $4.2 million compared to $1.7 million for
fiscal 1997. Fiscal 1998 reflected a normalized tax rate of 38.6% while fiscal
1997 reflected variations in the effective tax rate due to the recapitalization
and related transactions.
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<PAGE>
Net Income for fiscal 1998 was $6.7 million compared to $0.8 million in
fiscal 1997 primarily due to non-cash stock option and warrant expense, the
extraordinary loss on debt refinancing and amortization of bridge loan fees in
fiscal 1997 as well as strong sales growth in fiscal 1998.
Fiscal 1997 Compared to Fiscal 1996
Net Sales for fiscal 1997 were $155.9 million compared to $136.2 million
for 1996, an increase of 14.4%. Net sales of the Omega traditional lines
(custom and semi-custom cabinetry and bath vanities) were $73.3 million in
fiscal 1997 compared to $69.1 million in fiscal 1996, an increase of 6.0%, with
sales increases in all three lines. This increase in net sales reflects an
increase in the number of dealer locations and a general price increase in
February 1997 of 2.0%. Net sales of stock cabinetry were $82.6 million in
fiscal 1997 compared to $67.1 million in fiscal 1996, a 23.2% increase, as the
result of an increase in dealer locations, entry into the manufactured housing
channel and additional product enhancements, including additional door styles,
wood species and colors, introduced in mid-1996.
Gross Profit for fiscal 1997 was $43.3 million compared to $38.9 million in
fiscal 1996, an increase of 11.3%. As a percentage of net sales, gross profit
declined to 27.8% in fiscal 1997 from 28.6% in fiscal 1996 primarily as a result
of a larger share of the sales coming from the stock line which carries lower
margins, higher costs for maple lumber, the need to outsource component parts
for HomeCrest because of the increased sales levels, and increased display costs
associated with dealer base growth.
Selling, General and Administrative Expenses for fiscal 1997 were $22.2
million, compared to $15.3 million in fiscal 1996, an increase of 44.8%. The
increase of $6.9 million for fiscal 1997 is primarily attributable to non-cash
compensation expense for employee stock options granted of $4.9 million and non-
cash warrant expense issued in conjunction with the 1997 recapitalization and
related transactions in the amount of $0.6 million. Selling, general and
administrative expenses without giving effect to these charges would have been
$16.7 million in fiscal 1997 compared to $15.3 million in fiscal 1996, an
increase of 9.5%. As a percentage of net sales, selling, general and
administrative expenses, excluding the non-cash stock option and warrant expense
referred to above, decreased to 10.8% in fiscal 1997 from 11.2% in fiscal 1996,
primarily due to higher sales volume and, lower cooperative advertising, legal,
and accounting costs for fiscal 1997 compared to fiscal 1996.
Operating Income for fiscal 1997 was $19.8 million, or 12.7% of net sales,
compared to $22.3 million, or 16.4% of net sales, for fiscal 1996, a decrease of
11.2%. The decrease in operating income in fiscal 1997 was primarily due to a
lower gross profit percent and non-cash compensation and warrant expenses in
1997 as discussed above. For fiscal 1997, operating
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<PAGE>
income, without giving effect to the non-cash stock option and warrant expense
referred to above, was $25.2 million, or 16.1% of net sales, compared to $22.3
million, or 16.4% of net sales, for fiscal 1996. The primary reason for this
decrease in operating income as a percentage of net sales was lower gross profit
percent, as discussed above.
Interest Expense for fiscal 1997 was $16.3 million compared to $10.4
million for fiscal 1996, an increase of 56.2%, primarily due to amortization of
fees paid pursuant to bridge loans incurred in connection with the 1997
recapitalization and increased borrowings associated with the 1997
recapitalization and related transactions.
Income Taxes for fiscal 1997 consisted of an expense of $1.7 million
compared to $4.7 million for fiscal 1996. Variations in the effective tax rate
in 1997 were due to the state tax effect of the relative mix of pretax
income/loss of consolidated entities, which was impacted in 1997 for expenses in
connection with the 1997 recapitalization and related transactions.
Extraordinary Loss On Debt Refinancing for fiscal 1997 was $0.9 million,
consisting of a $1.6 million write-off of deferred financing costs associated
with the prior long term debt repaid as a result of the 1997 recapitalization
and related transactions, net of $0.7 million of income tax benefits.
Net Income for fiscal 1997 was $0.8 million compared to $7.2 million in
fiscal 1996, a decrease of 88.9%, primarily due to the non-cash stock option and
warrant expense, the extraordinary loss on debt refinancing, amortization of
bridge loan fees and higher interest costs reflecting increased borrowings
associated with the 1997 recapitalization and related transactions.
Liquidity and Capital Resources
The Company's primary cash needs are working capital, capital expenditures and
debt service. The Company has financed these cash requirements primarily through
internally generated cash flow and funds borrowed under the Company's credit
facilities.
Net cash provided by operating activities for fiscal 1998 was $13.2 million
compared to $0.8 million for fiscal 1997, an increase of $12.4 million. The
increase was primarily due to changes in operating assets and liabilities. Net
income as adjusted for non-cash charges was $13.1 million for fiscal 1998
compared to $13.2 million for fiscal 1997. The cash increase from net changes
in operating assets and liabilities was $0.1 million for fiscal 1998 compared to
a decrease of $12.4 million for fiscal 1997, primarily due to 1997 changes in
accruals related to the recapitalization and related transactions. The net
change in 1998 was also impacted by lower receivables resulting from the timing
of the 1998 fiscal year-end, and the amount and timing of income tax payments.
-20-
<PAGE>
The Company used cash for investing activities of $3.9 million in fiscal 1998
compared to $6.7 million in fiscal 1997. During 1997, additional contingent
purchase price was paid for a prior acquisition of $3.3 million. In addition,
capital expenditures for fiscal 1998 were $3.9 million compared to $3.0 million
for fiscal 1997.
Cash used in financing activities was $8.8 million for fiscal 1998 compared to
cash provided by financing activities of $6.0 million for fiscal 1997. Fiscal
1997 reflected the debt and equity refinancing associated with the 1997
recapitalization and related transactions. Net debt activities for fiscal 1998
primarily included scheduled payments on the bank term loan of $3.2 million and
a net reduction in the revolving loan of $2.1 million. In addition, in fiscal
1998 cash payments to the parent were made of $2.0 million for a post-closing
adjustment related to the 1997 recapitalization, and $1.5 million for the
redemption of certain parent stockholders.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or premium, if any, on, or to refinance, its indebtedness, or to
fund planned capital expenditures will depend on its future performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under its bank
loans, will be adequate to meet the Company's anticipated future requirements
for working capital, budgeted capital expenditures and scheduled payments of
principal and interest on its indebtedness for the next several years. There can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future borrowings will be available under bank loans in
an amount sufficient to enable the Company to service its indebtedness or make
anticipated capital expenditures.
As a result of the 1999 acquisition of Kitchen Craft, the Company's long-term
debt structure has changed substantially. At January 29, 1999, the Company's
long-term debt consisted of (i) the $100.0 million of Senior Subordinated Notes;
(ii) an Amended and Restated Senior Credit Facility, consisting of a $60.5
million term facility (the "U.S. Term Facility") and a $20.0 million revolving
facility (the "U.S. Revolving Facility"); and (iii) a Canadian Senior Credit
Facility, consisting of a (Cdn) $22.0 million term facility (the "Canadian Term
Facility") and a (Cdn) $15.0 million revolving facility (the "Canadian Revolving
Facility"). As of March 23, 1999, the Company had additional borrowing
availability of $16.0 million under the U.S. Revolving Facility and (Cdn) $10.5
million under the Canadian Revolving Facility. The U.S. Term Facility requires
quarterly principal payments beginning in April 1999 at $1.0 million per quarter
and increasing at each September anniversary. Subsequent payments will be
approximately $1.4 million, $1.5 million, $1.9 million and $2.2 million per
quarter during the four quarter periods beginning September 1999, 2000, 2001,
and 2002, respectively, with $2.8 million payments due September and December of
2003 and approximately $6.3 million payments due each quarter in 2004. The
Canadian Senior Term Facility requires quarterly payments beginning in April
1999 at approximately (Cdn) $0.4 million per quarter and increasing at each
anniversary. Subsequent payments will be approximately (Cdn) $0.5 million,
(Cdn) $0.6 million, (Cdn) $0.8 million, (Cdn) $0.9 million and (Cdn) $2.3
million per quarter during 2000, 2001, 2002, 2003, and 2004. Both the U.S. and
Canadian Term Facilities mature on December 31, 2004. Revolving Facilities will
mature on December 26, 2003 and have no scheduled interim amortization.
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<PAGE>
Inflation
The Company does not expect inflation to have a major impact on future
operations. While the average annual price of lumber has fluctuated somewhat
over the past several years, the Company has historically been able to pass the
major portion of most lumber price increases on to the customer over time.
Computer Systems and Year 2000
The Year 2000 issue, common to most companies, concerns the inability of
information technology, ("IT") and non-information technology ("non-IT") systems
to recognize and process date-sensitive information after 1999 due to the use of
only the last two digits to refer to a year. This problem could affect both
information systems (hardware and software) and other equipment that relies on
microprocessors. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, schedule production, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment of its IT systems, both hardware and
software, and has developed a plan to timely address the Year 2000 issue.
Systems that interact with customers and that focus on the core business
functions of buying, manufacturing, selling and accounting have been given the
highest priority. Systems and equipment, particularly production equipment that
utilize embedded chips, that are not Year 2000 compliant have been identified
and remediation efforts are in process. Management estimates that nearly 70% of
the remediation efforts were completed as of January 2, 1999. Some of the
Company's current systems are being upgraded and others are being replaced with
Year 2000-compliant systems. System upgrades and replacements are being unit-
tested as they are completed. All remediation efforts and testing of
replacement systems are expected to be completed by September 1, 1999. The
Company is monitoring the need to develop contingency plans to remediate
information systems scheduled to be replaced in case delays in the installation
schedule for the new systems make remediation of the older systems necessary.
The Company currently believes that it will complete all phases of its plan
without any material adverse consequences to its business, operation, or
financial condition.
The Company's assessment of its non-IT systems (including phone, voicemail,
heating/air-conditioning, electricity and security systems) was completed and
will be followed by any required renovations. The Company used internal
resources to address the Year 2000 Issue of its non-IT systems and has not
incurred significant separately identifiable costs and does not expect to incur
significant additional costs in order to upgrade its non-IT systems. All
validation and implementation of these non-IT systems is expected to be
completed by mid-1999.
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<PAGE>
The Company has spent approximately $1.2 million, to date, in the execution of
its Year 2000 plan. Total costs to address Year 2000 issues are currently
estimated not to exceed $2.0 million and consist primarily of costs for the
remediation of internal systems, including internal programming time. Funds for
these costs are expected to be provided by the operating cash flows of the
Company.
The Company is also in the process of monitoring the progress of significant
third parties in their efforts to become Year 2000 compliant. Those third
parties include, but are not limited to product suppliers, large customers,
financial institutions, third party benefit administrators, and utilities. The
Company has requested confirmation from all material third parties as to when
they will be Year 2000 compliant. The Company expects that this assessment will
be completed by June 1, 1999. If the Company's customers and suppliers do not
achieve Year 2000 compliance before the end of 1999, the Company may experience
a variety of problems, which may have a material adverse effect on the Company.
The Company has obtained responses from approximately 50% of material third
parties. To the extent such suppliers are not Year 2000 compliant by the end of
1999, such suppliers may fail to deliver ordered materials and products to the
Company and may fail to bill the Company properly and promptly. Consequently,
the Company may experience delays in manufacturing product to send to its
customers. The Company plans to address potential problems with its suppliers
by identifying and arranging for alternative sources of supplies. Due to the
nature of its product, the Company does not believe it has any exposure to
contingencies related to the Year 2000 Issue for the products it has sold.
The Company could be faced with severe consequences if Year 2000 issues are
not identified and resolved in a timely manner by the Company and significant
third parties. A worst-case scenario would result in the short-term inability
to manufacture adequate amounts of product to support incoming customer orders
resulting in lost revenues and customer loyalty. The amount would be dependent
on the length and nature of the disruption, which cannot be predicted or
estimated. In light of the possible consequences, the Company is devoting the
resources needed to address Year 2000 issues in a timely manner. Management
receives monthly (if not more often) updates as to project status. While
management expects a successful resolution of these issues, there can be no
guarantee that material third parties, on which the Company relies, will address
all Year 2000 issues on a timely basis or that their failure to timely and
successfully address all issues would not have an adverse effect on the Company.
Forward Looking Statements
When used in this annual report on Form 10-K, the words "believes,"
"anticipates" and
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<PAGE>
similar expressions are used to identify forward looking statements. Such
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those projected. The Company wishes to caution
readers that the following important factors and others in some cases have
affected and in the future could affect the Company's actual results and could
cause the Company's results for 1998 to differ materially from those expressed
in any forward statements made by the Company: (i) economic conditions in the
remodeling and housing markets, (ii) availability of credit, (iii) increases in
interest rates, (iv) cost of lumber and other raw materials, (v) inability to
maintain state-of-the-art manufacturing facilities, (vi) heightened competition,
including intensification of price and service competition, the entry of new
competitors and the introduction of new products by existing competitors, (vii)
inability to capitalize on opportunities presented by industry consolidation,
(viii) loss or retirement of key executives and (ix) inability to grow by
acquisition of additional cabinetry manufactures or to effectively consolidate
operations of businesses acquired.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to interest rate market risk in connection with its
long-term debt. These financial instruments are entered into for purposes other
than trading. As of January 2, 1999, the Company's debt instruments consisted
of certain obligations which bear a fixed interest rate and others which bear
interest at variable rates. The following table provides information about the
Company's debt instruments that are sensitive to changes in interest rates, and
presents the principal cash flows and related interest rates by expected
maturity dates (in thousands):
<TABLE>
<CAPTION>
Variable Rate (a) Fixed Rate (b)
Maturing in:
<S> <C> <C>
1999 $10,250 $ --
2000 5,750 --
2001 6,750 --
2002 8,250 --
2003 10,000 --
Thereafter -- 100,000
------- --------
Total $41,000 $100,000
======= ========
Fair value at January 2, 1999 $41,000 $100,000
</TABLE>
(a) Primarily at LIBOR plus 2.25%, except for $5,500 maturing in 1999 which is
at a variety of defined floating rate options (8.23% weighted average at
January 2, 1999).
(b) All at 10.5%.
The Company's interest expense is most sensitive to changes in the general
level of U.S. and certain foreign (LIBOR) interest rates. In this regard,
changes in such interest rates
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<PAGE>
affect the interest paid on certain of its debt. To manage the impact of
fluctuations in interest rates, the Company continually monitors and may select
a variety of rate options on its variable-rate debt. In addition, the Company
has maintained a majority of its debt borrowings as fixed-rate debt. Although it
has not historically done so, the Company in the future may consider entering
into interest rate swaps or similar transactions in order to fix certain
interest costs on variable-rate debt.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is set forth on pages F-1 to F-19 of
this annual report on Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information regarding the Company's
directors and executive officers, including their respective ages, as of
March 1, 1999.
-25-
<PAGE>
Name Age Position
- --------------------- --- --------
Robert L. Moran 44 Director, Chief Executive Officer, President
John S. Horton 38 Senior Vice President, Treasurer, Chief Financial
Officer
Craig S. Rae 39 Vice President, Sales & Marketing
Earl M. Lytle 39 Vice President, Manufacturing
John A. Goebel, Jr. 55 President, HomeCrest
Michael Hagan 46 Vice President, Administration, HomeCrest
Thomas Schmidt 45 Vice President, Marketing, HomeCrest
Douglas J. Conley 42 Vice President, Manufacturing, HomeCrest
Robert J. Bertch 52 Director
Gilbert Butler 61 Director
Donald E. Cihak 50 Director
Costa Littas 42 Director
David Kim 32 Director
Herbert D. Buller 57 Director
Robert L. Moran has served as Director, Chief Executive Officer and President
of Omega since October 1998. Mr. Moran served as President of Omega since
December 1997 and as Vice President, Operations of Omega from October 1995 to
December 1997. In his current role, Mr. Moran has executive management
responsibilities for Omega's business units, with particular focus on strategic
planning, business development and acquisitions. From August 1992 to October
1995, Mr. Moran was employed at Newell Company, a mass merchandise retailer of
consumer products, where he was the Vice President of Operations for the Home
Hardware Division. From 1989 to 1992 he served as President of various
divisions at GWH Holdings, representing equipment and robotic companies.
-26-
<PAGE>
John S. Horton has served as Senior Vice President, Treasurer and Chief
Financial Officer of Omega since November 1998. Mr. Horton has responsibility
for all aspects of accounting, planning and analysis, SEC reporting, treasury
and investor relations. From 1997 to 1998, Mr. Horton was a Vice President at
Allied Signal Engines in various positions including Chief Financial Officer,
Business Development, and Productivity. Prior to 1997, Mr. Horton spent 15
years at General Electric, most recently as Chief Financial Officer for several
major business units including the Military and Small Commercial Engines
business and the Gas Turbines business.
Craig S. Rae has served as Vice President, Sales and Marketing of Omega since
December 1997. Mr. Rae was employed at Leucadia National Corporation, General
Marble Division, a manufacturer of cultured marble vanity countertops and
bathroom cabinetry, from June 1995 to December 1997, where he was Vice President
of Sales and Marketing. Prior to General Marble, Mr. Rae was employed as Vice
President of Sales for Newell Company, Newell Home Hardware Division from June
1994 to June 1995. From June 1992 to June 1995, Mr. Rae was Vice President of
Sales for BernzOmatic Division of the Newell Company.
Earl M. Lytle has served as Vice President, Manufacturing of Omega since July
1998. From June 1997 to June 1998, he served as a Manufacturing Division
Manager. Mr. Lytle is responsible for all aspects of Omega Operations including
manufacturing and engineering. From 1995 to 1997, Mr. Lytle was employed at
Newell Company, a mass merchandise retailer of consumer products, where he was
the Operations Manager for the Home Hardware Division. From 1989 to 1995, Mr.
Lytle was employed at Conair, an auxiliary equipment manufacturer for the
plastics industry, where he advanced from a design engineer to operations
manager.
John A. Goebel, Jr. has served as President of HomeCrest since 1995. Mr.
Goebel has been with HomeCrest since 1986. He was plant manager at the Clinton
facility from 1986 to 1990, and served as Vice President, Operations at
HomeCrest from 1990 to 1995. Mr. Goebel also has certain strategic planning
responsibilities at HomeCrest.
Michael Hagan has served as Vice President, Administration, HomeCrest since
1991. Mr. Hagan has been with HomeCrest since 1978.
Thomas Schmidt has served as Vice President, Marketing, HomeCrest since 1991.
Mr. Schmidt is responsible for sales and marketing at HomeCrest.
Douglas J. Conley has served as Vice President, Manufacturing, HomeCrest since
1995. From May 1991 to May 1995, Mr. Conley served as Vice President, Human
Resources for HomeCrest. Mr. Conley has been with HomeCrest since 1989.
Robert J. Bertch has been a director of Omega since its inception. Mr. Bertch
founded the Company in 1977 and served as its President and Chief Executive
Officer until Omega was sold to Code, Hennessy & Simmons in 1994. Since January
1998, Mr. Bertch has served as President of Phoenix Door Manufacturing.
-27-
<PAGE>
Gilbert Butler became a director of the Company in June 1997. Since its
formation in 1981, he has been the President of BCC, a private investment firm
providing management advisory services to five investment limited partnerships,
including MLA III, that provide financing for leveraged buyouts, other
acquisitions and business expansions. Mr. Butler is also the managing general
partner of five limited partnerships that serve as the respective general
partners of the five investment limited partnerships. Mr. Butler is a trustee
and member of the investment committee of Corporate Property Investors, a real
estate investment trust.
Donald E. Cihak became a director of the Company in June 1997. Mr. Cihak has
served as Managing Director of BCC Industrial Services, Inc. ("ISI"), a
management consulting company wholly owned by certain investment funds managed
by BCC, since September 1993. From April 1990 to September 1993, Mr. Cihak was
the Vice President/Finance and Administration for the Marine Group of Brunswick
Corporation.
Costa Littas became a director of the Company in June 1997. He has been a
Managing Director of BCC since February 1994, a principal from April 1991 to
February 1994 and a Vice President from October 1989 to April 1991. Mr. Littas
is also a general partner of four limited partnerships that serve as the
respective general partners of four of the investment limited partnerships
advised by BCC, including MLA III. From 1978 to 1989, Mr. Littas was employed by
Bank of Boston, most recently as a Vice President and Manager.
David Kim became a director of the Company in February 1999. He has been with
BCC since September 1994 and became a Principal in 1997. From 1992 to 1994, Mr.
Kim attended Harvard Business School, where he received a Masters in Business
Administration in June 1994.
Herbert D. Buller became a director of the Company in February 1999 following
the acquisition of Kitchen Craft. Mr. Buller, the founder of Kitchen Craft of
Canada Ltd., previously served as the President and a director of Kitchen Craft
of Canada Ltd. since 1971. Mr. Buller is currently a director and the Chief
Executive Officer of Kitchen Craft.
At present, all Directors are elected and serve until a successor is duly
elected and qualified or until the earlier of his death, resignation or removal.
There are no family relationships between any of the Directors or executive
officers of Holdings or the Company. Executive officers of Holdings and the
Company are elected by and serve at the discretion of their respective boards of
directors.
Compensation of Directors
The Company pays no compensation to its independent directors, and pays no
additional remuneration to its employees or to executives of the Company for
serving as directors. There are no family relations among any of the directors
or executive officers.
-28-
<PAGE>
Item 11. Executive Compensation.
The following table sets forth information concerning the compensation for the
fiscal years ended January 2, 1999, December 27, 1997, and December 28, 1996 of
Mr. Key, the former Chief Executive Officer of the Company, Mr. Moran, the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive
Officers").
-29-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
- -------------------------------------------------------------------------------------------------------------------
Other Securities
Annual Underlying All Other
Name and Principal Position Salary Bonus Compensation Options Compensation
Year ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Henry P. Key (1) 1998 285,387(2) 103,125 --- (3) 115.73(4) 1,883,556(7)
Former Chief Executive 1997 225,000 134,076 --- (3) 18.17(5) 4,575(8)
Officer 1996 191,644 150,000 --- (3) 2.00(5) 5,358(8)
- -------------------------------------------------------------------------------------------------------------------
Robert L. Moran 1998 163,923 80,000 --- (3) 32.75(6) 30,905(10)
President and Chief 1997 130,000 46,475 --- (3) 5.27(5) 3,750(9)
Executive Officer 1996 120,000 47,000 --- (3) 0.34(5) ---
- -------------------------------------------------------------------------------------------------------------------
John A. Goebel, Jr. 1998 140,000 70,000 --- (3) 41.66(6) 23,234(11)
President, HomeCrest 1997 130,000 48,750 --- (3) 4.32(5) 1,284(9)
1996 124,407 77,797 --- (3) 0.34(5) 930(9)
- -------------------------------------------------------------------------------------------------------------------
Thomas J. Schmidt 1998 123,832 37,150 --- (3) 23.15(6) 17,307(12)
Vice President, 1997 118,832 44,563 --- (3) 2.83(5) 1,172(9)
Marketing, HomeCrest 1996 115,253 72,003 --- (3) 0.20(5) 183(9)
- -------------------------------------------------------------------------------------------------------------------
Craig Rae 1998 124,615 36,000 --- (3) 9.26(6) 1,800(9)
Vice President, Sales 1997 6,923 10,000 --- --- ---
and Marketing 1996 --- --- --- --- ---
- -------------------------------------------------------------------------------------------------------------------
Michael Hagan 1998 106,209 31,875 --- (3) 23.15(6) 16,947(13)
Vice President, 1997 101,029 37,886 --- (3) 2.83(5) 997(9)
Administration, HomeCrest 1996 97,990 61,242 --- (3) 0.20(5) 148(9)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Key resigned from the Company effective October 30, 1998. In
connection with his resignation, the Company agreed to pay Mr. Key
severance equal to 12 months base salary, payable in the form of
continuation of salary in accordance with the Company's normal payroll
practices and a bonus for fiscal 1998 equal to $103,125. In addition, the
Company agreed to repurchase the shares of Common Stock and options to
purchased shares of Common Stock of Holdings at a price per share equal to
$1,362.68, less any applicable exercise price.
(2) Represents salary payable through October 14, 1998 as well as severance
payments, in the form of salary continuation, from October 15, 1998 through
January 2, 1999.
(3) The perquisites and other benefits paid did not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus of such Named
Executive Officer.
(4) The options represent options to purchase shares of the Common Stock of
Holdings following the Merger, at an exercise price per share of $1,000.00.
All of such options were repurchased by the Company in connection with Mr.
Key's resignation from the Company.
(5) The options represent options to purchase shares of common stock of Omega
Holdings, Inc. prior to the Merger, at an exercise price per share of
$12,963.51.
(6) The options represent options to purchase shares of the Common Stock of
Holdings following the Merger, at an exercise price per share of $1,000.00.
(7) Represents $1,745,324 received from the repurchase of Mr. Key's equity in
Holdings in connection with his resignation, $134,213 received as a result
of the working capital adjustment in connection with the OMC Merger and
Recapitalization, and $4,019 as amounts matched by the Company under the
Company's 401(k) Profit Sharing Plan.
-30-
<PAGE>
(8) Mr. Key's additional compensation reflects a $2,000 annual premium on a
life insurance policy maintained by the Company as well as amounts
matched by the Company under a 401(k) Profit Sharing Plan.
(9) Additional compensation amounts refer to amounts matched by the Company
under the Company's 401(k) Profit Sharing Plan.
(10) Represents $25,987 received as a result of the working capital adjustment
in connection with the OMC Merger and Recapitalization, and $4,918 as
amounts matched by the Company under the Company's 401(k) Profit Sharing
Plan.
(11) Represents $19,997 received as a result of the working capital adjustment
in connection with the OMC Merger and Recapitalization, and $3,237 as
amounts matched by the Company under the Company's 401(k) Profit Sharing
Plan.
(12) Represents $14,063 received as a result of the working capital adjustment
in connection with the OMC Merger and Recapitalization, and $3,244 as
amounts matched by the Company under the Company's 401(k) Profit Sharing
Plan.
(13) Represents $14,063 received as a result of the working capital adjustment
in connection with the OMC Merger and Recapitalization, and $2,834 as
amounts matched by the Company under the Company's 401(k) Profit Sharing
Plan.
Option Grants
The following table sets forth information concerning grants of options to
purchase Common Stock of Holdings made to the Named Executive Officers during
the fiscal year ended January 2, 1999.
OPTION GRANTS IN FISCAL 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Individual Grants
Percent Potential Realizable
of Total Value at Assumed
Number of Options Annual Rates of
Securities Granted to Exercise Stock Price
Underlying Employees in Price Per Appreciation
Options Fiscal 1998 Share Expiration for Option Term (3)
Name Granted (#)(1) (%)(2) ($) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Henry P. Key 115.73 26.4 1,000 2/24/2008 72,782 184,444
Robert L. Moran 32.75 7.5 1,000 2/24/2008 20,596 52,195
John A. Goebel, Jr. 41.66 9.5 1,000 2/24/2008 26,200 66,395
Thomas J. Schmidt 23.15 5.3 1,000 2/24/2008 14,559 36,894
Craig Rae 9.26 2.1 1,000 2/24/2008 5,824 14,758
Michael Hagan 23.15 5.3 1,000 2/24/2008 14,559 36,895
</TABLE>
-31-
<PAGE>
- -------------------------------------
(1) Represents shares of Common Stock of Holdings following the Merger.
(2) Percentages are based upon the total number of options to purchase shares of
Common Stock of Holdings granted to employees in fiscal 1998.
(3) There is currently no market for the Common Stock of Holdings. For purposes
of the calculations in this table, the fair market value of the Common Stock
was determined by the Board of Directors based upon arms length sales of
shares of Common Stock of Holdings. There have been no arms length sales of
the Common Stock of Holdings since February 26, 1999. In accordance with
the rules of the Securities and Exchange Commission, the amounts shown on
this table represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise. Actual gains, if any, on stock option exercises will depend on the
future performance of Holdings' Common Stock, the optionholder's continued
employment through the option period, and the date on which the options are
exercised.
Option Exercises and Fiscal Year-End Values
The following table sets forth information with respect to options awarded
under the Holdings Stock Option Plan, including the number and aggregate value
of unexercised options outstanding on January 2, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END OPTIONS VALUES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options At
Shares Acquired Options At Fiscal Year-End Fiscal Year-End
On Exercise Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
Name (#) ($)(2) (#)(3) ($)(2)(3)
<S> <C> <C> <C> <C>
Henry P. Key --- (1) --- (1) --- ---
Robert L. Moran --- --- 32.75/0 12,179/0
John A. Goebel, Jr. --- --- 41.66/0 15,492/0
Thomas J. Schmidt --- --- 23.15/0 8,609/0
Craig Rae --- --- 9.26/0 3,444/0
Michael Hagan --- --- 23.15/0 8,609/0
</TABLE>
- -------------------------------------
(1) In connection with Mr. Key's resignation from the Company effective
October 30, 1998, the Company agreed to repurchase all of Mr. Key's
options to purchase shares of Common Stock of Holdings at a price per
share equal to $1,362.68. The gross proceeds to Mr. Key from the sale
of options to purchase 115.73 shares of Common Stock of Holdings,
representing all of the options to purchase shares of Common Stock of
Holdings owned by Mr. Key, was $41,973.
-32-
<PAGE>
(2) Value is based on the difference between the option exercise price and
the fair market value at January 2, 1999. The fair market value of the
Common Stock of Holdings ($1,371.87 per share) was determined by the
Board of Directors based upon arms length sales of shares of Common
Stock of Holdings. There have been no arms length sales of the Common
Stock of Holdings since February 26, 1999.
(3) Represents options to purchase shares of Common Stock of Holdings at an
exercise price of $1,000 per share.
Employment Contracts, Termination of Employment and Change of Control
Arrangements
Mr. Moran is currently employed with the Company pursuant to an agreement
dated September 11, 1995, as amended on June 13, 1997. Under this agreement, Mr.
Moran receives an annual salary of $120,000, subject to annual increases, and is
eligible for a bonus of up to 30% of base salary. Mr. Moran is entitled to
receive twelve months' continued salary and benefits if he is terminated for
reasons other than cause. Following Mr. Moran's promotion to President and Chief
Executive Officer of Omega, the Company agreed to increase his salary to
$190,000 and his bonus to 50%.
Mr. Horton is currently employed as Senior Vice President, Treasurer, and
Chief Financial Officer, Omega pursuant to an agreement dated October 15, 1998.
Under this agreement, Mr. Horton is entitled to receive a base salary, subject
to annual increases, and a bonus in accordance with the Company's Executive
Bonus Plan for senior management ("Bonus Plan"). Mr. Horton is also entitled to
receive restricted stock equivalent to a value of $50,000. In addition, Mr.
Horton is eligible to purchase shares of stock in Holdings which may be
purchased with the proceeds of a bank loan for up to 50% of the purchase price.
Mr. Horton is also eligible to receive stock options to be granted over a five-
year period.
Mr. Goebel is currently employed as President, HomeCrest pursuant to an
agreement dated April 10, 1995, as amended on June 13, 1997. Under this
agreement, Mr. Goebel is entitled to receive a base salary, subject to annual
increases, and a bonus in accordance with the Company's Bonus Plan. Mr. Goebel
is also entitled to receive twelve months' continued salary and benefits if he
is terminated from the Company without cause. Mr. Goebel has the right under a
put agreement dated June 13, 1997 to cause Holdings to repurchase his Common
Stock in the event of his normal retirement from Holdings.
Mr. Rae is currently employed as Vice President, Sales & Marketing, Omega
pursuant to an agreement dated October 22, 1997. Under this agreement, Mr. Rae
is entitled to receive a base salary, subject to annual increases, and a bonus
in accordance with the Company's Bonus Plan. Mr. Rae is also entitled to
receive six months' continued salary and benefits if he is terminated from the
Company without cause. In addition, Mr. Rae is eligible to participate in the
equity ownership of Holdings in an amount up to $100,000 and to receive
additional fully-diluted option shares under the management stock option
program.
-33-
<PAGE>
Mr. Hagan is currently employed as Vice President, Administration, HomeCrest
pursuant to an agreement dated April 10, 1995. Under this agreement, Mr. Hagan
is entitled to receive a base salary, subject to annual increases, and a bonus
in accordance with the Company's Bonus Plan. Mr. Hagan is also entitled to
receive six months' continued salary and benefits if he is terminated from the
Company without cause.
Mr. Schmidt is currently employed as Vice President, Marketing, HomeCrest
pursuant to an agreement dated April 10, 1995. Under this agreement, Mr. Schmidt
is entitled to receive a base salary, subject to annual increases, and a bonus
in accordance with the Company's Bonus Plan. Mr. Schmidt is also entitled to
receive six months' continued salary and benefits if he is terminated from the
Company without cause.
The Named Executive Officers of the Company participate in the Bonus Plan
whereby they are eligible to receive a base bonus potential of 30-50% of base
salary, with the Chief Executive Officer having a base bonus potential of 50% of
salary. Payout is on a sliding scale based on operating profit performance
against budget starting at 85% of budget. There is an opportunity to earn up to
125% of the base potential based on achieving 105% of planned operating income
performance.
Mr. Key resigned from Holdings and the Company effective October 30, 1998.
Pursuant to a Severance Agreement dated October 30, 1998, and in consideration
for the termination of Mr. Key's employment agreement with the Company, the
Company agreed to pay Mr. Key 12 months continued salary at his then current
base rate and a bonus equal to $103,125 for fiscal 1998. The Company also
agreed to pay Mr. Key $62,855 contingent upon the Company meeting specified
financial targets for fiscal 1998. In addition, the Company agreed to
repurchase all of Mr. Key's equity of Holdings at a purchase price equal to
approximately $1,745,324, which amount is equal $1,362.68 per share, less
applicable exercise prices. Pursuant to the Severance Agreement, Mr. Key agreed
to release all present and future claims against the Company and its affiliates,
including past and present officers, directors and stockholders of the Company.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. Instead, compensation
decisions for fiscal 1998 regarding the Company's executive officers were made
by the Board of Directors. Mr. Key, an executive officer of the Company prior
to his resignation, served on the Board of Directors prior to his resignation.
Mr. Moran, an executive officer of the Company, has served on the Board of
Directors since November 4, 1998. The compensation for Mr. Key and Mr. Moran
for the year ended January 2, 1999 was established pursuant to the terms of
their respective employment agreements.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
All of Omega's issued and outstanding capital stock is owned by Holdings. As
of March 1, 1999, the outstanding capital stock of Holdings consisted of
79,946.8 shares of Common Stock, $.01 par value per share.
-34-
<PAGE>
The following table sets forth certain information as of March 1, 1999
regarding the beneficial ownership of (i) each class of voting securities of
Holdings by each person known to Holdings to own more than 5% of any class of
outstanding voting securities of Holdings, and (ii) the equity securities of
Holdings by each Director of Holdings and the Company, each Named Executive
Officer and all of Holdings' and the Company's directors and executive officers
as a group. To the knowledge of Holdings, each such stockholder has sole voting
and investment power as to the shares shown unless otherwise noted. Beneficial
ownership of the securities listed in the table has been determined in
accordance with the applicable rules and regulations promulgated under the
Securities Exchange Act of 1934, as amended.
-35-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Common Stock
-------------------------
Number Percentage
Name and Address of Shares of Class
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
Principal Stockholder:
Mezzanine Lending
Associates III, L.P. (1)....................... 74,345.9 86.5
c/o Butler Capital Corporation
767 Fifth Avenue, 6th Floor
New York, New York 10153
Directors and Executive Officers:
Gilbert Butler(2)................................ 74,345.9 86.5
Costa Littas(2).................................. 74,345.9 86.5
Donald E. Cihak.................................. --- ---
David Kim........................................ --- ---
Robert J. Bertch................................. 3,500.0 4.1
Robert L. Moran(3)............................... 822.8 1.0
John A. Goebel, Jr.(4)........................... 768.6 1.0
Thomas J. Schmidt(5)............................. 315.9 *
Craig Rae(6)..................................... 209.3 *
Earl M. Lytle (7)................................ 59.6 *
Michael Hagan(8)................................. 315.9 *
John S. Horton(9)................................ 600.0 1.0
Douglas J. Conley(10)............................ 315.9 *
Herbert D. Buller(11)............................ 960.3 1.1
All Directors and executive officers as a group
(14 persons)(12)................................ 7,868.3 9.2
</TABLE>
- -------------------------------
* Represents less than one percent.
(1) Includes warrants to purchase 2,806.3 shares of Common Stock held by ISI, a
corporation wholly-owned by certain investment funds managed by BCC,
including MLA III. Does not include shares owned by other stockholders
that are subject to the Stockholders Agreement. See "Certain Relationships
and Related Transactions -- Stockholders Agreement."
-36-
<PAGE>
(2) The shares of Common Stock included in the table represent shares held by
MLA III and ISI. Messrs. Butler and Littas are Managing General Partner and
General Partner, respectively, of Mezzanine Lending Management III, L.P.
("MLM III"), the general partner of MLA III, and, accordingly, may be
deemed to beneficially own shares beneficially owned by MLA III. Each such
person disclaims beneficial ownership of any such shares in which he does
not have a pecuniary interest. The address of each such person is c/o
Butler Capital Corporation, 767 Fifth Avenue, 6th Floor, New York, New York
10153.
(3) The shares of Common Stock included in the table include 340.0 shares that
are held in the Rabbi Trust, see "Certain Relationships and Related
Transactions -- Deferred Compensation Plan and Rabbi Trust", 32.8 shares
that can be acquired upon the exercise of outstanding options, and 450.0
shares subject to a Stock Pledge Agreement between Mr. Moran and the
Company. See "Certain Relationships and Related Transactions -- Certain
Loans to Executive Officers."
(4) The shares of Common Stock included in the table include 323.4 shares that
are held in the Rabbi Trust, see "Certain Relationships and Related
Transactions -- Deferred Compensation Plan and Rabbi Trust", 41.7 shares
that can be acquired upon the exercise of outstanding options and 200.0
shares subject to Stock Pledge Agreement between Mr. Goebel and the
Company. See "Certain Relationships and Related Transactions -- Certain
Loans to Executive Officers."
(5) The shares of Common Stock included in the table include 195.4 shares that
are held in the Rabbi Trust, see "Certain Relationships and Related
Transactions -- Deferred Compensation Plan and Rabbi Trust", and 23.2
shares that can be acquired upon the exercise of outstanding options.
(6) The shares of Common Stock included in the table include 9.3 shares that
can be acquired upon the exercise of outstanding options and 100.0 shares
subject to a Stock Pledge Agreement between Mr. Rae and the Company. See
"Certain Relationships and Related Transactions -- Certain Loans to
Executive Officers."
(7) The shares of Common Stock included in the table include 9.6 shares that
can be acquired upon the exercise of outstanding options.
(8) The shares of Common Stock included in the table include 195.0 shares that
are held in the Rabbi Trust, see "Certain Relationships and Related
Transactions -- Deferred Compensation Plan and Rabbi Trust", and 23.2
shares that can be acquired upon the exercise of outstanding options.
(9) The shares of Common Stock included in the table include 39.5 shares that
are subject to vesting and 521.0 shares subject to a Stock Pledge Agreement
between Mr. Horton and the Company. See "Certain Relationships and Related
Transactions -- Certain Loans to Executive Officers."
(10) The shares of Common Stock included in the table include 195.0 shares that
are held in the Rabbi Trust, see "Certain Relationships and Related
Transactions -- Deferred Compensation Plan and Rabbi Trust", and 23.2
shares that can be acquired upon the exercise of outstanding options.
(11) The shares of Common Stock included in the table represent 960.3 shares of
Class B Common Stock of Kitchen Craft held by HEB2 Holdings Ltd., which are
exchangeable into an equal number of shares of Holdings Common Stock in
accordance with the terms thereof. The shares of Class B Common Stock of
Kitchen Craft are exchangeable at any time upon the request of the holder
into shares of Holdings Common Stock and are required to be exchanged by
the holder upon the request of the Company in connection with any merger,
sale, disposition or other significant transaction affecting Holdings or
Kitchen Craft, upon the termination of such holder's employment with the
Company and its subsidiaries, or, at any time after January 29, 2006. Mr.
Buller disclaims beneficial disclaims beneficial ownership of any such
shares in which he does not have a pecuniary interest.
(12) Excludes shares deemed to be beneficially owned by Messrs. Butler and
Littas.
-37-
<PAGE>
Item 13. Certain Relationships and Related Transactions.
OMC Merger and Related Agreements
The OMC Merger occurred on June 13, 1997. Concurrently with the OMC Merger, an
aggregate consideration of $201.6 million was paid, subject to adjustment based
on the working capital of Holdings at the closing date. The merger agreement
contains customary representations, warranties, covenants and indemnification
provisions. In connection with the OMC Merger, pursuant to a Merger Financing
Agreement (the "Financing Agreement") with MLA III, MLA III purchased 61,865
shares of Common Stock of Holdings for $61.9 million and Holdings issued an 11%
junior subordinated note to MLA III (the "Junior Subordinated Note"). The
Junior Subordinated Note was repaid in July 1997 with proceeds from an offering
by the Company under Rule 144A of the Securities Act of 1933, as amended (the
"Act") for $100 million in aggregate principal amount of 10 1/2% senior
subordinated notes. Under the Financing Agreement, the Company has agreed to
indemnify and pay certain expenses of BCC and its affiliates and their advisors
and consultants under certain circumstances.
Stockholders Agreement
In connection with the Merger, MLA III, ISI, management, the American National
Bank and Trust Company of Chicago, as trustee of the Rabbi Trust, each
participant in the Rabbi Trust, and all of the other stockholders and
optionholders of Holdings entered into a stockholders agreement (the
"Stockholders Agreement"), that, among other things, provides for tag-along
rights, drag-along rights, registration rights, restrictions on the transfer of
shares held by parties to the Stockholders Agreement and certain preemptive
rights for certain stockholders including management. The Stockholders Agreement
also provides that the parties thereto will vote their shares in the same manner
as MLA III and ISI in connection with certain transactions and that MLA III and
ISI will be entitled to fix the number of directors of Holdings. Pursuant to
the Stockholders Agreement, MLA III and ISI will be entitled to designate all of
the directors except for one, which will be the chief executive officer.
Management Agreement
In connection with the OMC Merger, the Company and Holdings entered into a
management agreement ("Management Agreement") with ISI, a management
consulting company wholly owned by investment funds managed by BCC. The
Management Agreement was supplemented by Supplement No. 1 thereto. Pursuant to
the Management Agreement, as supplemented, the Company and Holdings agree to pay
ISI $425,000 per year plus certain fees and expenses, including legal and
accounting fees and any out-of-pocket expenses incurred by ISI in connection
with providing services to the Company, and to indemnify ISI under certain
circumstances. In addition, ISI received warrants to purchase an aggregate of
2,391.4 shares of Common Stock of Holdings at an exercise price of $1,000 per
share and 414.9 shares of Common Stock of Holdings at an exercise price of
$1,371.87 per share. The warrants expire in 2007 and 2009, respectively.
-38-
<PAGE>
Deferred Compensation Plan and Rabbi Trust
In connection with the OMC Merger, Holdings and its subsidiaries adopted the
1997 Omega Holdings, Inc. Deferred Compensation Plan (the "Plan") for the
purpose of providing the following benefits to those employees of Holdings and
its subsidiaries whose options to purchase shares of Holdings were canceled as a
result of the OMC Merger (the "Plan Participants"). Under the terms of the
Merger agreement, upon consummation of OMC Merger, each option to purchase
shares of Holdings stock held by the Plan Participants prior to the merger was
canceled, and Holdings established a deferred compensation obligation pursuant
to the Plan for the benefit of each Plan Participant. Benefits under the Plan
are payable in cash and in shares of Holdings stock, and are payable to Plan
Participants upon termination of employment or, under certain limited
circumstances, prior to termination. The benefits provided by the Plan represent
the unsecured obligations of Holdings.
As contemplated by the Plan and pursuant to the Rabbi Trust Agreement dated as
of June 13, 1997 between Holdings and American National Bank and Trust Company
of Chicago, as trustee, Holdings established the Rabbi Trust to hold
approximately 3,224.5 shares of Holdings Common Stock to satisfy Holdings'
obligations as provided in the Plan. In 1998, certain shares of Holdings were
redeemed under terms of the Rabbi Trust Agreement and the Plan. Currently
1,674.5 shares of Holdings Common Stock are held in the Plan. The Rabbi Trust
maintains separate accounts for each Plan Participant, which accounts are
intended to reflect the obligation of the Company to distribute cash and shares
of Holdings stock to each Plan Participant. The Rabbi Trust may, at the
direction of the Company, make such distributions to satisfy the obligations of
the Company under the Plan. The Plan does not provide for elective deferrals by
Plan Participants.
Management Equity Arrangements
Holdings adopted a stock option plan for the benefit of employees of Holdings
and its subsidiaries in June 1997 (the "Stock Option Plan"). Pursuant to the
Stock Option Plan, 7,812.0 shares of Holdings Common Stock have been reserved
for issuance pursuant to the plan. The Stock Option Plan is administered by the
Board of Directors of Holdings, which has discretionary authority to grant
options and determine the terms and conditions of each award. No awards may be
granted under the Stock Option Plan after the completion of ten years from its
adoption, but awards previously granted may extend beyond that date.
In addition, pursuant to the Stockholders Agreement, certain management
stockholders have the right to cause Holdings to repurchase Holdings Common
Stock held by such management stockholders upon their death or disability. In
addition, Mr. Goebel has entered into a put agreement with Holdings dated as of
June 13, 1997, whereby Mr. Goebel has the right, in addition to his rights under
the Stockholders Agreement, to cause Holdings to repurchase Holdings Common
Stock held by him in the event of normal retirement from Holdings.
-39-
<PAGE>
Sale of Land to the Company
Pursuant to the Offer and Acceptance Contract dated September 15, 1998, the
Company purchased Lots Nos. 1 and 2 and a portion of Lot No. 3 in the Airline-
Burton Industrial Park, Waterloo, Iowa from Robert J. Bertch, a director of the
Company, and Mary H. Bertch. The Company paid a purchase price of $70,535.20
and took possession of the property on October 1, 1998. In connection with the
sale, the Company agreed to compensate the tenant for any loss to the crops
caused by the Company.
Certain Loans to Executive Officers
In connection with the purchase of shares of Common Stock of Holdings,
Holdings accepted as payment from certain executive officers purchasing such
shares a note bearing interest at the Applicable Federal Rate. Mr. Moran, Mr.
Goebel, Mr. Rae and Mr. Horton received loans of approximately $617,343,
$274,375, $137,187 and $681,019, respectively, in connection with the purchase
of 450.0, 200.0, 100.0 and 521.0 shares, respectively, of Common Stock of
Holdings. The Company has agreed to permit such executive officers to repay
their respective loan obligations with proceeds received from the sale or other
disposition of the Common Stock purchased therewith. Repayment of each of the
loans is secured by a pledge of the Common Stock purchased by such executive
officer.
Part IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements
See Index to Financial Statements appearing at page F-1.
(a)(2) Financial Statement Schedules
The following Financial Statement Schedule is included at page F-19:
Schedule II - Valuation and Qualifying Accounts.
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the consolidated financial statements or
notes thereto.
-40-
<PAGE>
(a)(3) Exhibits
2.1 Master Transaction Agreement dated as of January 29, 1999 (Incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the
Commission on February 12, 1999).
3.1 Certificate of Incorporation, as amended, of the Registrant*
3.2 By-laws of the Registrant*
4.1 Indenture dated as of July 24, 1997*
4.2 First Supplemental Indenture dated January 28, 1999 (Incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K filed with the
Commission on February 12, 1999).
4.3 Second Supplemental Indenture dated January 29, 1999 (Incorporated by
reference to Exhibit 99.2 to the Current Report on Form 8-K filed with the
Commission on February 12, 1999).
10.1 First Amended and Restated Credit Agreement dated as of January 29
(Incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K filed with the Commission on February 12, 1999).
10.2 Panther Security Agreement dated as of January 29, 1999.
10.3 Omega Security Agreement dated as of January 29, 1999.
10.4 Omega Pledge Agreement dated as of January 29, 1999.
10.5 Collateral Assignment of Trademarks dated as of June 13, 1997.*
10.6 Management Agreement dated June 13, 1997*
10.7 Financing Agreement dated June 13, 1997*
10.8 Deferred Compensation Plan dated June 13, 1997*
10.9 Rabbi Trust Agreement dated June 13, 1997*
10.10 Key Employment Agreement dated September 16, 1997*
10.11 Key Severance Agreement dated October 30, 1998.
10.12 Moran Employment Agreement dated September 11, 1995, as amended June 13,
1997*
10.13 Moran Severance Agreement dated April 24, 1997*
10.14 [Reserved]
10.15 [Reserved]
10.16 Goebel Employment Agreement dated April 10, 1995, as amended June 13,
1997*
10.17 Goebel Severance Agreement dated April 24, 1997*
10.18 Hagan Employment Agreement dated April 10, 1995*
10.19 Hagan Severance Agreement dated April 24, 1997*
10.20 Schmidt Employment Agreement dated April 10, 1995*
10.21 Schmidt Severance Agreement dated April 24, 1997*
10.22 Deferred Non-Qualified Compensation Agreement dated June 28, 1997*
10.23 Company Bonus Plan*
10.24 Stockholders Agreement dated June 13, 1997*
10.25 Omega Holdings, Inc. Stock Option Plan*
10.26 Key Put Agreement dated June 13, 1997*
10.27 Goebel Put Agreement dated June 13, 1997*
-41-
<PAGE>
10.28 Bulrad Illinois Security Agreement dated as of January 29, 1999.
10.29 Omega Kitchen Craft Holdings Pledge Agreement dated as of January 29,
1999.
10.30 Omega Kitchen Craft U.S. Corp. Pledge Agreement dated as of January 29,
1999.
10.31 Bulrad Illinois Guaranty dated as of January 29, 1999.
10.32 Credit Agreement dated as of January 29, 1999 (incorporated by reference
to Exhibit 4.2 to the Current Report on Form 8-K filed with the Commission
on February 12, 1999).
10.33 3578275 Canada General Security Agreement dated as of January 29, 1999.
10.34 Omega Guarantee dated as of January 29, 1999.
10.35 Kitchen Craft Guarantee dated as of January 29, 1999.
10.36 Kitchen Craft Security Agreement dated as of January 29, 1999.
10.37 Supplement No. 1 to the Management Agreement dated January 29, 1999.
10.38 H. Buller Employment Agreement dated January 29, 1999.
10.39 M. Buller Employment Agreement dated January 29, 1999.
10.40 J. Horton Employment Agreement dated October 15, 1998.
10.41 C. Rae Employment Agreement dated October 22, 1997.
10.42 Offer and Acceptance Contract dated September 15, 1998 for sale of land
to Company.
12.1 Statement regarding computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedules.
______________
* Incorporated by reference to the similarly numbered exhibit in the
Company's Registration Statement on Form S-4, No. 333-37135, filed October
3, 1997.
(b) Reports on Form 8-K.
On November 12, 1998, Omega announced the election of Robert Moran as
President, Chief Executive Officer and a director of each of Holdings and the
Company, and the resignation of Henry P. Key as President, Chief Executive
Officer and a director of each of Holdings and the Company and from all offices
and positions held with each subsidiary of Holdings, including the Company.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report has been sent to security holders covering the
registrant's last fiscal year and no proxy materials have been sent to more than
10 of the registrant's security holders during the registrant's last fiscal
year.
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
OMEGA CABINETS, LTD.
By: /s/ Robert L. Moran
---------------------------------
Name: Robert L. Moran
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/ Robert L. Moran
- ---------------------- Director, Chief Executive March 29, 1999
Robert L. Moran Officer, President
(principal executive
officer)
/s/ John S. Horton
- ---------------------- Senior Vice President, March 30, 1999
John S. Horton Treasurer, Chief Financial
Officer (Principal
Financial and Accounting
Officer)
/s/ Robert J. Bertch
- ---------------------- Director March 30, 1999
Robert J. Bertch
/s/ Gilbert Butler
- ---------------------- Director March 31, 1999
Gilbert Butler
/s/ Donald E. Cihak
- ---------------------- Director March 31, 1999
Donald E. Cihak
/s/ Costa Littas
- ---------------------- Director March 31, 1999
Costa Littas
-43-
<PAGE>
/s/ David Kim
- ---------------------- Director March 30, 1999
David Kim
/s/ Herbert D. Bulller
- ---------------------- Director March 31, 1999
Herbert D. Buller
-44-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements of Omega Cabinets, Ltd.
Report of Independent Auditors................................. F-2
Consolidated Balance Sheets as of January 2, 1999 and
December 27, 1997............................................... F-3
Consolidated Statements of Income for the years ended
January 2, 1999, December 27, 1997 and December 28, 1996...... F-5
Consolidated Statements of Stockholder's Equity (Deficit) for
the years ended January 2, 1999, December 27, 1997
and December 28, 1996......................................... F-6
Consolidated Statements of Cash Flows for the years ended
January 2, 1999, December 27, 1997 and December 28, 1996...... F-7
Notes to Consolidated Financial Statements..................... F-9
Schedule II Valuation and Qualifying Accounts.................. F-19
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Omega Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Omega Cabinets,
Ltd. (a wholly-owned subsidiary of Omega Holdings, Inc.) as of January 2, 1999
and December 27, 1997, and the related consolidated statements of income,
stockholder's equity (deficit), and cash flows for each of the three years in
the period ended January 2, 1999. Our audits also included the financial
statement schedule listed in 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 and schedule 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 Omega Cabinets,
Ltd. at January 2, 1999 and December 27, 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 2, 1999, 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.
ERNST & YOUNG LLP
Des Moines, Iowa
February 19, 1999
F-2
<PAGE>
Omega Cabinets, Ltd.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
-------------------------------------
<S> <C> <C>
Assets (Notes 4 and 10)
Current assets:
Cash $ 650,703 $ 157,520
Income tax receivable 284,228 1,839,854
Accounts receivable, less allowance for doubtful
accounts of $1,489,000 in 1998 and $1,804,000
in 1997 13,788,890 15,097,575
Inventories (Note 3) 11,764,729 11,496,588
Prepaid expenses and other 588,566 438,064
Deferred income taxes (Note 6) 765,000 1,025,000
-------------------------------
Total current assets 27,842,116 30,054,601
Property, plant, and equipment, at cost:
Land and improvements 1,217,517 931,330
Buildings 15,309,166 14,972,641
Machinery and equipment 17,973,534 16,100,580
Construction in progress 1,939,368 546,212
-------------------------------
36,439,585 32,550,763
Less accumulated depreciation (7,602,297) (5,298,501)
-------------------------------
28,837,288 27,252,262
Deferred financing costs, less accumulated
amortization of $1,090,766 in 1998 and $350,281
in 1997 5,360,388 5,853,666
Goodwill, less accumulated amortization of $5,852,007
in 1998 and $4,412,326 in 1997 51,418,582 52,858,262
Deferred income taxes (Note 6) 475,000
Other assets 749,389 852,507
-------------------------------
Total assets $114,207,763 $117,346,298
===============================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
-----------------------------------
<S> <C> <C>
Liabilities and stockholder's equity (deficit)
Current liabilities:
Accounts payable $ 3,790,367 $ 6,802,096
Accrued expenses 7,721,071 7,501,504
Current portion of long-term debt (Note 4) 11,105,324 13,800,000
-----------------------------------
Total current liabilities 22,616,762 28,103,600
Deferred income taxes (Note 6) 1,150,000 -
Long-term debt, less current portion (Notes 4 and 10) 130,750,000 132,320,000
Other liabilities - 75,103
Commitments (Note 5)
Stockholder's equity (deficit) (Notes 2, 4, 8, 9 and
10):
Common stock, $.01 par value; 10,000 shares
authorized; 1,000 shares issued and outstanding 10 10
Additional paid-in capital 61,072,025 62,835,425
Predecessor basis adjustment (11,031,662) (11,031,662)
Retained earnings (deficit) (90,349,372) (94,956,178)
-----------------------------------
Total stockholder's equity (deficit) (40,308,999) (43,152,405)
-----------------------------------
Total liabilities and stockholder's equity (deficit) $114,207,763 $117,346,298
===================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Omega Cabinets, Ltd.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------------
January 2 December 27 December 28
1999 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
Net sales $169,220,139 $155,898,769 $136,225,643
Cost of goods sold 121,766,772 112,556,300 97,287,215
-----------------------------------------------------
Gross profit 47,453,367 43,342,469 38,938,428
Selling, general and administrative
expenses (Note 8) 20,101,333 22,171,340 15,309,281
Amortization of goodwill 1,439,681 1,398,479 1,331,941
-----------------------------------------------------
Operating income 25,912,353 19,772,650 22,297,206
Interest expense 15,074,327 16,311,997 10,441,182
-----------------------------------------------------
Income before income taxes and
extraordinary item 10,838,026 3,460,653 11,856,024
Income tax expense (Note 6) 4,180,000 1,695,000 4,700,000
-----------------------------------------------------
Income before extraordinary item 6,658,026 1,765,653 7,156,024
Extraordinary loss on debt refinancing,
net of income tax benefit of $607,000
(Note 2) - 947,443 -
-----------------------------------------------------
Net income and comprehensive income $ 6,658,026 $ 818,210 $ 7,156,024
=====================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Omega Cabinets, Ltd.
Consolidated Statements of Stockholder's Equity (Deficit)
<TABLE>
<CAPTION>
Additional Predecessor Basis Retained Earnings
Common Stock Paid-In Capital Adjustment (Deficit) Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 10 $ 2,649,915 $(11,031,662) $ 4,027,533 $ (4,354,204)
Common stock issued for stock
options exercised at
parent-level credited to the
Company - 3,879 - - 3,879
Redemption of common stock at
parent-level charged to the
Company - (15,631) - - (15,631)
Net income for 1996 - - - 7,156,024 7,156,024
------------------------------------------------------------------------------------------
Balance at December 28, 1996 10 2,638,163 (11,031,662) 11,183,557 2,790,068
Capital contribution by parent
(Note 2) 10 62,248,425 - - 62,248,435
Dividend to parent to redeem
common stock and options at
parent-level
(Note 2) (10) (2,638,163) - (106,957,945) (109,596,118)
Noncash capital contribution
(Note 5) - 587,000 - - 587,000
Net income for 1997 - - - 818,210 818,210
------------------------------------------------------------------------------------------
Balance at December 27, 1997 10 62,835,425 (11,031,662) (94,956,178) (43,152,405)
Common stock issued at
parent-level credited to the
Company - 118,627 - - 118,627
Dividend to parent to pay
additional redemption cost
related to 1997
recapitalization (Note 2) - - - (2,051,220) (2,051,220)
Redemption of common stock and
options at parent-level charged
to the Company (Note 9) - (2,350,561) - - (2,350,561)
Income tax benefit related to
redemption of stock (Note 9) - 465,000 - - 465,000
Stock option expense (Note 8) - 3,534 - - 3,534
Net income for 1998 - - - 6,658,026 6,658,026
------------------------------------------------------------------------------------------
Balance at January 2, 1999 $ 10 $61,072,025 $(11,031,662) $ (90,349,372) $ (40,308,999)
==========================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Omega Cabinets, Ltd.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended
---------------------------------------------------------
January 2 December 27 December 28
1999 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 6,658,026 $ 818,210 $ 7,156,024
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 2,347,027 2,057,688 1,840,936
Amortization 2,180,165 2,009,640 1,889,739
Noncash stock option and warrant expense 3,534 5,481,000 57,268
Deferred income taxes 1,885,000 1,295,000 1,330,000
Deferred financing costs written off - 1,554,443 -
Changes in operating assets and liabilities:
Income tax receivable 1,555,626 (1,839,854) -
Accounts receivable 1,308,685 (4,331,489) (2,210,239)
Inventories (268,141) (2,200,709) (808,820)
Prepaid expenses and other (150,502) (106,037) (98,722)
Other assets 103,118 (5,069) (135,286)
Accounts payable (3,011,729) 1,885,006 825,101
Accrued expenses 684,567 (5,783,422) 3,407,066
Other liabilities (75,103) 14,900 9,267
---------------------------------------------------------
Net cash provided by operating activities 13,220,273 849,307 13,262,334
Investing activities
Purchases of property, plant, and equipment (3,932,053) (3,041,213) (1,420,951)
Additions to goodwill - (3,632,046) (759,894)
---------------------------------------------------------
Net cash used in investing activities (3,932,053) (6,673,259) (2,180,845)
Financing activities
Proceeds from long-term debt 15,290,000 247,839,506 1,000,000
Payments for deferred financing costs (247,207) (6,207,229) (168,165)
Payments of long-term debt (20,410,000) (186,355,651) (11,903,022)
Capital contribution by parent 118,627 62,248,435 3,879
Payments to parent to redeem common stock and options
at parent-level (3,546,457) (111,547,386) (15,631)
---------------------------------------------------------
Net cash provided by (used in) financing activities (8,795,037) 5,977,675 (11,082,939)
---------------------------------------------------------
Net increase (decrease) in cash 493,183 153,723 (1,450)
Cash at beginning of year 157,520 3,797 5,247
---------------------------------------------------------
Cash at end of year $ 650,703 $ 157,520 $ 3,797
=========================================================
</TABLE>
F-7
<PAGE>
Omega Cabinets, Ltd.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended
------------------------------------------------------
January 2 December 27 December 28
1999 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures
Interest paid in cash $14,349,607 $22,096,013 $8,533,032
Income taxes paid in cash, net of refunds received $ 274,374 $ 2,400,275 $2,809,445
Noncash financing activities:
Note issued for redemption of parent stock and options $ 855,324 $ 3,000,000 -
Noncash capital contribution from parent - $ 587,000 -
Noncash investing activity accrued goodwill addition for
additional purchase price payment - - $ 831,046
</TABLE>
See accompanying notes.
F-8
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements
For the years ended January 2, 1999,
December 27, 1997 and December 28, 1996
1. Accounting Policies
Description of Business and Basis of Presentation
Omega Cabinets, Ltd. (the "Company") manufactures cabinetry for the home,
including primarily kitchen and bath cabinets, for sale to independent dealers,
home centers and lumber yards throughout the United States. The Company operates
in one business segment for financial reporting purposes.
The Company is a wholly-owned subsidiary of Omega Holdings, Inc. ("Holdings").
Holdings has no operations and its sole asset is its investment in the common
stock of the Company. Holdings' acquisition cost of acquiring the Company,
including a predecessor basis adjustment, have been "pushed down" and reflected
in the accounts of the Company.
Fiscal Year
The Company follows a 52/53 week fiscal year. Fiscal 1998 consisted of 53 weeks
and 1997 and 1996 each consisted of 52 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Panther Transport, Inc. ("Panther"). Significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Accounts Receivable
Concentrations of credit risk with respect to trade receivables are limited due
to the number of customers and their geographic dispersion. The Company performs
initial and periodic credit evaluations of its customers and generally does not
require collateral.
F-9
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Inventories
The Company states inventories at the lower of cost or market using the first-
in, first-out (FIFO) method.
Property, Plant and Equipment
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets, including 40 years for buildings and 5-10 years for
machinery and equipment.
Deferred Financing Costs and Goodwill
Deferred financing costs are amortized over the term of the related loans
ranging primarily from 6 to 10 years. Goodwill, representing the excess of
purchase price over the underlying net assets of businesses acquired, is
amortized on the straight-line method over 40 years. The carrying value of
goodwill is reviewed continually to determine whether any impairment has
occurred. This review takes into consideration the recoverability of the
unamortized amounts based on the estimated undiscounted cash flows of the
related business. To the extent that the estimated undiscounted future cash
flows were less than the carrying value of the related goodwill, an impairment
loss could be measured based upon various methods, including undiscounted cash
flows, discounted cash flows and fair value. Based upon undiscounted cash flows,
no impairment of goodwill was determined to exist and, accordingly, no
measurement was required.
Income Taxes
The Company files a consolidated income tax return with Holdings. All income
taxes allocated to the Company have been computed on a separate return basis.
The Company follows the liability method of accounting for income taxes, under
which deferred income tax assets and liabilities are determined based on the
difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expense is
based on the changes in the asset or liability from period to period.
Stockholder's Equity
In connection with a previous acquisition, the former owners of the acquired
business retained a continuing ownership interest in Holdings. Generally
accepted accounting principles require Holdings and the Company to record a
reduction to stockholder's equity representing the cost in excess of the
predecessor basis attributable to the continuing ownership interest.
Accordingly, a predecessor basis adjustment of $11,031,662 has been reflected in
stockholder's equity.
F-10
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
approximately $1,913,000 in 1998, $1,739,000 in 1997 and $1,677,000 in 1996.
Fair Value of Financial Instruments
Financial instruments include accounts receivable, accounts payable, and long-
term debt. Management believes the fair value of accounts receivable and
accounts payable approximate their carrying value in the balance sheet as of
each balance sheet date. The fair value of the long-term debt is estimated based
on anticipated interest rates which management believes would currently be
available to the Company for similar issues of debt, taking into account the
current credit risk of the Company and other market factors, and arms-length
trades for debt securities which are traded. The fair value of long-term debt,
other than the senior subordinated notes indicated below, is estimated to
approximate the carrying amount as of each balance sheet date. The estimated
fair value of the senior subordinated notes was $100 million and $105 million at
January 2, 1999 and December 27, 1997, respectively.
Emerging Accounting Issues
The Company is not aware of any accounting standards which have been issued and
which will require the Company to change current accounting policies or adopt
new policies, the effect of which would be material to the consolidated
financial statements.
2. 1997 Merger and Refinancing
Pursuant to an Agreement and Plan of Merger (the "OMC Merger") among Holdings,
the stockholders of Holdings, and Omega Merger Corp. ("OMC"), on June 13, 1997
OMC merged into Holdings, with Holdings as the surviving entity. Concurrent with
the Merger, certain investors affiliated with Butler Capital Corporation ("BCC")
invested approximately $61.9 million in the voting equity stock of Holdings.
This investment plus proceeds from new management investors resulted in total
new equity capital to Holdings of approximately $62.2 million, which in turn was
contributed by Holdings into the Company. These amounts plus the proceeds from
$100 million in bridge loans and $48.3 million borrowed under a senior credit
facility were used to repay debt of approximately $89.3 million (representing
all of the Company's outstanding long-term debt at that date), to repurchase the
majority of Holding's voting equity stock outstanding prior to the OMC Merger at
an aggregate cost of approximately $112.6 million, and to pay transaction fees
and expenses. The $100 million bridge loans were subsequently repaid with
proceeds from senior subordinated notes (see Note 4). The cost to repurchase
stock, which included $109.6 million cash and a $3.0 million note, was subject
to certain defined post-closing adjustments which had not been finalized as of
December 27, 1997. As a result of the OMC Merger and related transactions
described above, BCC owned 88.4% of Holdings subsequent to the OMC Merger.
F-11
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
2. 1997 Merger and Refinancing (continued)
The OMC Merger was accounted for as a recapitalization and, accordingly, did not
impact the historical basis of the Company's assets or liabilities. All OMC
Merger and recapitalization transactions of Holdings have been pushed down and
reflected in the accounts of the Company. The Company paid an aggregate of
$114.5 million to Holdings in 1997, representing the parent's cost to redeem
common stock and stock options and to pay merger expenses. The Company recorded
the $114.5 million as a charge to deferred compensation for $4.9 million to
redeem stock options, and the balance representing a dividend to parent of
$109.6 million was charged to stockholder's equity.
As a result of the OMC Merger and related debt refinancing, the Company wrote
off existing unamortized deferred financing costs of $1,554,443, resulting in an
extraordinary loss in 1997 of $947,443 (net of related income tax benefit of
$607,000).
The post-closing adjustments to the repurchase price were finalized in 1998,
resulting in additional redemption cost of $2,051,220 which was charged to
stockholder's equity as a dividend to parent.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
----------------------------------
<S> <C> <C>
Raw materials $ 4,541,976 $ 4,933,935
Work-in-process 4,837,431 3,910,231
Finished goods 2,385,322 2,652,422
----------------------------------
$11,764,729 $11,496,588
==================================
</TABLE>
F-12
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 2 December 27
1999 1997
------------------------------------
<S> <C> <C>
Senior bank revolving loan, due December 2002, interest at defined
rate options (8.23% weighted average at January 2, 1999) $ 5,500,000 $ 7,550,000
Senior bank term loan, payable in increasing quarterly installments
through December 2003, interest at LIBOR plus 2.25% (7.5% at
January 2, 1999) 35,500,000 35,570,000
Senior subordinated notes, due June 2007, interest at 10.5% 100,000,000 100,000,000
Note payable for stock redemption (Note 9), interest at prime plus
2.0% (9.75% at January 2, 1999), repaid in full in January 1999. 855,324 -
Note to selling stockholders (Note 2), due March 1998,
interest at 8%. - 3,000,000
------------------------------------
141,855,324 146,120,000
Less amounts due within one year 11,105,324 13,800,000
------------------------------------
Long-term debt, excluding current portion $130,750,000 $132,320,000
====================================
</TABLE>
The Company has a senior bank credit facility consisting of a term loan facility
with an initial amount of $40 million and a revolving loan facility of up to $20
million. Interest on the term and revolving facilities is currently payable and
is determined at the Company's option of either a defined base rate plus a
margin ranging from .25% to 1.50% or a defined LIBOR plus a margin ranging from
1.25% to 2.50%. The applicable margin percentage is determined based upon the
Company's cash flow leverage ratio. Borrowings under the bank facility are
guaranteed by Holdings and secured by all of the stock and assets of the
Company.
The senior bank term loan is payable in graduated quarterly installments
increasing from $1,000,000 in 1999 to $2,750,000 in 2003. The revolving loan
matures in December 2002 and has no scheduled interim payments. The Company
projects that the January 2, 1999 revolving loan balance will be repaid during
fiscal 1999 based on available cash flow and, accordingly, such amount is
classified as current portion of long-term debt. The Company is required to pay
a commitment fee of 0.5% per annum on the unused amount of the revolving loan.
Additional loan payments are also due each year based on 75% of the Company's
defined excess cash flow, if any. These mandatory prepayments will be applied
first to repay the term loan and then to the permanent reduction of the
revolving
F-13
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt (continued)
loan. In addition, the Company is required to make prepayments on the term and
revolving loans under certain other circumstances, including certain sales of
assets or issuance of debt or equity securities. The agreement contains various
restrictive covenants including a restriction on payment of dividends and
requirements to meet certain financial covenants.
Interest on the senior subordinated notes is payable semiannually. The notes
mature June 2007 and have no scheduled interim payments. The senior subordinated
notes are subordinated in right and payment to the senior bank loans, and are
generally not redeemable at the Company's option prior to June 2002, except in
certain circumstances. Beginning in June 2002, the notes may be redeemed at the
Company's option at 105.25% of principal, declining 1.75% annually to 100% in
June 2005. The related indenture agreement contains various restrictive
covenants, including a restriction on payment of dividends.
The senior subordinated notes are fully and unconditionally guaranteed by
Panther, the Company's wholly-owned subsidiary. Separate financial statements or
summarized financial information for Panther have not been presented since its
operations are inconsequential and its accounts and transactions represent less
than 1% of each of the consolidated total assets, liabilities, equity, net
sales, operating income, and net income of the Company. Management believes that
the separate financial statements and summarized financial information of
Panther are not material to investors.
As of January 2, 1999, aggregate future maturities of long-term debt are as
follows:
<TABLE>
<S> <C>
1999 $ 11,105,324
2000 5,750,000
2001 6,750,000
2002 8,250,000
2003 10,000,000
Thereafter 100,000,000
------------
$141,855,324
============
</TABLE>
F-14
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
5. Commitments
The Company leases transportation equipment, facilities and equipment under
noncancelable operating leases with lease terms of 3 to 8 years. The Company
expects that generally leases will be renewed under renewal options or the
leased assets will be replaced in the normal course of business. Total rental
expense under operating leases was approximately $1,539,000 in 1998, $1,611,000
in 1997 and $1,686,000 in 1996.
Minimum future rental commitments applicable to operating leases at January 2,
1999 are as follows:
<TABLE>
<S> <C>
1999 $ 901,000
2000 699,000
2001 406,000
2002 230,000
2003 165,000
----------
$2,401,000
==========
</TABLE>
In June 1997, the Company entered into a management agreement with an affiliate
of the majority stockholder of Holdings. The agreement requires the Company to
pay $325,000 per year for management services provided, plus certain fees and
expenses. Expense under the management agreement was $325,000 in 1998 and
$176,000 in 1997. In addition, in 1997 Holdings issued a fully-exercisable
warrant (for the purchase of Holdings' common stock) to the management company
in connection with the management agreement. Holdings recorded a charge for the
fair value of the warrant as of the issuance date, and the related expense and
additional paid-in capital of $587,000 was "pushed-down" and reflected in the
1997 financial statements of the Company. Prior to June 1997, the Company
incurred management fees to an affiliate of the former majority stockholder of
Holdings, resulting in expense of approximately $147,000 in 1997 and $350,000 in
1996.
The Company is jointly and severally liable, under a stockholders agreement of
Holdings, for Holdings' obligation to repurchase its common shares and fully
vested stock options held by management stockholders solely in the event of the
death or disability of such stockholders. The management stockholders include 23
individuals representing a total of approximately 4% of Holdings' fully-diluted
common shares. The aggregate repurchase amount of all stock subject to the
repurchase was approximately $3.6 million at January 2, 1999.
F-15
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
6. Income Taxes
Components of income tax expense, including amounts relating to the
extraordinary loss in 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Currently payable (benefit) $1,830,000 $ (207,000) $3,370,000
Deferred expense 1,885,000 1,295,000 1,330,000
Charge equivalent to reduction of
currently payable amount resulting
from income tax benefit credited to
equity 465,000 - -
-------------------------------------------------------
$4,180,000 $1,088,000 $4,700,000
=======================================================
</TABLE>
A reconciliation of income tax expense with the amount computed by applying the
statutory federal income tax rate to pretax income is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Amount based on federal statutory rate $3,685,000 $ 648,000 $4,031,000
State income taxes, net of federal
benefit 506,000 437,000 615,000
Other (11,000) 3,000 54,000
-------------------------------------------------------
Income tax expense $4,180,000 $1,088,000 $4,700,000
=======================================================
</TABLE>
Components of the net deferred tax assets and liability are as follows:
<TABLE>
<CAPTION>
January 2, 1999 December 27, 1997
-------------------------------- ---------------------------------
Current Noncurrent Current Noncurrent
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Goodwill $ - $ 430,000 $ - $ 1,425,000
Accruals and reserves 710,000 - 920,000 -
Stock options and warrants - 230,000 - 510,000
Other 55,000 - 105,000 -
-------------------------------- ---------------------------------
765,000 660,000 1,025,000 1,935,000
Deferred tax liability:
Depreciation - (1,810,000) - (1,460,000)
-------------------------------- ---------------------------------
Net deferred tax asset
(liability) $765,000 $(1,150,000) $1,025,000 $ 475,000
================================ =================================
</TABLE>
F-16
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
7. Employee Benefit Plans
The Company has profit-sharing and 401(k) plans covering substantially all full-
time employees. Under certain plans, the Company makes a matching contribution
equal to 50% of the participant's contribution, up to specified maximum amounts.
In addition, the Company may elect to contribute an additional amount to the
plan at the discretion of the Company's Board of Directors. Expense related to
the plans was $561,000 in 1998, $372,000 in 1997 and $233,000 in 1996.
8. Stock Option Plan
Holdings has an incentive stock option plan pursuant to which key employees may
be granted options to purchase shares of its Class A common stock. Options are
granted at the discretion of the board of directors. Holdings accounts for stock
options in accordance with Accounting Principles Board Opinion No. 25.
Compensation expense relating to Holdings' stock option plan which has been
pushed down and reflected in the financial statements of the Company was
approximately $3,500 in 1998, $4,894,000 in 1997 and $57,000 in 1996.
Under FASB Statement No. 123 (FAS 123), certain pro forma information is
required as if Holdings had accounted for options under the alternative fair
value method of FAS 123. Holdings used a Black-Scholes model to determine the
per share fair value of the options at the grant date. The following assumptions
were used in the valuation:
<TABLE>
<CAPTION>
Risk-free interest rate:
<S> <C>
1998 5.62%
1997 5.71
1996 5.63
Expected dividend yield None
Expected volatility .001
Expected life of options 5 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
at the grant date is amortized to expense over the vesting period of the
options. Pro forma option compensation expense is not indicative of what annual
pro forma expense may be in the future. Pro forma net income of the Company,
assuming the alternative FAS 123 method were used, would be approximately
$6,581,000 in 1998, $629,000 in 1997 and $7,151,000 in 1996.
F-17
<PAGE>
Omega Cabinets, Ltd.
Notes to Consolidated Financial Statements (continued)
9. Stock Redemption
In 1998, Holdings redeemed certain common stock shares and options of departing
management stockholders for aggregate cash consideration of $1,495,237 and a
subordinated note for $855,324. The Company paid the redemption cost to Holdings
and has charged the amount to additional paid-in capital. A related income tax
benefit of $465,000 resulting from the stock redemption was credited to
stockholder's equity.
10. Subsequent Event
On January 29, 1999, the Company acquired all of the outstanding stock of
Kitchen Craft of Canada, Ltd. ("Kitchen Craft"), a leading Canadian manufacturer
of kitchen and bathroom cabinetry. The purchase price of approximately $61
million, including transaction expenses, was financed through additional senior
bank debt of approximately $44 million and equity of approximately $17 million.
F-18
<PAGE>
Omega Cabinets, Ltd.
Schedule II Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Costs and Other Balance at
Description Year Expenses Additions Deductions End of Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 2, 1999
Allowance for doubtful accounts $1,804,000 $ 23,000 $- $338,000 (1) $1,489,000
YEAR ENDED DECEMBER 27, 1997
Allowance for doubtful accounts 1,628,000 362,000 - 186,000 (1) 1,804,000
YEAR ENDED DECEMBER 28, 1996
Allowance for doubtful accounts 1,534,000 357,000 - 263,000 (1) 1,628,000
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
F-19
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT, dated as of January 29,
1999, is made and given by PANTHER TRANSPORT, INC., an Iowa corporation (the
"Grantor"), to U.S. BANK NATIONAL ASSOCIATION, a national banking association,
as collateral agent for the "Lenders" (as defined below) pursuant to the
"Intercreditor Agreement") (as defined below) (in such capacity, the "Secured
Party").
RECITALS
--------
A. The Grantor, together with Omega Cabinets, Inc., a Delaware
corporation ("Omega"), certain other Affiliates, certain financial institutions
(the "Banks") and U.S. Bank National Association, as Agent, have entered into an
Amended and Restated Credit Agreement dated as of January 29, 1999 (as the same
may hereafter be amended, supplemented, extended, restated, or otherwise
modified from time to time, the "USBNA Credit Agreement") pursuant to which the
Banks have agreed to extend to the Grantor certain credit accommodations.
B. Omega has executed and delivered a guaranty (the "CIBC Guaranty")
to the financial institutions party to a Credit Agreement dated as of January
29, 1999 among 3578275 Canada, Inc., as assumed by operation of law in an
amalgamation by Kitchen Craft of Canada, Ltd. ("New Kitchen Craft"), such
financial institutions and Canadian Imperial Bank of Commerce, as Agent (as the
same may hereafter be amended, supplemented, extended, restated or otherwise
modified from time to time, the "CIBC Credit Agreement", and together with the
USBNA Credit Agreement, the "Credit Agreements"), pursuant to which CIBC
Guaranty Omega has guaranteed the obligations of New Kitchen Craft under the
CIBC Credit Agreement.
C. It is a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreements that
this Agreement be executed and delivered by the Grantor.
D. The Grantor finds it advantageous, desirable and in its best
interests to comply with the requirement that it execute and deliver this
Security Agreement to the Secured Party.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to enter into the Credit Agreements and to extend credit
accommodations thereunder, the Grantor hereby agrees with the Secured Party, for
the benefit of the Lenders and the Agent, as follows:
Section 1. Defined Terms.
-------------
<PAGE>
1(a) As used in this Agreement, terms defined above shall have the
meanings given to them and the following terms shall have the meanings
indicated:
"Account" shall mean the rights of the Grantor to payment for goods
-------
sold or leased or for services rendered which is not evidenced by an
Instrument or Chattel Paper, whether or not such right has been earned by
performance, all guaranties and security therefor, and all interests in the
goods the sale or lease of which gave rise thereto, including the right to
stop such goods in transit.
"Account Debtor" shall mean a Person who is obligated on or under any
--------------
Account, Chattel Paper, Instrument or General Intangible.
"Affiliate": When used with reference to any Person, (a) each Person
---------
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially
owns or holds, directly or indirectly, ten percent or more of any class of
voting stock of the Person referred to (or if the Person referred to is not
a corporation, five percent or more of the equity interest), (c) each
Person, ten percent or more of the voting stock (or if such Person is not a
corporation, ten percent or more of the equity interest) of which is
beneficially owned or held, directly or indirectly, by the Person referred
to, and (d) each of such Person's officers, directors, joint venturers and
partners. The term control (including the terms "controlled by" and "under
common control with") means the possession, directly, of the power to
direct or cause the direction of the management and policies of the Person
in question.
"Affiliate Debt" shall mean indebtedness owing to the Grantor from any
--------------
Affiliate.
"Agents" shall mean the "Agent" (as defined in the USBNA Credit
------
Agreement) and the "Agent" (as defined in the CIBC Credit Agreement).
"Chattel Paper" shall mean a writing or writings which evidence both a
-------------
monetary obligation and a security interest in or lease of specific goods;
when a transaction is evidenced by both a security agreement or a lease and
by an Instrument or a series of Instruments, the group of writings taken
together constitutes Chattel Paper.
"Collateral" shall mean all property and rights in property now owned
---------
or hereafter at any time acquired by the Grantor in or upon which a
Security Interest is granted to the Secured Party by the Grantor under this
Agreement.
"Document" shall mean any bill of lading, dock warrant, dock receipt,
--------
warehouse receipt or order for the delivery of goods, together with any
other document or receipt which in the regular course of business or
financing is treated as adequately evidencing
-2-
<PAGE>
that the Person in possession of it is entitled to receive, hold and
dispose of the document and the goods it covers.
"Equipment" shall mean all machinery, equipment, furniture,
---------
furnishings and fixtures, including all accessions, accessories and
attachments thereto, and any guaranties, warranties, indemnities and other
agreements of manufacturers, vendors and others with respect to such
Equipment.
"Event of Default" shall have the meaning given to such term in
---------------
Section 18 hereof.
"Financing Statement" shall have the meaning given to such term in
-------------------
Section 4 hereof.
"General Intangibles" shall mean any personal property (other than
-------------------
goods, Accounts, Chattel Paper, Documents, Instruments and money) including
choses in action, causes of action, contract rights, corporate and other
business records, inventions, designs, patents, patent applications,
service marks, trademarks, tradenames, trade secrets, engineering drawings,
good will, registrations, copyrights, licenses, franchises, customer lists,
tax refund claims, royalties, licensing and product rights, rights to the
retrieval from third parties of electronically processed and recorded data
and all rights to payment resulting from an order of any court.
"Instrument" shall mean a draft, check, certificate of deposit, note,
----------
bill of exchange, security or any other writing which evidences a right to
the payment of money and is not itself a security agreement or lease and is
of a type which is transferred in the ordinary course of business by
delivery with any necessary endorsement or assignment.
"Intercreditor Agreement" means the Intercreditor Agreement dated as
-----------------------
of January 29, 1999 among the Lenders, as the same may hereafter be
amended, supplemented, extended, restated or otherwise modified from time
to time.
"Inventory" shall mean any and all goods owned or held by or for the
---------
account of the Grantor for sale or lease, or for furnishing under a
contract of service, or as raw materials, work in process, materials
incorporated in or consumed in the production of any of the foregoing and
supplies, in each case wherever the same shall be located, whether in
transit, on consignment, in retail outlets, warehouses, terminals or
otherwise, and all property the sale, lease or other disposition of which
has given rise to an Account and which has been returned to the Grantor or
repossessed by the Grantor or stopped in transit.
"Lenders" shall mean, collectively, the "Banks" (as defined in the
-------
USBNA Credit Agreement), and the "Lenders" (as defined in the CIBC Credit
Agreement).
-3-
<PAGE>
"Lien" shall mean any security interest, mortgage, pledge, lien,
----
charge, encumbrance, title retention agreement or analogous instrument or
device (including the interest of the lessors under capitalized leases),
in, of or on any assets or properties of the Person referred to.
"Obligations" shall mean (a) all indebtedness, liabilities and
-----------
obligations of the Grantor to the Lenders and Agents of every kind, nature
or description under the USBNA Credit Agreement, including without
limitation the Grantor's obligation on any promissory note or notes under
the USBNA Credit Agreement and any note or notes hereafter issued in
substitution or replacement thereof and any letter of credit reimbursement
obligations and fees, (b) all liabilities of the Grantor under this
Agreement, and (c) any and all other liabilities and obligations of the
Grantor to the Secured Party, the Lenders and the Agents of every kind,
nature and description, whether direct or indirect or hereafter acquired by
the Secured Party, the Lenders, or the Agents from any Person, absolute or
contingent, regardless of how such liabilities arise or by what agreement
or instrument they may be evidenced, and in all of the foregoing cases
whether due or to become due, and whether now existing or hereafter arising
or incurred.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company or partnership, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary
or other capacity.
"Security Interest" shall have the meaning given such term in Section
-----------------
2 hereof.
1(b) All other terms used in this Agreement which are not
specifically defined herein shall have the meaning assigned to such terms in the
Uniform Commercial Code in effect in the State of Minnesota as of the date of
this Agreement to the extent such other terms are defined therein.
1(c) Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular, the plural and "or"
has the inclusive meaning represented by the phrase "and/or." The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." The words "hereof," "herein," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. References to Sections are
references to Sections in this Security Agreement unless otherwise provided.
Section 2. Grant of Security Interest. As security for the payment
-------------------------
and performance of all of the Obligations, the Grantor hereby grants to the
Secured Party, for the benefit of the Secured Party, the Lenders and the Agents,
a security interest (the "Security Interest") in all of the Grantor's right,
title, and interest in and to the following, whether now or hereafter owned,
existing, arising or acquired and wherever located:
-4-
<PAGE>
2(a) All Accounts.
2(b) All Chattel Paper.
2(c) All Documents.
2(d) All Equipment.
2(e) All General Intangibles, including, without limitation,
Affiliate Debt.
2(f) All Instruments.
2(g) All Inventory.
2(h) To the extent not otherwise included in the foregoing, (i) all
other rights to the payment of money, including rents and other sums
payable to the Grantor under leases, rental agreements and other Chattel
Paper and insurance proceeds; (ii) all books, correspondence, credit files,
records, invoices, bills of lading, and other documents relating to any of
the foregoing, including, without limitation, all tapes, cards, disks,
computer software, computer runs, and other papers and documents in the
possession or control of the Grantor or any computer bureau from time to
time acting for the Grantor; (iii) all rights in, to and under all policies
insuring the life of any officer, director, stockholder or employee of the
Grantor, the proceeds of which are payable to the Grantor; and (iv) all
accessions and additions to, parts and appurtenances of, substitutions for
and replacements of any of the foregoing.
2(i) To the extent not otherwise included, all proceeds and products
of any and all of the foregoing.
Notwithstanding Sections 2(a) through 2(i), the payment and performance of
the Obligations shall not be secured by (i) any Instrument, contract, license or
other agreement, or permit or franchise that validly prohibits the creation by
the Grantor of a security interest in such Instrument, contract, license or
other agreement, permit or franchise (or in any rights or property obtained by
the Grantor under such contract, license or other agreement, or permit or
franchise); provided, however, that nothing in this clause (i) shall apply to
--------
any Account, or (ii) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property prohibits
the creation of a security interest therein. In addition, in the event the
Grantor disposes of assets to third parties in a transaction permitted by
Section 6.2 of the Credit Agreement, such assets, but not the proceeds or
products thereof, shall be released from the Lien of the Security Interest.
-5-
<PAGE>
Section 3. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) the Grantor shall remain liable under the Accounts, Chattel
Paper, General Intangibles and other items included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by the Secured Party of any of the rights hereunder shall not release the
Grantor from any of its duties or obligations under any items included in the
Collateral, and (c) the Secured Party, the Lenders and the Agents shall have no
obligation or liability under Accounts, Chattel Paper, General Intangibles and
other items included in the Collateral by reason of this Agreement, nor shall
the Secured Party, the Lenders or the Agents be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
Section 4. Title to Collateral. The Grantor has (or will have at the
-------------------
time it acquires rights in Collateral hereafter acquired or arising) and will
maintain so long as the Security Interest may remain outstanding, title to each
item of Collateral (including the proceeds and products thereof), free and clear
of all Liens except the Security Interest and except Liens permitted by the
Credit Agreement. The Grantor will defend the Collateral against all claims or
demands of all Persons (other than the Secured Party) claiming the Collateral or
any interest therein. As of the date of execution of this Security Agreement,
no effective financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction (a "Financing
Statement") covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed (a) in favor of the Secured
Party relating to this Agreement, or (b) to perfect Liens permitted by the
Credit Agreement.
Section 5. Disposition of Collateral. The Grantor will not sell,
-------------------------
lease or otherwise dispose of, or discount or factor with or without recourse,
any Collateral, except sales of items of Inventory in the ordinary course of
business and other sales of assets permitted under the Credit Agreement.
Section 6. Names, Offices, Locations. The Grantor does business
-------------------------
solely under its own name and the trade names and styles, if any, set forth on
Schedule II hereto. Except as noted on said Schedule, no such trade names or
styles and no trademarks or other similar marks owned by the Grantor are
registered with any governmental unit. The chief place of business and chief
executive office and the office where it keeps its books and records concerning
the Accounts and General Intangibles and the originals of all Chattel Paper,
Documents and Instruments are located at its address set forth on the signature
page hereof. All items of Equipment and Inventory existing on the date of this
Agreement are located at the places specified on Schedule I hereto. The Grantor
will promptly notify the Secured Party of any additional state in which any item
of Inventory or Equipment is hereafter located. The Grantor will from time to
time at the request of the Secured Party provide the Secured Party with current
lists as to the locations of the Equipment and Inventory. The Grantor will not
permit any Inventory, Equipment, Chattel Paper or Documents or any records
pertaining to Accounts and General Intangibles to be located in any state or
area in which, in the event of such location, a financing statement covering
such
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<PAGE>
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest. The Grantor will not change its name or the
location of its chief place of business and chief executive office or use any
trade name or trade style in any state other than as indicated on Schedule II
unless the Secured Party has been given at least 30 days prior written notice
thereof and the Grantor has executed and delivered to the Secured Party such
Financing Statements and other instruments required or appropriate to continue
the perfection of the Security Interest.
Section 7. Rights to Payment. Except as the Grantor may otherwise
-----------------
advise the Secured Party in writing, to the knowledge of the Grantor, each
Account, Chattel Paper, Document, General Intangible and Instrument constituting
or evidencing Collateral is (or, in the case of all future Collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation of
the Account Debtor or other obligor named therein or in the Grantor's records
pertaining thereto as being obligated to pay or perform such obligation.
Without the Secured Party's prior written consent, the Grantor will not agree to
any modifications, amendments, subordinations, cancellations or terminations of
material obligations of any Account Debtors or other obligors except in the
ordinary course of business. The Grantor will perform and comply in all
material respects with all its obligations under any items included in the
Collateral and exercise promptly and diligently its rights thereunder. The
Grantor does not currently hold any Instrument or Document evidencing amounts
owed to the Grantor by any Subsidiary.
Section 8. Further Assurances; Attorney-in-Fact.
------------------------------------
8(a) The Grantor agrees that from time to time, at its expense,
it will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the Secured
Party may reasonably request, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral (but any failure to request or assure that the
Grantor execute and deliver such instrument or documents or to take such
action shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of
whether any such item was or was not executed and delivered or action taken
in a similar context or on a prior occasion). Without limiting the
generality of the foregoing, the Grantor will, promptly and from time to
time at the request of the Secured Party: (i) mark, or permit the Secured
Party to mark, conspicuously its books, records, and accounts showing or
dealing with the Collateral, and each item of Chattel Paper included in the
Collateral, with a legend, in form and substance reasonably satisfactory to
the Secured Party, indicating that each such item of Collateral and each
such item of Chattel Paper is subject to the Security Interest granted
hereby; (ii) deliver and pledge to the Secured Party, all Instruments and
Documents (specifically including any Instrument or Document evidencing
amounts owed to the Grantor by any Subsidiary), duly indorsed or
accompanied by duly executed instruments of transfer or assignment, with
full recourse to the Grantor, all in form and substance satisfactory to the
Secured Party; (iii)
-7-
<PAGE>
execute and file such Financing Statements or continuation statements in
respect thereof, or amendments thereto, and such other instruments or
notices (including fixture filings with any necessary legal descriptions as
to any goods included in the Collateral which the Secured Party determines
might be deemed to be fixtures, and instruments and notices with respect to
vehicle titles), as may be necessary or desirable, or as the Secured Party
may request, in order to perfect, preserve, and enhance the Security
Interest granted or purported to be granted hereby; and (iv) use reasonable
efforts to obtain waivers, in form satisfactory to the Secured Party, of
any claim to any Collateral from any landlords or mortgagees of any
property where any Inventory or Equipment is located.
8(b) The Grantor hereby authorizes the Secured Party to execute
and file one or more Financing Statements or continuation statements in
respect thereof, and amendments thereto, in the event that the Secured
Party reasonably believes that prompt action would be necessary to protect
its rights in all or any part of the Collateral. The Secured Party may
file such Financing Statements or continuation statements without the
signature of the Grantor where permitted by law. A photocopy or other
reproduction of this Agreement or any Financing Statement covering the
Collateral or any part thereof shall be sufficient as a Financing Statement
where permitted by law.
8(c) The Grantor will furnish to the Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail and in form
and substance reasonably satisfactory to the Secured Party.
Section 9. Taxes and Claims. The Grantor will promptly pay all
----------------
taxes and other governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or continuance of the
Security Interest, as well as all other claims of any kind (including claims for
labor, material and supplies) against or with respect to the Collateral, except
to the extent (a) such taxes, charges or claims are being contested in good
faith by appropriate proceedings, (b) such proceedings do not involve any
material danger of the sale, forfeiture or loss of any of the Collateral or any
interest therein and (c) such taxes, charges or claims are adequately reserved
against on the Grantor's books in accordance with generally accepted accounting
principles.
Section 10. Books and Records. The Grantor will keep and maintain at
-----------------
its own cost and expense satisfactory and complete records of the Collateral,
including a record of all payments received and credits granted with respect to
all Accounts, Chattel Paper and other items included in the Collateral.
Section 11. Inspection, Reports, Verifications. Upon one day's
----------------------------------
advance notice, the Grantor will at all reasonable times during normal business
hours permit the Secured Party or its representatives to examine or inspect any
Collateral, any evidence of Collateral and the
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<PAGE>
Grantor's books and records concerning the Collateral, wherever located. The
Grantor will from time to time when requested by the Secured Party furnish to
the Secured Party a report on its Accounts, Chattel Paper, General Intangibles
and Instruments, naming the Account Debtors or other obligors thereon, the
amount due and the aging thereof. Upon the occurrence and during the continuance
of an Event of Default, the Secured Party or its designee is authorized to
contact Account Debtors and other Persons obligated on any such Collateral from
time to time to verify the existence, amount and/or terms of such Collateral;
provided that nothing in this sentence shall restrict or limit in any manner the
- --------
right of the Secured Party, either Agent or any Lender to contact such Account
Debtors or other Persons during the course of any audit conducted in accordance
with the "Loan Documents" (as defined in the Credit Agreement).
Section 12. Notice of Loss. The Grantor will promptly notify the
--------------
Secured Party of any loss of or material damage to any material item of
Collateral or of any substantial adverse change, known to Grantor, in any
material item of Collateral or the prospect of payment or performance thereof.
Section 13. Insurance. The Grantor will keep the Equipment and
---------
Inventory insured against "all risks" for the full replacement cost thereof
subject to a deductible, and with an insurance company or companies,
satisfactory to the Secured Party, the policies to protect the Secured Party,
the Agents and the Lenders, as their interests may appear, with such policies or
certificates with respect thereto to be delivered to the Secured Party at its
request. Each such policy or the certificate with respect thereto shall provide
that such policy shall not be canceled or allowed to lapse unless at least 30
days prior written notice is given to the Secured Party.
Section 14. Lawful Use; Fair Labor Standards Act. The Grantor will
------------------------------------
use and keep the Collateral, and will require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or
local law, statute or ordinance. All Inventory of the Grantor as of the date of
this Agreement that was produced by the Grantor or with respect to which the
Grantor performed any manufacturing or assembly process was produced by the
Grantor (or such manufacturing or assembly process was conducted) in compliance
in all material respects with all requirements of the Fair Labor Standards Act,
and all Inventory produced, manufactured or assembled by the Grantor after the
date of this Agreement will be so produced, manufactured or assembled, as the
case may be.
Section 15. Action by the Secured Party; Power of Attorney.
----------------------------------------------
Effective upon and during the continuance of an Event of Default, if the Grantor
at any time fails to perform or observe any of the foregoing agreements, the
Secured Party shall have (and the Grantor hereby grants to the Secured Party)
the right, power and authority (but not the duty) to perform or observe such
agreement on behalf and in the name, place and stead of the Grantor (or, at the
Secured Party's option, in the Secured Party's name) and to take any and all
other actions which the Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of Liens, the procurement and maintenance of insurance, the
execution of assignments, security agreements and Financing
-9-
<PAGE>
Statements, and the indorsement of instruments); and the Grantor shall thereupon
pay to the Secured Party on demand the amount of all monies expended and all
reasonable costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Secured Party in connection with or as a result of the
performance or observance of such agreements or the taking of such action by the
Secured Party, together with interest thereon from the date expended or incurred
at the highest lawful rate then applicable to any of the Obligations, and all
such monies expended, costs and expenses and interest thereon shall be part of
the Obligations secured by the Security Interest. The Grantor hereby appoints
the Secured Party the Grantor's attorney-in-fact, with full authority in the
place and stead of such Grantor and in the name of such Grantor or otherwise,
from time to time in the Secured Party's good-faith discretion, to take any
action and to execute any instrument that the Secured Party may reasonably
believe is necessary or advisable to accomplish the purposes of this Agreement,
in a manner consistent with the terms hereof and the terms of the Credit
Agreement, including, without limitation, to receive, indorse and collect all
instruments made payable to the Grantor representing any Collateral or any part
thereof and to give full discharge for the same; provided that the Secured Party
--------
shall not exercise such power of attorney hereunder prior to the occurrence and
continuance of an Event of Default except to the extent necessary to exercise
its rights under Section 8(b) and Section 16 hereof. The Grantor agrees that
the foregoing may be done by the Secured Party in its own name (to the same
extent and with the same force and effect as could have been done by the Grantor
had this Agreement not been made) or in the name of the Grantor. The foregoing
power of attorney is coupled with an interest and is therefore irrevocable by
the Grantor.
Section 16. Insurance Claims. As additional security for the payment
----------------
and performance of the Obligations, the Grantor hereby assigns to the Secured
Party, for the benefit of the Secured Party, the Agents and the Lenders, any and
all monies (including proceeds of insurance and refunds of unearned premiums)
due or to become due under, and all other rights of the Grantor with respect to,
any and all policies of insurance now or at any time hereafter covering the
Collateral or any evidence thereof or any business records or valuable papers
pertaining thereto. The Secured Party may (but need not), in the Secured
Party's name or in Grantor's name, execute and deliver proofs of claim, receive
all such monies, indorse checks and other instruments representing payment of
such monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy (a) for any loss from which insurance proceeds for
such loss are in excess of $100,000 whether or not a Default or Event of Default
has occurred or (b) for any reason upon the occurrence and during the
continuance of any Event of Default. Notwithstanding any of the foregoing, so
long as no Event of Default exists the Grantor shall be entitled to all
insurance proceeds with respect to any of the Collateral; provided that any
--------
proceeds received in respect of Equipment and Inventory are applied to the cost
of replacement of such Equipment or Inventory.
Section 17. The Secured Party's Duties. The powers conferred on the
--------------------------
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Secured
Party shall be deemed to have exercised reasonable care in the safekeeping of
any Collateral in its possession if such Collateral is
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<PAGE>
accorded treatment substantially equal to the safekeeping which the Secured
Party accords its own property of like kind. Except for the safekeeping of any
Collateral in its possession and the accounting for monies and for other
properties actually received by it hereunder, the Secured Party shall have no
duty, as to any Collateral, as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any Persons or any other rights pertaining to any
Collateral. The Secured Party will take action in the nature of exchanges,
conversions, redemptions, tenders and the like requested in writing by the
Grantor with respect to the Collateral in the Secured Party's possession if the
Secured Party in its reasonable judgment determines that such action will not
impair the Security Interest or the value of the Collateral, but a failure of
the Secured Party to comply with any such request shall not of itself be deemed
a failure to exercise reasonable care.
Section 18. Default. Each of the following occurrences shall
-------
constitute an Event of Default under this Agreement: (a) the Grantor shall fail
to observe or perform any covenant or agreement applicable to the Grantor under
this Agreement and such failure to comply shall continue for thirty (30)
calendar days after the earlier to occur of (i) the date the Grantor gives
notice of such failure to the Secured Party, or (ii) the date the Secured Party
gives written notice of such failure to the Grantor; or (b) any representation
or warranty made by the Grantor in this Agreement or any schedule, exhibit,
supplement or attachment hereto or in any reports or certificates heretofore or
at any time hereafter submitted by or on behalf of the Grantor to the Secured
Party shall prove to have been materially false or misleading when made; or (c)
any Event of Default shall occur under either Credit Agreement beyond the
applicable cure period specified therein.
Section 19. Remedies on Default. Upon the occurrence of an Event of
-------------------
Default and at any time thereafter:
19(a) The Secured Party may exercise and enforce any and all
rights and remedies available upon default to a secured party under the
Uniform Commercial Code.
19(b) The Secured Party shall have the right to enter upon and
into and take possession of all or such part or parts of the properties of
the Grantor, including lands, plants, buildings, Equipment, Inventory and
other property as may be necessary or appropriate in the judgment of the
Secured Party to permit or enable the Secured Party to manufacture,
produce, process, store or sell or complete the manufacture, production,
processing, storing or sale of all or any part of the Collateral, as the
Secured Party may elect, and to use and operate said properties for said
purposes and for such length of time as the Secured Party may deem
necessary or appropriate for said purposes without the payment of any
compensation to Grantor therefor. The Secured Party may require the
Grantor to, and the Grantor hereby agrees that it will, at its expense and
upon request of the Secured Party forthwith, assemble all or part of the
Collateral as directed by the
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<PAGE>
Secured Party and make it available to the Secured Party at a place or
places to be designated by the Secured Party.
19(c) Any sale of Collateral may be in one or more parcels at
public or private sale, at any of the Secured Party's offices or elsewhere,
for cash, on credit, or for future delivery, and upon such other terms as
the Secured Party may reasonably believe are commercially reasonable. The
Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given, and the Secured Party may
adjourn any public or private sale from time to time by announcement made
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
19(d) The Secured Party is hereby granted a license or other
right to use, without charge, all of the Grantor's property, including,
without limitation, all of the Grantor's labels, trademarks, copyrights,
patents and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for
sale and selling any Collateral, and the Grantor's rights under all
licenses and all franchise agreements shall inure to the Secured Party's
benefit until the Obligations are paid in full.
19(e) If notice to the Grantor of any intended disposition of
Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given in
the manner specified for the giving of notice in Section 24 hereof at least
ten calendar days prior to the date of intended disposition or other
action, and the Secured Party may exercise or enforce any and all other
rights or remedies available by law or agreement against the Collateral,
against the Grantor, or against any other Person or property.
Section 20. Remedies as to Certain Rights to Payment. Upon the
----------------------------------------
occurrence of an Event of Default and at any time thereafter the Secured Party
may notify any Account Debtor or other Person obligated on any Accounts or other
Collateral that the same have been assigned or transferred to the Secured Party
and that the same should be performed as requested by, or paid directly to, the
Secured Party, as the case may be. The Grantor shall join in giving such
notice, if the Secured Party so requests. The Secured Party may, in the Secured
Party's name or in the Grantor's name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such Collateral or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change the obligation of any
such Account Debtor or other Person. If any payments on any such Collateral are
received by the Grantor after an Event of Default has occurred, such payments
shall be held in trust by the Grantor as the property of the Secured Party and
shall not be commingled with any funds or property of the Grantor and shall be
forthwith remitted to the Secured Party for application on the Obligations.
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<PAGE>
Section 21. Application of Proceeds. All cash proceeds received by
-----------------------
the Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in accordance with the
Intercreditor Agreement, be held by the Secured Party as collateral for, or then
or at any time thereafter be applied in whole or in part by the Secured Party
against, all or any part of the Obligations (including, without limitation, any
expenses of the Secured Party payable pursuant to Section 22 hereof).
Section 22. Costs and Expenses; Indemnity. The Grantor will pay or
-----------------------------
reimburse the Secured Party on demand for all reasonable out-of-pocket expenses
(including in each case all filing and recording fees and taxes and all
reasonable fees and expenses of counsel and of any experts and agents) incurred
by the Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest. The Grantor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
and the Security Interest hereby created (including enforcement of this
Agreement) or the Secured Party's actions pursuant hereto, except claims, losses
or liabilities resulting from the Secured Party's gross negligence or willful
misconduct. Any liability of the Grantor to indemnify and hold the Secured
Party harmless pursuant to the preceding sentence shall be part of the
Obligations secured by the Security Interest. The obligations of the Grantor
under this Section shall survive any termination of this Agreement.
Section 23. Waivers; Remedies; Marshaling. Notwithstanding any
-----------------------------
provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Grantor; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure herefrom by the Grantor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. The Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. Mere delay or failure to act shall not preclude the exercise or
enforcement of any rights and remedies available to the Secured Party. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singly in any order or sequence, or concurrently, at the Secured
Party's option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. To the extent permitted by applicable law, the Grantor hereby waives all
requirements of law, if any, relating to the marshaling of assets which would be
applicable in connection with the enforcement by the Secured Party of its
remedies hereunder, absent this waiver.
Section 24. Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at
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<PAGE>
the address specified pursuant to the applicable Credit Agreement. All periods
of notice shall be measured from the date of delivery thereof if manually
delivered, from the date of sending thereof if sent by telegram, telex or
facsimile transmission, from the first Business Day after the date of sending if
sent by overnight courier, or from three days after the date of mailing if
mailed.
Section 25. Grantor Acknowledgments. The Grantor hereby
-----------------------
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, (b) the Secured Party, the Agents and
the Lenders have no fiduciary relationship to the Grantor, the relationship
being solely that of debtor and creditor, and (c) no joint venture exists
between the Grantor, the Secured Party, the Agents and the Lenders.
Section 26. Continuing Security Interest; Assignments under Credit
------------------------------------------------------
Agreement. This Agreement shall (a) create a continuing security interest in the
- ---------
Collateral and shall remain in full force and effect until payment in full of
the Obligations and the expiration of the obligations, if any, of the Lenders to
extend credit accommodations to the Grantor or New Kitchen Craft, (b) be binding
upon the Grantor, its successors and assigns, and (c) inure to the benefit of
the Lenders and the Agent, and be enforceable by, the Secured Party, and their
respective successors, transferees, and assigns. Without limiting the
generality of the foregoing clause (c), the Lenders or the Agents may assign or
otherwise transfer all or any portion of their rights and obligations under the
Credit Agreements to any other Persons to the extent and in the manner provided
in the Credit Agreements and may similarly transfer all or any portion of their
rights under this Security Agreement to such Persons.
Section 27. Termination of Security Interest. Upon payment in full
--------------------------------
of the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Lenders to extend credit accommodations to the Grantor or Kitchen Craft, the
Security Interest granted hereby shall terminate. Upon any such termination,
the Secured Party will return to the Grantor such of the Collateral then in the
possession of the Secured Party as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
Any reversion or return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Grantor
and shall be without warranty by, or recourse on, the Secured Party. As used in
this Section, "Grantor" includes any assigns of Grantor, any Person holding a
subordinate security interest in any of the Collateral or whoever else may be
lawfully entitled to any part of the Collateral.
Section 28. Affiliate Debt. The Grantor represents and warrants that
--------------
except for the "Kitchen Craft Note" (as defined in the USBNA Credit Agreement),
there are no Instruments evidencing Affiliate Debt in favor of or assigned to
the Grantor. The Grantor hereby covenants and agrees that upon receipt of any
such Instrument, the Grantor shall promptly execute documents, which shall be
satisfactory in form and substance to the Secured Party, and which in any event,
shall not contain any term or provision which prohibits or restricts the
creation by the
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<PAGE>
Grantor of a security interest therein in favor of the Secured Party, which
pledge such Instrument to the Secured Party, for the benefit of the Secured
Party, the Agents and the Lenders, and deliver such documents, together with
such Instrument, to the Secured Party for the purpose of securing payment of the
Obligations.
Section 29. Compliance with Pledge Agreement Covenants. The Grantor
------------------------------------------
shall perform or comply with all covenants made by Omega Holdings, Inc.
("Omega") pertaining to the Grantor in Omega's Pledge Agreement, including but
not limited to the provisions of Section 7(b) of Omega's Pledge Agreement which
prohibit the issuance of stock or other securities in addition to or in
substitution of the "Pledged Shares" (as defined in the Pledge Agreement),
except to the Omega.
SECTION 30. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF MINNESOTA. Whenever possible, each provision of this Agreement and any
other statement, instrument or transaction contemplated hereby or relating
hereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or any other statement, instrument or
transaction contemplated hereby or relating hereto.
SECTION 31. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
-----------------------
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE GRANTOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GRANTOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
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<PAGE>
SECTION 32. WAIVER OF NOTICE AND HEARING. THE GRANTOR HEREBY WAIVES
----------------------------
ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.
SECTION 33. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR AND THE
--------------------
SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 34. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
Section 35. General. All representations and warranties contained in
-------
this Agreement or in any other agreement between the Grantor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations. The Grantor waives notice of
the acceptance of this Agreement by the Secured Party. Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
PANTHER TRANSPORT, INC.
By /s/ ROBERT L. MORAN
--------------------------------
Name ______________________________
Title _____________________________
Address for Grantor:
1205 Peters Drive
Waterloo, Iowa 50703
U.S. BANK NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ MARK R. OLMON
---------------------------
Name _____________________________
Title ____________________________
Address for the Secured Party:
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mark R. Olmon, MPFP0702
Telecopier No.: (612) 973-0825
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<PAGE>
SCHEDULE I
to
Security Agreement
Locations of Equipment and Inventory
as of Date of Security Agreement
[Locations to be provided, including county. Locations not owned by Grantor
should be specified with name of landlord or warehouse.]
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<PAGE>
SCHEDULE II
to
Security Agreement
Trade Names and Trade Styles
[To be provided.]
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<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT, dated as of January 29,
1999, is made and given by OMEGA CABINETS, LTD., a Delaware corporation (the
"Grantor"), to U.S. BANK NATIONAL ASSOCIATION, a national banking association,
as collateral agent for the "Lenders" (as defined below) pursuant to the
"Intercreditor Agreement" (as defined below) (in such capacity, the "Secured
Party").
RECITALS
--------
A. The Grantor, together with certain Affiliates, certain financial
institutions (the "Banks") and U.S. Bank National Association, as Agent, have
entered into an Amended and Restated Credit Agreement dated as of January 29,
1999 (as the same may hereafter be amended, supplemented, extended, restated, or
otherwise modified from time to time, the "USBNA Credit Agreement") pursuant to
which the Banks have agreed to extend to the Grantor certain credit
accommodations.
B. The Grantor has executed and delivered a guaranty (the "CIBC
Guaranty") to the financial institutions party to a Credit Agreement dated as of
January 29, 1999 among 3578275 Canada, Inc., as assumed by operation of law in
an amalgamation by Kitchen Craft of Canada, Ltd. ("New Kitchen Craft"), such
financial institutions and Canadian Imperial Bank of Commerce, as Agent (as the
same may hereafter be amended, supplemented, extended, restated or otherwise
modified from time to time, the "CIBC Credit Agreement", and together with the
USBNA Credit Agreement, the "Credit Agreements"), pursuant to which CIBC
Guaranty the Grantor has guaranteed the obligations of New Kitchen Craft under
the CIBC Credit Agreement.
C. It is a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreements that
this Agreement be executed and delivered by the Grantor.
D. The Grantor finds it advantageous, desirable and in its best
interests to comply with the requirement that it execute and deliver this
Security Agreement to the Secured Party.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to enter into the Credit Agreements and to extend credit
accommodations thereunder, the Grantor hereby agrees with the Secured Party, for
the benefit of the Lenders and the Agent, as follows:
Section 1. Defined Terms.
-------------
<PAGE>
1(a) As used in this Agreement, terms defined above shall have the
meanings given to them and the following terms shall have the meanings
indicated:
"Account" shall mean the rights of the Grantor to payment for goods
-------
sold or leased or for services rendered which is not evidenced by an
Instrument or Chattel Paper, whether or not such right has been earned by
performance, all guaranties and security therefor, and all interests in the
goods the sale or lease of which gave rise thereto, including the right to
stop such goods in transit.
"Account Debtor" shall mean a Person who is obligated on or under any
--------------
Account, Chattel Paper, Instrument or General Intangible.
"Affiliate": When used with reference to any Person, (a) each Person
---------
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially
owns or holds, directly or indirectly, ten percent or more of any class of
voting stock of the Person referred to (or if the Person referred to is not
a corporation, five percent or more of the equity interest), (c) each
Person, ten percent or more of the voting stock (or if such Person is not a
corporation, ten percent or more of the equity interest) of which is
beneficially owned or held, directly or indirectly, by the Person referred
to, and (d) each of such Person's officers, directors, joint venturers and
partners. The term control (including the terms "controlled by" and "under
common control with") means the possession, directly, of the power to
direct or cause the direction of the management and policies of the Person
in question.
"Affiliate Debt" shall mean indebtedness owing to the Grantor from any
--------------
Affiliate.
"Agents" shall mean the "Agent" (as defined in the USBNA Credit
------
Agreement) and the "Agent" (as defined in the CIBC Credit Agreement).
"Chattel Paper" shall mean a writing or writings which evidence both a
-------------
monetary obligation and a security interest in or lease of specific goods;
when a transaction is evidenced by both a security agreement or a lease and
by an Instrument or a series of Instruments, the group of writings taken
together constitutes Chattel Paper.
"Collateral" shall mean all property and rights in property now owned
---------
or hereafter at any time acquired by the Grantor in or upon which a
Security Interest is granted to the Secured Party by the Grantor under this
Agreement.
"Document" shall mean any bill of lading, dock warrant, dock receipt,
--------
warehouse receipt or order for the delivery of goods, together with any
other document or receipt which in the regular course of business or
financing is treated as adequately evidencing
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<PAGE>
that the Person in possession of it is entitled to receive, hold and
dispose of the document and the goods it covers.
"Equipment" shall mean all machinery, equipment, furniture,
---------
furnishings and fixtures, including all accessions, accessories and
attachments thereto, and any guaranties, warranties, indemnities and other
agreements of manufacturers, vendors and others with respect to such
Equipment.
"Event of Default" shall have the meaning given to such term in
---------------
Section 18 hereof.
"Financing Statement" shall have the meaning given to such term in
-------------------
Section 4 hereof.
"General Intangibles" shall mean any personal property (other than
-------------------
goods, Accounts, Chattel Paper, Documents, Instruments and money) including
choses in action, causes of action, contract rights, corporate and other
business records, inventions, designs, patents, patent applications,
service marks, trademarks, tradenames, trade secrets, engineering drawings,
good will, registrations, copyrights, licenses, franchises, customer lists,
tax refund claims, royalties, licensing and product rights, rights to the
retrieval from third parties of electronically processed and recorded data
and all rights to payment resulting from an order of any court.
"Instrument" shall mean a draft, check, certificate of deposit, note,
----------
bill of exchange, security or any other writing which evidences a right to
the payment of money and is not itself a security agreement or lease and is
of a type which is transferred in the ordinary course of business by
delivery with any necessary endorsement or assignment.
"Intercreditor Agreement" means the Intercreditor Agreement dated as
-----------------------
of January 29, 1999 among the Lenders, as the same may hereafter be
amended, supplemented, extended, restated or otherwise modified from time
to time.
"Inventory" shall mean any and all goods owned or held by or for the
---------
account of the Grantor for sale or lease, or for furnishing under a
contract of service, or as raw materials, work in process, materials
incorporated in or consumed in the production of any of the foregoing and
supplies, in each case wherever the same shall be located, whether in
transit, on consignment, in retail outlets, warehouses, terminals or
otherwise, and all property the sale, lease or other disposition of which
has given rise to an Account and which has been returned to the Grantor or
repossessed by the Grantor or stopped in transit.
"Lenders" shall mean, collectively, the "Banks" (as defined in the
-------
USBNA Credit Agreement), and the "Lenders" (as defined in the CIBC Credit
Agreement).
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<PAGE>
"Lien" shall mean any security interest, mortgage, pledge, lien,
----
charge, encumbrance, title retention agreement or analogous instrument or
device (including the interest of the lessors under capitalized leases),
in, of or on any assets or properties of the Person referred to.
"Obligations" shall mean (a) all indebtedness, liabilities and
-----------
obligations of the Grantor to the Lenders and Agents of every kind, nature
or description under the USBNA Credit Agreement or the CIBC Guaranty,
including without limitation the Grantor's obligation on any promissory
note or notes under the USBNA Credit Agreement and any note or notes
hereafter issued in substitution or replacement thereof and any letter of
credit reimbursement obligations and fees, (b) all liabilities of the
Grantor under this Agreement, and (c) any and all other liabilities and
obligations of the Grantor to the Secured Party, the Lenders and the
Agents of every kind, nature and description, whether direct or indirect or
hereafter acquired by the Secured Party, the Lenders, or the Agents from
any Person, absolute or contingent, regardless of how such liabilities
arise or by what agreement or instrument they may be evidenced, and in all
of the foregoing cases whether due or to become due, and whether now
existing or hereafter arising or incurred.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company or partnership, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary
or other capacity.
"Security Interest" shall have the meaning given such term in Section
-----------------
2 hereof.
1(b) All other terms used in this Agreement which are not
specifically defined herein shall have the meaning assigned to such terms in the
Uniform Commercial Code in effect in the State of Minnesota as of the date of
this Agreement to the extent such other terms are defined therein.
1(c) Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular, the plural and "or"
has the inclusive meaning represented by the phrase "and/or." The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." The words "hereof," "herein," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. References to Sections are
references to Sections in this Security Agreement unless otherwise provided.
Section 2. Grant of Security Interest. As security for the payment
-------------------------
and performance of all of the Obligations, the Grantor hereby grants to the
Secured Party, for the benefit of the Secured Party, the Lenders and the Agents,
a security interest (the "Security Interest") in all of the Grantor's right,
title, and interest in and to the following, whether now or hereafter owned,
existing, arising or acquired and wherever located:
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<PAGE>
2(a) All Accounts.
2(b) All Chattel Paper.
2(c) All Documents.
2(d) All Equipment.
2(e) All General Intangibles, including, without limitation,
Affiliate Debt.
2(f) All Instruments.
2(g) All Inventory.
2(h) To the extent not otherwise included in the foregoing, (i) all
other rights to the payment of money, including rents and other sums
payable to the Grantor under leases, rental agreements and other Chattel
Paper and insurance proceeds; (ii) all books, correspondence, credit files,
records, invoices, bills of lading, and other documents relating to any of
the foregoing, including, without limitation, all tapes, cards, disks,
computer software, computer runs, and other papers and documents in the
possession or control of the Grantor or any computer bureau from time to
time acting for the Grantor; (iii) all rights in, to and under all policies
insuring the life of any officer, director, stockholder or employee of the
Grantor, the proceeds of which are payable to the Grantor; and (iv) all
accessions and additions to, parts and appurtenances of, substitutions for
and replacements of any of the foregoing.
2(i) To the extent not otherwise included, all proceeds and products
of any and all of the foregoing.
Notwithstanding Sections 2(a) through 2(i), the payment and performance of
the Obligations shall not be secured by (i) any Instrument, contract, license or
other agreement, or permit or franchise that validly prohibits the creation by
the Grantor of a security interest in such Instrument, contract, license or
other agreement, permit or franchise (or in any rights or property obtained by
the Grantor under such contract, license or other agreement, or permit or
franchise); provided, however, that nothing in this clause (i) shall apply to
--------
any Account, or (ii) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property prohibits
the creation of a security interest therein. In addition, in the event the
Grantor disposes of assets to third parties in a transaction permitted by
Section 6.2 of the Credit Agreement, such assets, but not the proceeds or
products thereof, shall be released from the Lien of the Security Interest.
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<PAGE>
Section 3. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) the Grantor shall remain liable under the Accounts, Chattel
Paper, General Intangibles and other items included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by the Secured Party of any of the rights hereunder shall not release the
Grantor from any of its duties or obligations under any items included in the
Collateral, and (c) the Secured Party, the Lenders and the Agents shall have no
obligation or liability under Accounts, Chattel Paper, General Intangibles and
other items included in the Collateral by reason of this Agreement, nor shall
the Secured Party, the Lenders or the Agents be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
Section 4. Title to Collateral. The Grantor has (or will have at the
-------------------
time it acquires rights in Collateral hereafter acquired or arising) and will
maintain so long as the Security Interest may remain outstanding, title to each
item of Collateral (including the proceeds and products thereof), free and clear
of all Liens except the Security Interest and except Liens permitted by the
Credit Agreement. The Grantor will defend the Collateral against all claims or
demands of all Persons (other than the Secured Party) claiming the Collateral or
any interest therein. As of the date of execution of this Security Agreement,
no effective financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction (a "Financing
Statement") covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed (a) in favor of the Secured
Party relating to this Agreement, or (b) to perfect Liens permitted by the
Credit Agreement.
Section 5. Disposition of Collateral. The Grantor will not sell,
-------------------------
lease or otherwise dispose of, or discount or factor with or without recourse,
any Collateral, except sales of items of Inventory in the ordinary course of
business and other sales of assets permitted under the Credit Agreement.
Section 6. Names, Offices, Locations. The Grantor does business
-------------------------
solely under its own name and the trade names and styles, if any, set forth on
Schedule II hereto. Except as noted on said Schedule, no such trade names or
styles and no trademarks or other similar marks owned by the Grantor are
registered with any governmental unit. The chief place of business and chief
executive office and the office where it keeps its books and records concerning
the Accounts and General Intangibles and the originals of all Chattel Paper,
Documents and Instruments are located at its address set forth on the signature
page hereof. All items of Equipment and Inventory existing on the date of this
Agreement are located at the places specified on Schedule I hereto. The Grantor
will promptly notify the Secured Party of any additional state in which any item
of Inventory or Equipment is hereafter located. The Grantor will from time to
time at the request of the Secured Party provide the Secured Party with current
lists as to the locations of the Equipment and Inventory. The Grantor will not
permit any Inventory, Equipment, Chattel Paper or Documents or any records
pertaining to Accounts and General Intangibles to be located in any state or
area in which, in the event of such location, a financing statement covering
such
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<PAGE>
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest. The Grantor will not change its name or the
location of its chief place of business and chief executive office or use any
trade name or trade style in any state other than as indicated on Schedule II
unless the Secured Party has been given at least 30 days prior written notice
thereof and the Grantor has executed and delivered to the Secured Party such
Financing Statements and other instruments required or appropriate to continue
the perfection of the Security Interest.
Section 7. Rights to Payment. Except as the Grantor may otherwise
-----------------
advise the Secured Party in writing, to the knowledge of the Grantor, each
Account, Chattel Paper, Document, General Intangible and Instrument constituting
or evidencing Collateral is (or, in the case of all future Collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation of
the Account Debtor or other obligor named therein or in the Grantor's records
pertaining thereto as being obligated to pay or perform such obligation.
Without the Secured Party's prior written consent, the Grantor will not agree to
any modifications, amendments, subordinations, cancellations or terminations of
material obligations of any Account Debtors or other obligors except in the
ordinary course of business. The Grantor will perform and comply in all
material respects with all its obligations under any items included in the
Collateral and exercise promptly and diligently its rights thereunder. The
Grantor does not currently hold any Instrument or Document evidencing amounts
owed to the Grantor by any Subsidiary.
Section 8. Further Assurances; Attorney-in-Fact.
------------------------------------
8(a) The Grantor agrees that from time to time, at its expense,
it will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the Secured
Party may reasonably request, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral (but any failure to request or assure that the
Grantor execute and deliver such instrument or documents or to take such
action shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of
whether any such item was or was not executed and delivered or action taken
in a similar context or on a prior occasion). Without limiting the
generality of the foregoing, the Grantor will, promptly and from time to
time at the request of the Secured Party: (i) mark, or permit the Secured
Party to mark, conspicuously its books, records, and accounts showing or
dealing with the Collateral, and each item of Chattel Paper included in the
Collateral, with a legend, in form and substance reasonably satisfactory to
the Secured Party, indicating that each such item of Collateral and each
such item of Chattel Paper is subject to the Security Interest granted
hereby; (ii) deliver and pledge to the Secured Party, all Instruments and
Documents (specifically including any Instrument or Document evidencing
amounts owed to the Grantor by any Subsidiary), duly indorsed or
accompanied by duly executed instruments of transfer or assignment, with
full recourse to the Grantor, all in form and substance satisfactory to the
Secured Party; (iii)
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<PAGE>
execute and file such Financing Statements or continuation statements in
respect thereof, or amendments thereto, and such other instruments or
notices (including fixture filings with any necessary legal descriptions as
to any goods included in the Collateral which the Secured Party determines
might be deemed to be fixtures, and instruments and notices with respect to
vehicle titles), as may be necessary or desirable, or as the Secured Party
may request, in order to perfect, preserve, and enhance the Security
Interest granted or purported to be granted hereby; and (iv) use reasonable
efforts to obtain waivers, in form satisfactory to the Secured Party, of
any claim to any Collateral from any landlords or mortgagees of any
property where any Inventory or Equipment is located.
8(b) The Grantor hereby authorizes the Secured Party to execute
and file one or more Financing Statements or continuation statements in
respect thereof, and amendments thereto, in the event that the Secured
Party reasonably believes that prompt action would be necessary to protect
its rights in all or any part of the Collateral. The Secured Party may
file such Financing Statements or continuation statements without the
signature of the Grantor where permitted by law. A photocopy or other
reproduction of this Agreement or any Financing Statement covering the
Collateral or any part thereof shall be sufficient as a Financing Statement
where permitted by law.
8(c) The Grantor will furnish to the Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail and in form
and substance reasonably satisfactory to the Secured Party.
Section 9. Taxes and Claims. The Grantor will promptly pay all taxes
----------------
and other governmental charges levied or assessed upon or against any Collateral
or upon or against the creation, perfection or continuance of the Security
Interest, as well as all other claims of any kind (including claims for labor,
material and supplies) against or with respect to the Collateral, except to the
extent (a) such taxes, charges or claims are being contested in good faith by
appropriate proceedings, (b) such proceedings do not involve any material danger
of the sale, forfeiture or loss of any of the Collateral or any interest therein
and (c) such taxes, charges or claims are adequately reserved against on the
Grantor's books in accordance with generally accepted accounting principles.
Section 10. Books and Records. The Grantor will keep and maintain at
-----------------
its own cost and expense satisfactory and complete records of the Collateral,
including a record of all payments received and credits granted with respect to
all Accounts, Chattel Paper and other items included in the Collateral.
Section 11. Inspection, Reports, Verifications. Upon one day's
----------------------------------
advance notice, the Grantor will at all reasonable times during normal business
hours permit the Secured Party or its representatives to examine or inspect any
Collateral, any evidence of Collateral and the
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<PAGE>
Grantor's books and records concerning the Collateral, wherever located. The
Grantor will from time to time when requested by the Secured Party furnish to
the Secured Party a report on its Accounts, Chattel Paper, General Intangibles
and Instruments, naming the Account Debtors or other obligors thereon, the
amount due and the aging thereof. Upon the occurrence and during the continuance
of an Event of Default, the Secured Party or its designee is authorized to
contact Account Debtors and other Persons obligated on any such Collateral from
time to time to verify the existence, amount and/or terms of such Collateral;
provided that nothing in this sentence shall restrict or limit in any manner the
- --------
right of the Secured Party, either Agent or any Lender to contact such Account
Debtors or other Persons during the course of any audit conducted in accordance
with the "Loan Documents" (as defined in the Credit Agreement).
Section 12. Notice of Loss. The Grantor will promptly notify the
--------------
Secured Party of any loss of or material damage to any material item of
Collateral or of any substantial adverse change, known to Grantor, in any
material item of Collateral or the prospect of payment or performance thereof.
Section 13. Insurance. The Grantor will keep the Equipment and
---------
Inventory insured against "all risks" for the full replacement cost thereof
subject to a deductible, and with an insurance company or companies,
satisfactory to the Secured Party, the policies to protect the Secured Party,
the Agents and the Lenders, as their interests may appear, with such policies or
certificates with respect thereto to be delivered to the Secured Party at its
request. Each such policy or the certificate with respect thereto shall provide
that such policy shall not be canceled or allowed to lapse unless at least 30
days prior written notice is given to the Secured Party.
Section 14. Lawful Use; Fair Labor Standards Act. The Grantor will
------------------------------------
use and keep the Collateral, and will require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or
local law, statute or ordinance. All Inventory of the Grantor as of the date of
this Agreement that was produced by the Grantor or with respect to which the
Grantor performed any manufacturing or assembly process was produced by the
Grantor (or such manufacturing or assembly process was conducted) in compliance
in all material respects with all requirements of the Fair Labor Standards Act,
and all Inventory produced, manufactured or assembled by the Grantor after the
date of this Agreement will be so produced, manufactured or assembled, as the
case may be.
Section 15. Action by the Secured Party; Power of Attorney.
----------------------------------------------
Effective upon and during the continuance of an Event of Default, if the Grantor
at any time fails to perform or observe any of the foregoing agreements, the
Secured Party shall have (and the Grantor hereby grants to the Secured Party)
the right, power and authority (but not the duty) to perform or observe such
agreement on behalf and in the name, place and stead of the Grantor (or, at the
Secured Party's option, in the Secured Party's name) and to take any and all
other actions which the Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of Liens, the procurement and maintenance of insurance, the
execution of assignments, security agreements and Financing
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<PAGE>
Statements, and the indorsement of instruments); and the Grantor shall thereupon
pay to the Secured Party on demand the amount of all monies expended and all
reasonable costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Secured Party in connection with or as a result of the
performance or observance of such agreements or the taking of such action by the
Secured Party, together with interest thereon from the date expended or incurred
at the highest lawful rate then applicable to any of the Obligations, and all
such monies expended, costs and expenses and interest thereon shall be part of
the Obligations secured by the Security Interest. The Grantor hereby appoints
the Secured Party the Grantor's attorney-in-fact, with full authority in the
place and stead of such Grantor and in the name of such Grantor or otherwise,
from time to time in the Secured Party's good-faith discretion, to take any
action and to execute any instrument that the Secured Party may reasonably
believe is necessary or advisable to accomplish the purposes of this Agreement,
in a manner consistent with the terms hereof and the terms of the Credit
Agreement, including, without limitation, to receive, indorse and collect all
instruments made payable to the Grantor representing any Collateral or any part
thereof and to give full discharge for the same; provided that the Secured Party
--------
shall not exercise such power of attorney hereunder prior to the occurrence and
continuance of an Event of Default except to the extent necessary to exercise
its rights under Section 8(b) and Section 16 hereof. The Grantor agrees that
the foregoing may be done by the Secured Party in its own name (to the same
extent and with the same force and effect as could have been done by the Grantor
had this Agreement not been made) or in the name of the Grantor. The foregoing
power of attorney is coupled with an interest and is therefore irrevocable by
the Grantor.
Section 16. Insurance Claims. As additional security for the payment
----------------
and performance of the Obligations, the Grantor hereby assigns to the Secured
Party, for the benefit of the Secured Party, the Agents and the Lenders, any and
all monies (including proceeds of insurance and refunds of unearned premiums)
due or to become due under, and all other rights of the Grantor with respect to,
any and all policies of insurance now or at any time hereafter covering the
Collateral or any evidence thereof or any business records or valuable papers
pertaining thereto. The Secured Party may (but need not), in the Secured
Party's name or in Grantor's name, execute and deliver proofs of claim, receive
all such monies, indorse checks and other instruments representing payment of
such monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy (a) for any loss from which insurance proceeds for
such loss are in excess of $100,000 whether or not a Default or Event of Default
has occurred or (b) for any reason upon the occurrence and during the
continuance of any Event of Default. Notwithstanding any of the foregoing, so
long as no Event of Default exists the Grantor shall be entitled to all
insurance proceeds with respect to any of the Collateral; provided that any
--------
proceeds received in respect of Equipment and Inventory are applied to the cost
of replacement of such Equipment or Inventory.
Section 17. The Secured Party's Duties. The powers conferred on the
--------------------------
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Secured
Party shall be deemed to have exercised reasonable care in the safekeeping of
any Collateral in its possession if such Collateral is
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<PAGE>
accorded treatment substantially equal to the safekeeping which the Secured
Party accords its own property of like kind. Except for the safekeeping of any
Collateral in its possession and the accounting for monies and for other
properties actually received by it hereunder, the Secured Party shall have no
duty, as to any Collateral, as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any Persons or any other rights pertaining to any
Collateral. The Secured Party will take action in the nature of exchanges,
conversions, redemptions, tenders and the like requested in writing by the
Grantor with respect to the Collateral in the Secured Party's possession if the
Secured Party in its reasonable judgment determines that such action will not
impair the Security Interest or the value of the Collateral, but a failure of
the Secured Party to comply with any such request shall not of itself be deemed
a failure to exercise reasonable care.
Section 18. Default. Each of the following occurrences shall
-------
constitute an Event of Default under this Agreement: (a) the Grantor shall fail
to observe or perform any covenant or agreement applicable to the Grantor under
this Agreement and such failure to comply shall continue for thirty (30)
calendar days after the earlier to occur of (i) the date the Grantor gives
notice of such failure to the Secured Party, or (ii) the date the Secured Party
gives written notice of such failure to the Grantor; or (b) any representation
or warranty made by the Grantor in this Agreement or any schedule, exhibit,
supplement or attachment hereto or in any reports or certificates heretofore or
at any time hereafter submitted by or on behalf of the Grantor to the Secured
Party shall prove to have been materially false or misleading when made; or (c)
any Event of Default shall occur under either Credit Agreement beyond the
applicable cure period specified therein.
Section 19. Remedies on Default. Upon the occurrence of an Event of
-------------------
Default and at any time thereafter:
19(a) The Secured Party may exercise and enforce any and all
rights and remedies available upon default to a secured party under the
Uniform Commercial Code.
19(b) The Secured Party shall have the right to enter upon and
into and take possession of all or such part or parts of the properties of
the Grantor, including lands, plants, buildings, Equipment, Inventory and
other property as may be necessary or appropriate in the judgment of the
Secured Party to permit or enable the Secured Party to manufacture,
produce, process, store or sell or complete the manufacture, production,
processing, storing or sale of all or any part of the Collateral, as the
Secured Party may elect, and to use and operate said properties for said
purposes and for such length of time as the Secured Party may deem
necessary or appropriate for said purposes without the payment of any
compensation to Grantor therefor. The Secured Party may require the
Grantor to, and the Grantor hereby agrees that it will, at its expense and
upon request of the Secured Party forthwith, assemble all or part of the
Collateral as directed by the
-11-
<PAGE>
Secured Party and make it available to the Secured Party at a place or
places to be designated by the Secured Party.
19(c) Any sale of Collateral may be in one or more parcels at
public or private sale, at any of the Secured Party's offices or elsewhere,
for cash, on credit, or for future delivery, and upon such other terms as
the Secured Party may reasonably believe are commercially reasonable. The
Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given, and the Secured Party may
adjourn any public or private sale from time to time by announcement made
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
19(d) The Secured Party is hereby granted a license or other
right to use, without charge, all of the Grantor's property, including,
without limitation, all of the Grantor's labels, trademarks, copyrights,
patents and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for
sale and selling any Collateral, and the Grantor's rights under all
licenses and all franchise agreements shall inure to the Secured Party's
benefit until the Obligations are paid in full.
19(e) If notice to the Grantor of any intended disposition of
Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given in
the manner specified for the giving of notice in Section 24 hereof at least
ten calendar days prior to the date of intended disposition or other
action, and the Secured Party may exercise or enforce any and all other
rights or remedies available by law or agreement against the Collateral,
against the Grantor, or against any other Person or property.
Section 20. Remedies as to Certain Rights to Payment. Upon the
----------------------------------------
occurrence of an Event of Default and at any time thereafter the Secured Party
may notify any Account Debtor or other Person obligated on any Accounts or other
Collateral that the same have been assigned or transferred to the Secured Party
and that the same should be performed as requested by, or paid directly to, the
Secured Party, as the case may be. The Grantor shall join in giving such
notice, if the Secured Party so requests. The Secured Party may, in the Secured
Party's name or in the Grantor's name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such Collateral or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change the obligation of any
such Account Debtor or other Person. If any payments on any such Collateral are
received by the Grantor after an Event of Default has occurred, such payments
shall be held in trust by the Grantor as the property of the Secured Party and
shall not be commingled with any funds or property of the Grantor and shall be
forthwith remitted to the Secured Party for application on the Obligations.
-12-
<PAGE>
Section 21. Application of Proceeds. All cash proceeds received by
-----------------------
the Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in accordance with the
Intercreditor Agreement, be held by the Secured Party as collateral for, or then
or at any time thereafter be applied in whole or in part by the Secured Party
against, all or any part of the Obligations (including, without limitation, any
expenses of the Secured Party payable pursuant to Section 22 hereof).
Section 22. Costs and Expenses; Indemnity. The Grantor will pay or
-----------------------------
reimburse the Secured Party on demand for all reasonable out-of-pocket expenses
(including in each case all filing and recording fees and taxes and all
reasonable fees and expenses of counsel and of any experts and agents) incurred
by the Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest. The Grantor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
and the Security Interest hereby created (including enforcement of this
Agreement) or the Secured Party's actions pursuant hereto, except claims, losses
or liabilities resulting from the Secured Party's gross negligence or willful
misconduct. Any liability of the Grantor to indemnify and hold the Secured
Party harmless pursuant to the preceding sentence shall be part of the
Obligations secured by the Security Interest. The obligations of the Grantor
under this Section shall survive any termination of this Agreement.
Section 23. Waivers; Remedies; Marshaling. Notwithstanding any
-----------------------------
provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Grantor; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure herefrom by the Grantor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. The Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. Mere delay or failure to act shall not preclude the exercise or
enforcement of any rights and remedies available to the Secured Party. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singly in any order or sequence, or concurrently, at the Secured
Party's option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. To the extent permitted by applicable law, the Grantor hereby waives all
requirements of law, if any, relating to the marshaling of assets which would be
applicable in connection with the enforcement by the Secured Party of its
remedies hereunder, absent this waiver.
Section 24. Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at
-13-
<PAGE>
the address specified pursuant to the applicable Credit Agreement. All periods
of notice shall be measured from the date of delivery thereof if manually
delivered, from the date of sending thereof if sent by telegram, telex or
facsimile transmission, from the first Business Day after the date of sending if
sent by overnight courier, or from three days after the date of mailing if
mailed.
Section 25. Grantor Acknowledgments. The Grantor hereby
-----------------------
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, (b) the Secured Party, the Agents and
the Lenders have no fiduciary relationship to the Grantor, the relationship
being solely that of debtor and creditor, and (c) no joint venture exists
between the Grantor, the Secured Party, the Agents and the Lenders.
Section 26. Continuing Security Interest; Assignments under Credit
------------------------------------------------------
Agreement. This Agreement shall (a) create a continuing security interest in the
- ---------
Collateral and shall remain in full force and effect until payment in full of
the Obligations and the expiration of the obligations, if any, of the Lenders to
extend credit accommodations to the Grantor or New Kitchen Craft, (b) be binding
upon the Grantor, its successors and assigns, and (c) inure to the benefit of
the Lenders and the Agent, and be enforceable by, the Secured Party, and their
respective successors, transferees, and assigns. Without limiting the
generality of the foregoing clause (c), the Lenders or the Agents may assign or
otherwise transfer all or any portion of their rights and obligations under the
Credit Agreements to any other Persons to the extent and in the manner provided
in the Credit Agreements and may similarly transfer all or any portion of their
rights under this Security Agreement to such Persons.
Section 27. Termination of Security Interest. Upon payment in full
--------------------------------
of the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Lenders to extend credit accommodations to the Grantor or Kitchen Craft, the
Security Interest granted hereby shall terminate. Upon any such termination,
the Secured Party will return to the Grantor such of the Collateral then in the
possession of the Secured Party as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
Any reversion or return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Grantor
and shall be without warranty by, or recourse on, the Secured Party. As used in
this Section, "Grantor" includes any assigns of Grantor, any Person holding a
subordinate security interest in any of the Collateral or whoever else may be
lawfully entitled to any part of the Collateral.
Section 28. Affiliate Debt. The Grantor represents and warrants that
--------------
except for the "Kitchen Craft Note" (as defined in the USBNA Credit Agreement),
there are no Instruments evidencing Affiliate Debt in favor of or assigned to
the Grantor. The Grantor hereby covenants and agrees that upon receipt of any
such Instrument, the Grantor shall promptly execute documents, which shall be
satisfactory in form and substance to the Secured Party, and which in any event,
shall not contain any term or provision which prohibits or restricts the
creation by the
-14-
<PAGE>
Grantor of a security interest therein in favor of the Secured Party, which
pledge such Instrument to the Secured Party, for the benefit of the Secured
Party, the Agents and the Lenders, and deliver such documents, together with
such Instrument, to the Secured Party for the purpose of securing payment of the
Obligations.
Section 29. Compliance with Pledge Agreement Covenants. The Grantor
------------------------------------------
shall perform or comply with all covenants made by Omega Holdings, Inc.
("Omega") pertaining to the Grantor in Omega's Pledge Agreement, including but
not limited to the provisions of Section 7(b) of Omega's Pledge Agreement which
prohibit the issuance of stock or other securities in addition to or in
substitution of the "Pledged Shares" (as defined in the Pledge Agreement),
except to the Omega.
SECTION 30. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF MINNESOTA. Whenever possible, each provision of this Agreement and
any other statement, instrument or transaction contemplated hereby or relating
hereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or any other statement, instrument or
transaction contemplated hereby or relating hereto.
SECTION 31. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
-----------------------
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE GRANTOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GRANTOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
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<PAGE>
SECTION 32. WAIVER OF NOTICE AND HEARING. THE GRANTOR HEREBY WAIVES
----------------------------
ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.
SECTION 33. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR AND THE
--------------------
SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 34. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
Section 35. General. All representations and warranties contained in
-------
this Agreement or in any other agreement between the Grantor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations. The Grantor waives notice of
the acceptance of this Agreement by the Secured Party. Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
OMEGA CABINETS, LTD.
By /s/ ROBERT MORAN
-------------------------------
Name _____________________________
Title ____________________________
Address for Grantor:
1205 Peters Drive
Waterloo, Iowa 50703
U.S. BANK NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ MARK R. OLMON
-------------------------------
Name _____________________________
Title ____________________________
Address for the Secured Party:
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mark R. Olmon, MPFP0702
Telecopier No.: (612) 973-0825
-17-
<PAGE>
SCHEDULE I
to
Security Agreement
Locations of Equipment and Inventory
as of Date of Security Agreement
[Locations to be provided, including county. Locations not owned by Grantor
should be specified with name of landlord or warehouse.]
-18-
<PAGE>
SCHEDULE II
to
Security Agreement
Trade Names and Trade Styles
[To be provided.]
-19-
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED
PLEDGE AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of January 29,
1999 is made and given by OMEGA CABINETS, LTD., a Delaware corporation (the
"Pledgor"), to U.S. BANK NATIONAL ASSOCIATION, a national banking association,
as collateral agent for the "Lenders" (as defined below) pursuant to the
"Intercreditor Agreement" (as defined below) (in such capacity, the "Secured
Party").
RECITALS
--------
A. The Pledgor, together with certain Affiliates, certain financial
institutions (the "Banks") and U.S. Bank National Association, as Agent, have
entered into an Amended and Restated Credit Agreement dated as of January 29,
1999 (as the same may hereafter be amended, restated, or otherwise modified from
time to time, the "USBNA Credit Agreement") pursuant to which the Banks have
agreed to extend to the Pledgor certain credit accommodations.
B. The Pledgor has executed and delivered a guaranty (the "CIBC
Guaranty") to the financial institutions party to a Credit Agreement dated as of
January 29, 1999 among 3578275 Canada, Inc., as assumed by operation of law in
an amalgamation by Kitchen Craft of Canada, Ltd. ("New Kitchen Craft"), such
financial institutions and Canadian Imperial Bank of Commerce, as Agent (as the
same may hereafter be amended, supplemented, extended, restated or otherwise
modified from time to time, the "CIBC Credit Agreement", and together with the
USBNA Credit Agreement, the "Credit Agreements"), pursuant to which CIBC
Guaranty the Pledgor has guaranteed the obligations of New Kitchen Craft under
the CIBC Credit Agreement.
C. The Pledgor is the owner of the shares (the "Pledged Shares") of
stock described in Part I of Schedule I hereto issued by the corporation or
corporations named therein.
D. The Pledgor is the holder of the Kitchen Craft Note (as defined
herein) in the initial principal amount of C$25,000,000 dated as of the date
hereof, made by New Kitchen Craft and payable to the Pledgor.
E. It is a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreements that
this Agreement be executed and delivered by the Pledgor.
<PAGE>
F. The Pledgor finds it advantageous, desirable and in the best
interests of the Pledgor to comply with the requirement that this Agreement be
executed and delivered to the Secured Party.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to enter into the Credit Agreements and to extend credit
accommodations thereunder, the Pledgor hereby agrees with the Secured Party, for
the benefit of the Lenders and the Agents, as follows:
Section 1. Defined Terms.
-------------
1(a) As used in this Agreement, the following terms shall have the
meanings indicated:
"Agent" shall mean the "Agent" (as defined in the USBNA Credit
-----
Agreement) or the "Agent" (as defined in the CIBC Credit Agreement).
"CIBC Guaranty" shall have the meaning given to such term in Recital
-------------
B.
"Collateral" shall have the meaning given to such term in Section 2.
----------
"Credit Agreements" shall have the meaning given in Recital B.
-----------------
"Event of Default" shall have the meaning given to such term in
----------------
Section 11.
"Intercreditor Agreement" shall mean the Intercreditor Agreement dated
-----------------------
as of January 29, 1999 among the Lenders, as the same may be amended,
supplemented, extended, restated or otherwise modified from time to time.
"Kitchen Craft": shall have the meaning given to such term in Recital
-------------
C.
"Kitchen Craft Note" shall have the meaning given to such term in
------------------
Recital C.
"Lenders" shall mean, collectively, the "Banks" (as defined in the
-------
USBNA Credit Agreement) and the "Lenders" (as defined in the CIBC Credit
Agreement).
"Lien" shall mean any security interest, mortgage, pledge, lien,
----
charge, encumbrance, title retention agreement or analogous instrument or device
(including the interest of the lessors under capitalized leases), in, of or on
any assets or properties of the Person referred to.
"Obligations" shall mean all indebtedness, liabilities and obligations
-----------
of the Pledgor to the Lenders and the Agents of every kind, nature or
description under the USBNA
-2-
<PAGE>
Credit Agreement or the CIBC Guaranty, including without limitation the
Pledgor's obligation on any promissory note or notes under the USBNA Credit
Agreement and any note or notes hereafter issued in substitution or replacement
thereof and any letter of credit reimbursement obligations and fees, and in all
of the foregoing cases whether due or to become due, and whether now existing or
hereafter arising or incurred.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company or partnership, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.
"Pledgor" shall have the meaning given to such term in the Preamble.
-------
"Pledged Shares" shall have the meaning given to such term in Recital
--------------
B above.
"Secured Party" shall have the meaning given to such term in the
-------------
Preamble.
"Security Interest" shall have the meaning given to such term in
-----------------
Section 2.
1(b) Terms Defined in Uniform Commercial Code. All other terms used
----------------------------------------
in this Agreement that are not specifically defined herein or the definitions of
which are not incorporated herein by reference shall have the meaning assigned
to such terms in the Uniform Commercial Code in effect in the State of Minnesota
as of the date first above written to the extent such other terms are defined
therein.
1(c) Singular/Plural, Etc. Unless the context of this Agreement
--------------------
otherwise clearly requires, references to the plural include the singular, the
singular, the plural and "or" has the inclusive meaning represented by the
phrase "and/or." The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation." The words "hereof,"
"herein," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
References to Sections are references to Sections in this Pledge Agreement
unless otherwise provided.
Section 2. Pledge and Assignment. As security for the payment and
---------------------
performance of all of the Obligations, the Pledgor hereby pledges to the Secured
Party, for the benefit of the Secured Party, the Agents and the Lenders, and
grants to the Secured Party a security interest, for the benefit of the Secured
Party, the Agents and the Lenders (the "Security Interest"), in the following
(the "Collateral"):
2(a) The Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the Pledged Shares.
-3-
<PAGE>
2(b) All additional shares of stock of any issuer of the Pledged
Shares from time to time acquired by the Pledgor in any manner, and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares.
2(c) The Kitchen Craft Note.
2(d) All additional instruments evidencing any obligations of
New Kitchen Craft to Pledgor from time to time acquired by the Pledgor in
any manner.
2(e) All proceeds of any and all of the foregoing (including
proceeds that constitute property of types described above).
Notwithstanding Sections 2(a), (b), (c), (d) and (e) above, the payment and
performance of the Obligations shall not be secured by more than sixty-six
percent (66%) of the outstanding stock or other equity interests in any foreign
corporation.
Section 3. Delivery of Collateral. All certificates and instruments
----------------------
representing or evidencing the Pledged Shares shall be delivered to the Secured
Party contemporaneously with the execution of this Agreement. All certificates
and instruments representing or evidencing Collateral received by the Pledgor
after the execution of this Agreement shall be delivered to the Secured Party
promptly upon the Pledgor's receipt thereof. All such certificates and
instruments shall be held by or on behalf of the Secured Party pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Secured Party. The Secured Party shall have the
right at any time, whether before or after an Event of Default, to cause any or
all of the Collateral to be transferred of record into the name of the Secured
Party or its nominee (but subject to the rights of the Pledgor under Section 6)
and to exchange certificates representing or evidencing Collateral for
certificates of smaller or larger denominations. Notwithstanding any of the
foregoing, as to any Collateral consisting of book-entry or uncertificated
securities or securities which are held by a third Person, the Pledgor shall
deliver to the Secured Party evidence satisfactory to the Secured Party that
such Collateral has been registered in the name of, or as pledged to, the
Secured Party. Such evidence shall include the acknowledgment of the issuer or
Person holding such Collateral that such issuer or Person holds such Collateral
as agent for the Secured Party and that such Collateral is identified on the
books of such issuer or third Person as belonging to or pledged to the Secured
Party.
Section 4. Certain Warranties and Covenants. The Pledgor makes the
--------------------------------
following warranties and covenants:
4(a) The Pledgor has title to the Pledged Shares and will have
title to each other item of Collateral hereafter acquired, free of all
Liens except the Security Interest.
-4-
<PAGE>
4(b) The Pledgor has full power and authority to execute this
Pledge Agreement, to perform the Pledgor's obligations hereunder and to
subject the Collateral to the Security Interest created hereby.
4(c) No financing statement covering all or any part of the
Collateral is on file in any public office (except for any financing
statements filed by the Secured Party.
4(d) The Pledged Shares have been duly authorized and validly
issued by the issuer thereof and are fully paid and non-assessable. The
Pledged Shares are not subject to any offset or similar right or claim of
the issuers thereof.
4(e) The Pledged Shares constitute the percentage of the issued
and outstanding shares of stock of the respective issuers thereof indicated
on Schedule I (if any such percentage is so indicated).
Section 5. Further Assurances. The Pledgor agrees that at any time
------------------
and from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that may be necessary or that the Secured Party may reasonably request,
in order to perfect and protect the Security Interest or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Collateral (but any failure to request or assure that the Pledgor execute
and deliver such instruments or documents or to take such action shall not
affect or impair the validity, sufficiency or enforceability of this Agreement
and the Security Interest, regardless of whether any such item was or was not
executed and delivered or action taken in a similar context or on a prior
occasion).
Section 6. Voting Rights; Dividends; Etc.
-----------------------------
6(a) Subject to paragraph (d) of this Section 6, the Pledgor
shall be entitled to exercise or refrain from exercising any and all voting
and other consensual rights pertaining to the Pledged Shares or any other
stock that becomes part of the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Credit
Agreement; provided, however, that the Pledgor shall not exercise or
refrain from exercising any such right if such action could reasonably be
expected to have a material adverse effect on the value of the Collateral
or any material part thereof.
6(b) Subject to paragraph (e) of this Section 6, the Pledgor
shall be entitled to receive, retain, and use in any manner not prohibited
by the Credit Agreement any and all interest and dividends paid in respect
of the Collateral; provided, however, that any and all
-------- -------
-5-
<PAGE>
(i) dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Collateral,
(ii) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to the Secured Party to hold as,
Collateral and shall, if received by the Pledgor, be received in trust for
the benefit of the Secured Party, be segregated from the other property or
funds of the Pledgor, and be forthwith delivered to the Secured Party as
Collateral in the same form as so received (with any necessary indorsement
or assignment). The Pledgor shall, upon request by the Secured Party,
promptly execute all such documents and do all such acts as may be
necessary or desirable to give effect to the provisions of this Section 6
(b).
6(c) The Secured Party shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to Section 6 (a) hereof and to receive the
dividends and interest that it is authorized to receive and retain pursuant
to Section 6 (b) hereof.
6(d) Upon the occurrence and during the continuance of any Event
of Default, the Secured Party shall have the right in its sole discretion,
and the Pledgor shall execute and deliver all such proxies and other
instruments as may be necessary or appropriate to give effect to such
right, to terminate all rights of the Pledgor to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 6 (a) hereof, and all such
rights shall thereupon become vested in the Secured Party who shall
thereupon have the sole right to exercise or refrain from exercising such
voting and other consensual rights; provided, however, that the Secured
Party shall not be deemed to possess or have control over any voting rights
with respect to any Collateral unless and until the Secured Party has given
written notice to the Pledgor that any further exercise of such voting
rights by the Pledgor is prohibited and that the Secured Party and/or its
assigns will henceforth exercise such voting rights; and provided, further,
that neither the registration of any item of Collateral in the Secured
Party's name nor the exercise of any voting rights with respect thereto
shall be deemed to constitute a retention by the Secured Party of any such
Collateral in satisfaction of the Obligations or any part thereof.
-6-
<PAGE>
6(e) Upon the occurrence and during the continuance of any Event
of Default:
(i) all rights of the Pledgor to receive the dividends and interest
that it would otherwise be authorized to receive and retain pursuant
to Section 6(b) hereof shall cease, and all such rights shall
thereupon become vested in the Secured Party who shall thereupon have
the sole right to receive and hold such dividends as Collateral, and
(ii) all payments of interest and dividends that are received by the
Pledgor contrary to the provisions of paragraph (i) of this Section 6
(e) shall be received in trust for the benefit of the Lenders and the
Secured Party, shall be segregated from other funds of the Pledgor and
shall be forthwith paid over to the Secured Party as Collateral in the
same form as so received (with any necessary indorsement).
Section 7. Transfers and Other Liens; Additional Shares.
--------------------------------------------
7(a) Except as may be permitted by the Credit Agreement, the
Pledgor agrees that it will not (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, or (ii) create or permit to exist any Lien, upon or
with respect to any of the Collateral.
7(b) The Pledgor agrees that it will (i) cause each issuer of
the Pledged Shares that it controls not to issue any stock or other
securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to the Pledgor, and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and
all additional shares of stock or other securities of each issuer of the
Pledged Shares.
Section 8. Secured Party Appointed Attorney-in-Fact. Effective upon
---------------------------------------
and during the continuance of an Event of Default, the Pledgor hereby appoints
the Secured Party the Pledgor's attorney-in-fact, with full authority in the
place and stead of such Pledgor and in the name of such Pledgor or otherwise,
from time to time in the Secured Party's good-faith discretion, to take any
action and to execute any instrument that the Secured Party may reasonably
believe necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of the Pledgor under Section 6 hereof), in a manner
consistent with the terms hereof, including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor representing any
dividend or other distribution in respect of the Collateral or any part thereof
and to give full discharge for the same.
Section 9. Secured Party May Perform. Upon the occurrence and during
-------------------------
the continuance of an Event of Default, if the Pledgor fails to perform any
agreement contained herein, the Secured Party may itself perform, or cause
performance of, such agreement, and the
-7-
<PAGE>
reasonable expenses of the Secured Party incurred in connection therewith shall
be payable by the Pledgor under Section 14 hereof.
Section 10. The Secured Party's Duties. The powers conferred on the
--------------------------
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Secured
Party shall be deemed to have exercised reasonable care in the safekeeping of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to the safekeeping which the Secured Party accords its own
property of like kind. Except for the safekeeping of any Collateral in its
possession and the accounting for monies and for other properties actually
received by it hereunder, the Secured Party shall have no duty, as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Secured Party has or is deemed to have knowledge
of such matters, or as to the taking of any necessary steps to preserve rights
against any Persons or any other rights pertaining to any Collateral. The
Secured Party will take action in the nature of exchanges, conversions,
redemption, tenders and the like requested in writing by the Pledgor with
respect to any of the Collateral in the Secured Party's possession if the
Secured Party in its reasonable judgment determines that such action will not
impair the Security Interest or the value of the Collateral, but a failure of
the Secured Party to comply with any such request shall not of itself be deemed
a failure to exercise reasonable care.
Section 11. Default. Each of the following occurrences shall
-------
constitute an Event of Default under this Agreement: (a) the Pledgor shall fail
to observe or perform any covenant or agreement applicable to the Pledgor under
this Agreement within fifteen (15) days after the earlier to occur of (i) the
date the Pledgor gives notice of such failure to the Secured Party, or (ii) the
date the Secured Party gives notice of such failure to the Pledgor; or (b) any
representation or warranty made by the Pledgor in this Agreement or in any
financial statements, reports or certificates heretofore or at any time
hereafter submitted by or on behalf of the Pledgor to the Secured Party shall
prove to have been false or materially misleading when made; or (c) any Event of
Default shall occur under either Credit Agreement (beyond the applicable cure
period specified therein).
Section 12. Remedies upon Default. If any Event of Default shall
---------------------
have occurred and be continuing:
12(a) The Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
on default under the Uniform Commercial Code of the State of Minnesota (the
"Code") in effect at that time (whether or not the Code then applies to the
affected Collateral), and may, without notice except as specified below,
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Secured
Party's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the
-8-
<PAGE>
Secured Party may reasonably believe are commercially reasonable. The
Pledgor agrees that, to the extent notice of sale shall be required by law,
at least ten days' prior notice to the Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned. To the extent permitted by applicable law, the
Pledgor hereby waives all requirements of law, if any, relating to the
marshalling of assets which would be applicable in connection with the
enforcement by the Secured Party of its remedies hereunder, absent this
waiver.
12(b) The Secured Party may notify any Person obligated on any
of the Collateral that the same has been assigned or transferred to the
Secured Party and that the same should be performed as requested by, or
paid directly to, the Secured Party, as the case may be. The Pledgor shall
join in giving such notice, if the Secured Party so requests. The Secured
Party may, in the Secured Party's name or in the Pledgor's name, demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such Collateral or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligation of any such Person.
12(c) Any cash held by the Secured Party as Collateral and all
cash proceeds received by the Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in accordance with the Intercreditor Agreement, be held by
the Secured Party as collateral for, or then or at any time thereafter be
applied in whole or in part by the Secured Party against, all or any part
of the Obligations (including any expenses of the Secured Party payable
pursuant to Section 14 hereof).
Section 13. Waiver of Certain Claims. The Pledgor acknowledges that
------------------------
because of present or future circumstances, a question may arise under the
Securities Act of 1933, as from time to time amended (the "Securities Act"),
with respect to any disposition of the Collateral permitted hereunder. The
Pledgor understands that compliance with the Securities Act may very strictly
limit the course of conduct of the Secured Party if the Secured Party were to
attempt to dispose of all or any portion of the Collateral and may also limit
the extent to which or the manner in which any subsequent transferee of the
Collateral or any portion thereof may dispose of the same. There may be other
legal restrictions or limitations affecting the Secured Party in any attempt to
dispose of all or any portion of the Collateral under the applicable Blue Sky or
other securities laws or similar laws analogous in purpose or effect. The
Secured Party may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such Collateral for their own account for investment only and not to
engage in a distribution or resale thereof. The Pledgor agrees that to
-9-
<PAGE>
the extent not in violation of applicable law, the Secured Party shall not incur
any liability, and any liability of the Pledgor for any deficiency shall not be
impaired, as a result of the sale of the Collateral or any portion thereof at
any such private sale in a manner that the Secured Party reasonably believes is
commercially reasonable (within the meaning of Section 9-504(3) of the Uniform
Commercial Code). The Pledgor hereby waives any claims against the Secured
Party, either Agent or any Lender arising by reason of the fact that the price
at which the Collateral may have been sold at such sale was less than the price
that might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Secured Party shall accept the first
offer received and does not offer any portion of the Collateral to more than one
possible purchaser. The Pledgor further agrees that to the extent not in
violation of applicable law (including federal and state securities laws), the
Secured Party has no obligation to delay sale of any Collateral for the period
of time necessary to permit the issuer of such Collateral to qualify or register
such Collateral for public sale under the Securities Act, applicable Blue Sky
laws and other applicable state and federal securities laws, even if said issuer
would agree to do so. Without limiting the generality of the foregoing, the
provisions of this Section would apply if, for example, the Secured Party were
to place all or any portion of the Collateral for private placement by an
investment banking firm, or if such investment banking firm purchased all or any
portion of the Collateral for its own account, or if the Secured Party placed
all or any portion of the Collateral privately with a purchaser or purchasers.
Section 14. Costs and Expenses; Indemnity. The Pledgor will pay or
-----------------------------
reimburse the Secured Party on demand for all reasonable out-of-pocket expenses
(including in each case all filing and recording fees and taxes and all
reasonable fees and expenses of counsel and of any experts and agents) incurred
by the Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest. The Pledgor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
(including enforcement of this Agreement) or the Secured Party's actions
pursuant hereto, except claims, losses or liabilities resulting from the Secured
Party's gross negligence or willful misconduct. Any liability of the Pledgor to
indemnify and hold the Secured Party harmless pursuant to the preceding sentence
shall be part of the Obligations secured by the Security Interest. The
obligations of the Pledgor under this Section shall survive any termination of
this Agreement.
Section 15. Waivers and Amendments; Remedies. Notwithstanding any
--------------------------------
provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Pledgor; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure herefrom by the Pledgor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. The Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver so signed shall be effective only in
-10-
<PAGE>
the specific instance and for the specific purpose given. Mere delay or failure
to act shall not preclude the exercise or enforcement of any rights and remedies
available to the Secured Party. All rights and remedies of the Secured Party
shall be cumulative and may be exercised singly in any order or sequence, or
concurrently, at the Secured Party's option, and the exercise or enforcement of
any such right or remedy shall neither be a condition to nor bar the exercise or
enforcement of any other.
Section 16. Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
pursuant to the applicable Credit Agreement. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from three days after the date of mailing if mailed.
Section 17. Pledgor Acknowledgments. The Pledgor hereby acknowledges
-----------------------
that (a) the Pledgor has been advised by counsel in the negotiation, execution
and delivery of this Agreement, (b) the Lenders, the Agents and the Secured
Party have no fiduciary relationship to the Pledgor, the relationship being
solely that of debtor and creditor, and (c) no joint venture exists between the
Pledgor, the Lenders, the Agents and the Secured Party.
Section 18. Continuing Security Interest; Assignments under Credit
------------------------------------------------------
Agreement. This Agreement shall create a continuing security interest in the
- ---------
Collateral and shall (a) remain in full force and effect until the payment in
full of the Obligations (except for contingent indemnity and other contingent
obligations not yet due and payable) and the expiration of the obligation, if
any, of the Lenders to extend credit accommodations to the Pledgor, (b) be
binding upon the Pledgor, its successors and assigns, and (c) inure, together
with the rights and remedies of the Secured Party hereunder, to the benefit of
the Secured Party, the Lenders and the Agents, and be enforceable by the Secured
Party and its respective successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), the Lenders or the Agents may assign
or otherwise transfer all or any portion of their rights and obligations under
the Credit Agreements to any other Person to the extent and in the manner
provided in the Credit Agreements, and may transfer all or any portion of their
rights under this Pledge Agreement to such Persons in connection therewith.
Section 19. Termination of Security Interest. Upon payment in full
--------------------------------
of the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Lenders to extend credit accommodations to the Pledgor or Kitchen Craft, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination, the Secured
Party will return to the Pledgor such of the Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof and execute and deliver
to the Pledgor such documents as the
-11-
<PAGE>
Pledgor shall reasonably request to evidence such termination. Any reversion or
return of the Collateral upon termination of this Agreement and any instruments
of transfer or termination shall be at the expense of the Pledgor and shall be
without warranty by, or recourse on, the Secured Party. As used in this Section,
"Pledgor" includes any assigns of Pledgor, any Person holding a subordinate
security interest in any part of the Collateral or whoever else may be lawfully
entitled to any part of the Collateral.
SECTION 20. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS; PROVIDED, HOWEVER, THAT NO EFFECT SHALL BE
GIVEN TO CONFLICT OF LAWS PRINCIPLES OF THE STATE OF MINNESOTA, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE MANDATORILY
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF MINNESOTA.
Whenever possible, each provision of this Agreement and any other statement,
instrument or transaction contemplated hereby or relating hereto shall be
interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this Agreement or any other statement, instrument
or transaction contemplated hereby or relating hereto shall be held to be
prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement or any other statement, instrument or transaction contemplated hereby
or relating hereto.
SECTION 21. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
-----------------------
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE PLEDGOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE PLEDGOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
SECTION 22. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE SECURED
--------------------
PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY
-12-
<PAGE>
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 23. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
Section 24. General. All representations and warranties contained in
-------
this Agreement or in any other agreement between the Pledgor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations. The Pledgor waives notice of
the acceptance of this Agreement by the Secured Party. Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.
-13-
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
PLEDGOR:
OMEGA CABINETS, LTD.
By /s/ ROBERT L. MORAN
----------------------------------
Name _____________________________
Title_____________________________
Address for Pledgor:
1205 Peters Drive
Waterloo, Iowa 50703
U.S. BANK NATIONAL ASSOCIATION
By /s/ MARK R. OLMON
-----------------------------------
Name _____________________________
Title ____________________________
Address for the Secured Party:
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mark R. Olmon, MPFP0702
Telecopier No.: (612) 973-0825
-14-
<PAGE>
SCHEDULE I
PLEDGED STOCK
- -------------
Stock Issuer:
Percentage Ownership: 100%
Class of Stock:
Certificate No(s).:
Par Value:
Number of Shares:
Stock Issuer:
Percentage Ownership: 100%
Class of Stock:
Certificate No(s).:
Par Value:
Number of Shares:
-15-
<PAGE>
EXHIBIT 10.11
October 30, 1998
BY FEDERAL EXPRESS
- ------------------
Mr. Henry P. Key
6338 Shadow Ridge Court
Brentwood, TN 37027
Dear Hank:
As we have discussed, your employment with Omega Holdings, Inc. (the
"Company") will terminate as of October 14, 1998 (the "Separation Date").
Provided that you accept it, this letter (the "Agreement") contains the
agreement between you and the Company concerning your severance arrangements, as
follows:
1. In signing this Agreement, you resign all positions and offices held by
you with the Company and its Affiliates effective as of the Separation Date and
you acknowledge receipt of all pay due to you for all work performed for the
Company and its Affiliates through the Separation Date. You also acknowledge
receipt of pay for all vacation time you had earned, but not used, as of the
Separation Date, as reflected on the books of the Company. It is understood that
the Company will take actions in reliance on your resignation and that it shall
become irrevocable on the Effective Date (as defined in Section 16 below). As
used in this Agreement, (a) "Affiliates" means each of Butler Capital
Corporation, a New York corporation, Mezzanine Lending Associates I, II & III,
L.P., Senior Lending Associates I & II, L.P., and any other entity with which
the Company has a management or advisory contract or relationship, any direct or
indirect investor in any of the foregoing entities, any entity in which any such
entity has an investment, any officer or director of the Company, and any Person
directly or indirectly controlling, controlled by or under common control with
the Company (including, without limitation, Gilbert Butler), where control may
be by either management authority or equity interest, and (b) "Person" means an
individual, a corporation, a limited liability company, an association, a
partnership (including, without limitation, a limited partnership), an estate, a
trust and any other entity or organization.
2. In consideration of your acceptance of this Agreement and subject to
your fully meeting your obligations under this Agreement:
(a) The Company will provide you severance pay, in the form of salary
continuation, at your current base rate of pay, for the period of 12 months
following the
<PAGE>
Separation Date (the "Severance Pay Period"). Payments will be made in the
form of salary continuation at the Company's regular payroll periods in
accordance with the Company's regular payroll practices, beginning on the
next regular payday following the Effective Date; provided, however, that
-------- -------
any and all payments made to you by the Company after the Separation Date
and prior to the Effective Date shall be credited against and shall reduce
the amounts payable to you under this Section 2(a). Payments will be
calculated at your final base rate of pay. If this Agreement takes effect
after the Separation Date, the first payment will nonetheless be
retroactive to the Separation Date.
(b) If you elect to continue your participation in the Company's group
medical and dental plans under applicable federal law ("COBRA") by signing
and returning in a timely manner the election form that will be provided
you, then, until the conclusion of the Severance Pay Period or, if earlier,
until the date you cease to be eligible for participation under COBRA, the
Company will contribute to the premium cost of your coverage and that of
your eligible dependents under the plans at the same rate that it has
previously contributed to the premium cost of your coverage and that of
your eligible dependents, provided you pay the remainder of the premium
cost, at the rate that you have previously contributed to the premium cost
of your coverage and that of your eligible dependents, by payroll
deduction. After the Company's contributions end, you may continue coverage
for the remainder of the COBRA period, if any, by paying the full premium
cost plus a small administrative fee. The benefits of the plans are subject
to the conditions and limitations of the plans themselves and any disputes
concerning eligibility for, or payment of benefits under, the plans shall
be settled in accordance with the terms thereof and neither the Company nor
any of its Affiliates shall be liable to you, your heirs or beneficiaries,
or anyone else claiming through you, for payment of benefits under the
plans.
(c) The Company will repurchase, and you agree to sell to the Company,
on the Effective Date, all of the shares of Common Stock, $.01 par value
per share (the "Common Stock"), of the Company, and options to purchase
shares of Common Stock of the Company, originally issued to you, which
shares and options are listed on Schedule I attached hereto (the
----------
"Management Shares"). The Company will repurchase the Management Shares on
the Effective Date at a price per share equal to $1,362.68 (based upon the
equity value calculation attached hereto as Exhibit A) less any applicable
---------
exercise price associated with such Management Shares. Payment for the
Management Shares will be by wire transfer of $376,002.10 in immediately
available funds in accordance with the wire transfer instructions provided
by you in writing to the Company prior to the Effective Date (the "Bank
Account"), and delivery to you of a call note in substantially the form
attached hereto as Exhibit B (the "Call Note") in the principal amount of
---------
$855,323.93.
2
<PAGE>
(d) If the Company meets or exceeds its financial targets for the
fiscal year ended December 31, 1998 as set forth in Exhibit C attached
---------
hereto (the "Financial Targets"), as evidenced by reference to the
Company's final internal financial statements for the fiscal year ended
December 31, 1998 prepared by the Company in accordance with past practices
(the "Company Financial Statements"), the Company will pay to you at the
same time that it makes payments to active management with respect to
amounts payable for meeting the Financial Targets, but in no event later
than March 31, 1999, the following amounts:
i. As payment in lieu of granting to you an option to purchase
173.3054 shares of the Company's Common Stock at an exercise
price of $1,000.00 per share (the "1998 Option"), or any
obligation to issue or grant the 1998 Option to you hereafter,
$62,854.64 (based upon the equity value calculation attached
hereto as Exhibit A) by wire transfer of immediately available
---------
funds to the Bank Account; and
ii. The sum of $103,125.00 by wire transfer of immediately available
funds to the Bank Account in full and complete satisfaction of
any and all amounts due or owing to you as a bonus for the fiscal
year ended December 31, 1998.
(e) If the Company does not meet or exceed the Financial Targets as
evidenced by reference to the Company Financial Statements, the Company
will not, and will have no obligation under Section 2(d) to, pay to you any
of the amounts described in Section 2(d) or grant to you at any time after
the Effective Date the 1998 Option.
(f) You hereby represent and warrant to the Company that other than
the Management Shares set forth on Schedule I attached hereto, you own no
----------
equity interest in the Company and have no right to acquire any such
interest. Concurrently with returning this Agreement to the Company and
prior to the Effective Date, you hereby agree to deliver to Ropes & Gray at
the address set forth below its name in Section 15, the original Option
Certificate dated May 13, 1998 and referenced in Schedule I, the original
----------
Option Letter dated March 5, 1998, and the original Receipt acknowledging
the exchange of the Option Letter for the Option Certificate, each in
substantially the form attached hereto as Exhibit D, each to be held in
---------
escrow on your behalf until the Effective Date, together with irrevocable
instructions and consent to the transfer to the Company of all of the
Management Shares referenced in Schedule I in accordance with the terms of
----------
this Agreement, including irrevocable instructions to American National
Bank and Trust Company of Chicago, as trustee (the "Rabbi Trustee") under
the Rabbi Trust Agreement dated as of June 13, 1997 by and between the
Company and the Rabbi Trustee, regarding such transfer, all such
instructions and consents to be substantially in the forms attached hereto
as Exhibit E.
---------
3
<PAGE>
3. All payments by the Company under this Agreement will be reduced by
all taxes and other amounts that the Company is required to withhold under
applicable law and all other deductions authorized by you.
4. You agree that the payments provided under Sections 2 of this
Agreement are in full and complete satisfaction of any and all sums which are
now or might hereafter have become owing to you from the Company for services
rendered by you to the Company or otherwise. You will not continue to earn
vacation or other paid time off after the Separation Date and except as
expressly provided in Section 2(b), your participation in all employee benefit
plans of the Company will end as of the Separation Date, in accordance with the
terms of those plans.
5. Your obligations under the Senior Management Non-Competition Agreement
dated as of June 13, 1997 among Omega Merger Corp., a Delaware corporation
("Merger Corp"), John A. Goebel, Jr. and you, a copy of which is attached hereto
as Exhibit F (the "Non-Competition Agreement"), shall remain in full force and
---------
effect in accordance with its terms, including without limitation your
obligation not to disclose confidential information of the Company and its
Affiliates and your obligation not to solicit the employees, clients and active
prospects of the Company as provided therein. As you know, Merger Corp. merged
with and into the Company on June 13, 1997 and your obligations to Merger Corp.
are obligations to the Company.
6. You agree that you will not disclose this Agreement or any of its
terms or provisions, directly or by implication, except to members of your
immediate family and to your legal and tax advisors, and then only on condition
that they agree not to further disclose this Agreement or any of its terms or
provisions to others.
7. You agree that you will continue to support the good reputation of the
Company in the community; that you will not disparage the Company or any of the
people or organizations connected with it; and that you will not otherwise do or
say anything that could disrupt the good morale of the employees of the Company
or any of its Affiliates or otherwise harm their interests or reputation. You
further agree to cooperate fully with the Company to assure a smooth transition
of your duties and responsibilities.
8. You agree to cooperate with the Company hereafter with respect to all
matters arising during or related to your employment, including but not limited
to all matters in connection with any governmental investigation, litigation or
regulatory or other proceeding which may have arisen or which may arise
following the signing of this Agreement. In addition, you agree to execute and
deliver all other documents reasonably requested by the Company in connection
with consummation of the transactions contemplated hereby.
4
<PAGE>
9. In signing this Agreement, you give the Company assurance that you
have returned to the Company any and all documents, materials and information
related to the business, whether present or otherwise, of the Company and its
Affiliates, and all keys and other property of the Company and its Affiliates,
in your possession or control. Recognizing that your employment with the Company
has terminated, you agree that you will not, for any purpose, attempt to access
or use any computer or computer network or system of the Company or any of its
Affiliates, including without limitation their electronic mail systems.
10. In order to be certain that this Agreement will resolve any and all
concerns that you might have, the Company requests that you carefully consider
its terms, including the release of claims set forth in Section 12 below and, in
that regard, encourages you to seek the advice of an attorney before signing
this Agreement.
11. This Agreement contains the entire agreement between you and the
Company and replaces all prior and contemporaneous agreements, communications
and understandings, whether written or oral, with respect to your employment and
its termination and all related matters, excluding only the Non-Competition
Agreement. This Agreement will be governed by and interpreted in accordance with
the laws of the Commonwealth of Massachusetts, without regard to the conflict of
laws principles thereof.
12. Release of Claims.
(a) In exchange for the special severance pay and benefits provided
you under this Agreement, and for other good and valuable consideration the
receipt of which is hereby acknowledged, you, on your own behalf and on
behalf of each Person who is or was or may become a beneficiary, heir,
executor, administrator, legatee, devisee, representative, or assign, and
all others connected with you (each a "Key Affiliate"), hereby release and
forever discharge the Company and its Affiliates, and each Person who is or
was or may become an officer, director, shareholder, employee, agent,
general or limited partner, advisory board member, representative,
predecessor, successor, or assign of the Company or any of its Affiliates
and all others connected with any of them, both individually and in their
official capacities (each a "Released Party" and collectively, the
"Released Parties"), from liability for any and all causes of action,
rights and claims, of whatever type or description, in law and in equity
(collectively, the "Claims"), which you have ever had in the past, now
have, or might now have, through the date you sign this Agreement,
including without limitation (i) Claims in any way arising out of or
connected with your relationship with the Company as an officer, director,
employee, shareholder, or optionholder or pursuant to Title VII of the
Civil Rights Act, the Americans with Disabilities Act, the Age
Discrimination in Employment Act, the fair employment practices statutes of
the states in which you have provided services to the Company or its
Affiliates, or any other federal, state or local employment law, regulation
or other requirement, and (ii) Claims relating to the purchase, ownership
or sale of the capital stock of the Company, excluding only the Surviving
Claims (as hereinafter defined). Without limiting the foregoing in any
5
<PAGE>
fashion, you acknowledge and agree that by executing this Agreement you
hereby waive any rights, statutory or otherwise, to any Claims (other than
Surviving Claims) that you do not know or suspect to exist at the time of
executing this Agreement.
(b) Nothing contained in this Agreement shall operate to release or
discharge the Company or any of the other Released Parties of or from or
otherwise affect any of your rights in respect of any Claim arising out of
or relating to the performance of the Company's obligations under Section 2
of this Agreement (the "Surviving Claim").
(c) You represent and warrant to the Company and to each other
Released Party, on your own behalf and on behalf of each of the Key
Affiliates, that neither you nor any of the Key Affiliates have made or
suffered to be made or will make any assignment or transfer of any Claim
(other than a Surviving Claim).
13. It is expressly understood and agreed that, if the Company reasonably
determines that you have materially violated any of your obligations under this
Agreement, including without limitation, (i) the failure to deliver to the
Company prior to the Effective Date the Management Shares (other than stock
certificate number 51 representing 1,250 shares of the Company's Common Stock
held by the Rabbi Trustee for your benefit) and the irrevocable instructions and
consents regarding the transfer of the Management Shares to the Company as
contemplated by this Agreement, or (ii) a breach of the Non-Competition
Agreement, the Company, in addition to any other remedies to which it may be
entitled by law or in equity, shall be entitled to reimbursement, upon demand,
of all sums paid to you or on your behalf under this Agreement and the Company
shall have no further obligation to you thereafter. You agree not to contest
your obligation to make reimbursement pursuant to such demand. It is further
expressly understood and agreed that reimbursement by you pursuant to this
Section 13 shall not relieve you of any of your other obligations under this
Agreement.
14. In signing this Agreement, you give the Company assurance that you
have signed it freely and voluntarily and with a full understanding of its terms
and that you have had sufficient opportunity to consider this Agreement and to
consult with any of the persons referenced in Section 6 of this Agreement before
signing it. In addition, by signing this Agreement, you represent and affirm
that you have not relied on any promises or representations, written or oral,
express or implied, by anyone connected with the Company or any of its
Affiliates that are not set forth expressly in this Agreement.
15. Any notice or demand which is required or provided to be given under
this Agreement shall be deemed to have been sufficiently given and received for
all purposes when delivered by hand, telecopy, telex or other method of
facsimile, or, if sent by certified or registered mail, postage and charges
prepaid, return receipt requested, when deposited in a United States mailbox, or
one days after being sent by overnight delivery providing receipt of delivery,
to the following addresses:
6
<PAGE>
(i) If to the Company, to:
Omega Holdings, Inc.
1205 Peters Drive
Waterloo, IA 50703
Attention: President
with a copy to:
Butler Capital Corporation
767 Fifth Avenue
New York, NY 10153
Attention: Donald E. Cihak
and a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: R. Newcomb Stillwell, Esq.
(ii) If to Henry P. Key, to you at:
Mr. Henry P. Key
6338 Shadow Ridge Court
Brentwood, TN 37027
or to such other address as may have been furnished by any party to the other
party and actually received.
[Remainder of Page Intentionally Left Blank]
7
<PAGE>
16. If the terms of this Agreement are acceptable to you, please sign,
date and return it to me within twenty-one days of the date you receive it. You
may revoke this Agreement at any time during the seven-day period immediately
following the date of your signing, provided that you do so in writing. If you
do not revoke it, then, at the expiration of that seven-day period (such date
being the "Effective Date"), this Agreement will take effect as a legally-
binding agreement between you and the Company on the basis set forth above. This
Agreement may only be amended by a writing signed by you and an expressly
authorized representative of the Company. The enclosed copy of this Agreement,
which you should also sign and date, is for your records.
Sincerely,
OMEGA HOLDINGS, INC.
By: /s/ DONALD E. CIHAK
------------------------
Name: Donald E. Cihak
Title: Treasurer
ACCEPTED AND AGREED:
/s/ HENRY P. KEY
- -----------------------------
Henry P. Key
Dated: _____________________
8
<PAGE>
SCHEDULE I
MANAGEMENT SHARES
1. Stock Certificate No. 51 representing 1,250.0000 shares of the Company's
Common Stock held for the benefit of Henry P. Key by American National Bank
and Trust Company, as trustee.
2. Option Certificate dated May 13, 1998 representing an option to purchase
115.7276 shares of the Company's Common Stock at an exercise price per
share equal to $1,000.00, a copy of which is attached hereto as Exhibit D.
9
<PAGE>
EXHIBIT A
EQUITY VALUE CALCULATION
10
<PAGE>
EXHIBIT B
FORM OF CALL NOTE
11
<PAGE>
EXHIBIT C
1998 FINANCIAL TARGETS
The amount set forth opposite the caption "Operating Profit" on the Company
Financial Statements shall equal or exceed $28,753,000.00.
12
<PAGE>
EXHIBIT D
FORM OF OPTION CERTIFICATE, OPTION LETTER, AND RECEIPT
13
<PAGE>
EXHIBIT E
IRREVOCABLE INSTRUCTIONS AND CONSENTS
14
<PAGE>
EXHIBIT F
SENIOR MANAGEMENT NON-COMPETITION AGREEMENT
15
<PAGE>
EXHIBIT 10.28
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of January 29, 1999, is made and
given by BULRAD ILLINOIS, INC., an Illinois corporation (the "Grantor"), to U.S.
BANK NATIONAL ASSOCIATION, a national banking association, as collateral agent
for the "Lenders" (as defined below) pursuant to the "Intercreditor Agreement"
(as defined below) (in such capacity, the "Secured Party").
RECITALS
--------
A. Omega Cabinets, Ltd., a Delaware corporation ("Omega"), Panther
Transport, Inc., an Iowa corporation, ("Panther" and, collectively with Omega
and any other Affiliate or party that becomes a party to the USBNA Credit
Agreement (as defined herein) the "Borrowers"), certain financial institutions
(the "Banks") and U.S. Bank National Association, as Agent, have entered into an
Amended and Restated Credit Agreement dated as of January 29, 1999 (as the same
may hereafter be amended, restated, or otherwise modified from time to time, the
"USBNA Credit Agreement") pursuant to which the Banks have agreed to extend to
the Borrowers certain credit accommodations.
B. Grantor is a wholly-owned Subsidiary of Omega.
C. Omega has executed and delivered a guaranty (the "CIBC Guaranty")
to the financial institutions party to a Credit Agreement dated as of January
29, 1999 among 3578275 Canada, Inc., as assumed by operation of law in an
amalgamation by Kitchen Craft of Canada, Ltd. ("New Kitchen Craft"), such
financial institutions and Canadian Imperial Bank of Commerce, as Agent (as the
same may hereafter be amended, supplemented, extended, restated or otherwise
modified from time to time, the "CIBC Credit Agreement", and together with the
USBNA Credit Agreement, the "Credit Agreements"), pursuant to which CIBC
Guaranty Omega has guaranteed the obligations of New Kitchen Craft under the
CIBC Credit Agreement.
D. It is a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreements that
this Agreement be executed and delivered by the Grantor.
E. The Grantor finds it advantageous, desirable and in its best
interests to comply with the requirement that it execute and deliver this
Security Agreement to the Secured Party.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to enter into the Credit Agreements and to extend credit
accommodations thereunder, the Grantor hereby agrees with the Secured Party, for
the benefit of the Lenders and the Agent, as follows:
<PAGE>
Section 1. Defined Terms.
-------------
1(a) As used in this Agreement, terms defined above shall have the
meanings given to them and the following terms shall have the meanings
indicated:
"Account" shall mean the rights of the Grantor to payment for goods
-------
sold or leased or for services rendered which is not evidenced by an
Instrument or Chattel Paper, whether or not such right has been earned by
performance, all guaranties and security therefor, and all interests in the
goods the sale or lease of which gave rise thereto, including the right to
stop such goods in transit.
"Account Debtor" shall mean a Person who is obligated on or under any
--------------
Account, Chattel Paper, Instrument or General Intangible.
"Affiliate": When used with reference to any Person, (a) each Person
---------
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially
owns or holds, directly or indirectly, ten percent or more of any class of
voting stock of the Person referred to (or if the Person referred to is not
a corporation, five percent or more of the equity interest), (c) each
Person, ten percent or more of the voting stock (or if such Person is not a
corporation, ten percent or more of the equity interest) of which is
beneficially owned or held, directly or indirectly, by the Person referred
to, and (d) each of such Person's officers, directors, joint venturers and
partners. The term control (including the terms "controlled by" and "under
common control with") means the possession, directly, of the power to
direct or cause the direction of the management and policies of the Person
in question.
"Affiliate Debt" shall mean indebtedness owing to the Grantor from any
--------------
Affiliate.
"Agents" shall mean the "Agent" (as defined in the USBNA Credit
------
Agreement) and the "Agent" (as defined in the CIBC Credit Agreement).
"Chattel Paper" shall mean a writing or writings which evidence both a
-------------
monetary obligation and a security interest in or lease of specific goods;
when a transaction is evidenced by both a security agreement or a lease and
by an Instrument or a series of Instruments, the group of writings taken
together constitutes Chattel Paper.
"Collateral" shall mean all property and rights in property now owned
---------
or hereafter at any time acquired by the Grantor in or upon which a
Security Interest is granted to the Secured Party by the Grantor under this
Agreement.
"Document" shall mean any bill of lading, dock warrant, dock receipt,
--------
warehouse receipt or order for the delivery of goods, together with any
other document or receipt
-2-
<PAGE>
which in the regular course of business or financing is treated as
adequately evidencing that the Person in possession of it is entitled to
receive, hold and dispose of the document and the goods it covers.
"Equipment" shall mean all machinery, equipment, furniture,
---------
furnishings and fixtures, including all accessions, accessories and
attachments thereto, and any guaranties, warranties, indemnities and other
agreements of manufacturers, vendors and others with respect to such
Equipment.
"Event of Default" shall have the meaning given to such term in
---------------
Section 18 hereof.
"Financing Statement" shall have the meaning given to such term in
-------------------
Section 4 hereof.
"General Intangibles" shall mean any personal property (other than
-------------------
goods, Accounts, Chattel Paper, Documents, Instruments and money) including
choses in action, causes of action, contract rights, corporate and other
business records, inventions, designs, patents, patent applications,
service marks, trademarks, tradenames, trade secrets, engineering drawings,
good will, registrations, copyrights, licenses, franchises, customer lists,
tax refund claims, royalties, licensing and product rights, rights to the
retrieval from third parties of electronically processed and recorded data
and all rights to payment resulting from an order of any court.
"Instrument" shall mean a draft, check, certificate of deposit, note,
----------
bill of exchange, security or any other writing which evidences a right to
the payment of money and is not itself a security agreement or lease and is
of a type which is transferred in the ordinary course of business by
delivery with any necessary endorsement or assignment.
"Intercreditor Agreement" means the Intercreditor Agreement dated as
-----------------------
of January 29, 1999 among the Lenders, as the same may hereafter be
amended, supplemented, extended, restated or otherwise modified from time
to time.
"Inventory" shall mean any and all goods owned or held by or for the
---------
account of the Grantor for sale or lease, or for furnishing under a
contract of service, or as raw materials, work in process, materials
incorporated in or consumed in the production of any of the foregoing and
supplies, in each case wherever the same shall be located, whether in
transit, on consignment, in retail outlets, warehouses, terminals or
otherwise, and all property the sale, lease or other disposition of which
has given rise to an Account and which has been returned to the Grantor or
repossessed by the Grantor or stopped in transit.
-3-
<PAGE>
"Lenders" shall mean, collectively, the "Banks" (as defined in the
-------
USBNA Credit Agreement), and the "Lenders" (as defined in the CIBC Credit
Agreement).
"Lien" shall mean any security interest, mortgage, pledge, lien,
----
charge, encumbrance, title retention agreement or analogous instrument or
device (including the interest of the lessors under capitalized leases),
in, of or on any assets or properties of the Person referred to.
"Obligations" shall mean (a) all indebtedness, liabilities and
-----------
obligations of the Borrowers to the Lenders and Agents of every kind,
nature or description under the USBNA Credit Agreement, including without
limitation each Borrower's obligation on any promissory note or notes under
the USBNA Credit Agreement and any note or notes hereafter issued in
substitution or replacement thereof and any letter of credit reimbursement
obligations and fees, (b) all liabilities of the Grantor under this
Agreement, and (c) any and all other liabilities and obligations of the
Borrowers to the Secured Party, the Lenders and the Agents of every kind,
nature and description, whether direct or indirect or hereafter acquired by
the Secured Party, the Lenders, or the Agents from any Person, absolute or
contingent, regardless of how such liabilities arise or by what agreement
or instrument they may be evidenced, and in all of the foregoing cases
whether due or to become due, and whether now existing or hereafter arising
or incurred.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company or partnership, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary
or other capacity.
"Security Interest" shall have the meaning given such term in Section
-----------------
2 hereof.
1(b) All other terms used in this Agreement which are not
specifically defined herein shall have the meaning assigned to such terms in the
Uniform Commercial Code in effect in the State of Minnesota as of the date of
this Agreement to the extent such other terms are defined therein.
1(c) Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular, the plural and "or"
has the inclusive meaning represented by the phrase "and/or." The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." The words "hereof," "herein," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. References to Sections are
references to Sections in this Security Agreement unless otherwise provided.
Section 2. Grant of Security Interest. As security for the payment
-------------------------
and performance of all of the Obligations, the Grantor hereby grants to the
Secured Party, for the
-4-
<PAGE>
benefit of the Secured Party, the Lenders and the Agents, a security interest
(the "Security Interest") in all of the Grantor's right, title, and interest in
and to the following, whether now or hereafter owned, existing, arising or
acquired and wherever located:
2(a) All Accounts.
2(b) All Chattel Paper.
2(c) All Documents.
2(d) All Equipment.
2(e) All General Intangibles, including, without limitation,
Affiliate Debt.
2(f) All Instruments.
2(g) All Inventory.
2(h) To the extent not otherwise included in the foregoing, (i) all
other rights to the payment of money, including rents and other sums
payable to the Grantor under leases, rental agreements and other Chattel
Paper and insurance proceeds; (ii) all books, correspondence, credit files,
records, invoices, bills of lading, and other documents relating to any of
the foregoing, including, without limitation, all tapes, cards, disks,
computer software, computer runs, and other papers and documents in the
possession or control of the Grantor or any computer bureau from time to
time acting for the Grantor; (iii) all rights in, to and under all policies
insuring the life of any officer, director, stockholder or employee of the
Grantor, the proceeds of which are payable to the Grantor; and (iv) all
accessions and additions to, parts and appurtenances of, substitutions for
and replacements of any of the foregoing.
2(i) To the extent not otherwise included, all proceeds and products
of any and all of the foregoing.
Notwithstanding Sections 2(a) through 2(i), the payment and performance of
the Obligations shall not be secured by (i) any Instrument, contract, license or
other agreement, or permit or franchise that validly prohibits the creation by
the Grantor of a security interest in such Instrument, contract, license or
other agreement, permit or franchise (or in any rights or property obtained by
the Grantor under such contract, license or other agreement, or permit or
franchise); provided, however, that nothing in this clause (i) shall apply to
--------
any Account, or (ii) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property prohibits
the creation of a security interest therein. In addition, in the event the
Grantor disposes of assets to third parties in a transaction permitted by
Section 6.2 of the Credit
-5-
<PAGE>
Agreement, such assets, but not the proceeds or products thereof, shall be
released from the Lien of the Security Interest.
Section 3. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) the Grantor shall remain liable under the Accounts, Chattel
Paper, General Intangibles and other items included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by the Secured Party of any of the rights hereunder shall not release the
Grantor from any of its duties or obligations under any items included in the
Collateral, and (c) the Secured Party, the Lenders and the Agents shall have no
obligation or liability under Accounts, Chattel Paper, General Intangibles and
other items included in the Collateral by reason of this Agreement, nor shall
the Secured Party, the Lenders or the Agents be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
Section 4. Title to Collateral. The Grantor has (or will have at the
-------------------
time it acquires rights in Collateral hereafter acquired or arising) and will
maintain so long as the Security Interest may remain outstanding, title to each
item of Collateral (including the proceeds and products thereof), free and clear
of all Liens except the Security Interest and except Liens permitted by the
Credit Agreement. The Grantor will defend the Collateral against all claims or
demands of all Persons (other than the Secured Party) claiming the Collateral or
any interest therein. As of the date of execution of this Security Agreement,
no effective financing statement or other similar document used to perfect and
preserve a security interest under the laws of any jurisdiction (a "Financing
Statement") covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed (a) in favor of the Secured
Party relating to this Agreement, or (b) to perfect Liens permitted by the
Credit Agreement.
Section 5. Disposition of Collateral. The Grantor will not sell,
-------------------------
lease or otherwise dispose of, or discount or factor with or without recourse,
any Collateral, except sales of items of Inventory in the ordinary course of
business and other sales of assets permitted under the Credit Agreement.
Section 6. Names, Offices, Locations. The Grantor does business
-------------------------
solely under its own name and the trade names and styles, if any, set forth on
Schedule II hereto. Except as noted on said Schedule, no such trade names or
styles and no trademarks or other similar marks owned by the Grantor are
registered with any governmental unit. The chief place of business and chief
executive office and the office where it keeps its books and records concerning
the Accounts and General Intangibles and the originals of all Chattel Paper,
Documents and Instruments are located at its address set forth on the signature
page hereof. All items of Equipment and Inventory existing on the date of this
Agreement are located at the places specified on Schedule I hereto. The Grantor
will promptly notify the Secured Party of any additional state in which any item
of Inventory or Equipment is hereafter located. The Grantor will from time to
time at the request of the Secured Party provide the Secured Party with current
lists as to the locations of the
-6-
<PAGE>
Equipment and Inventory. The Grantor will not permit any Inventory, Equipment,
Chattel Paper or Documents or any records pertaining to Accounts and General
Intangibles to be located in any state or area in which, in the event of such
location, a financing statement covering such Collateral would be required to
be, but has not in fact been, filed in order to perfect the Security Interest.
The Grantor will not change its name or the location of its chief place of
business and chief executive office or use any trade name or trade style in any
state other than as indicated on Schedule II unless the Secured Party has been
given at least 30 days prior written notice thereof and the Grantor has executed
and delivered to the Secured Party such Financing Statements and other
instruments required or appropriate to continue the perfection of the Security
Interest.
Section 7. Rights to Payment. Except as the Grantor may otherwise
-----------------
advise the Secured Party in writing, to the knowledge of the Grantor, each
Account, Chattel Paper, Document, General Intangible and Instrument constituting
or evidencing Collateral is (or, in the case of all future Collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation of
the Account Debtor or other obligor named therein or in the Grantor's records
pertaining thereto as being obligated to pay or perform such obligation.
Without the Secured Party's prior written consent, the Grantor will not agree to
any modifications, amendments, subordinations, cancellations or terminations of
material obligations of any Account Debtors or other obligors except in the
ordinary course of business. The Grantor will perform and comply in all
material respects with all its obligations under any items included in the
Collateral and exercise promptly and diligently its rights thereunder. The
Grantor does not currently hold any Instrument or Document evidencing amounts
owed to the Grantor by any Subsidiary.
Section 8. Further Assurances; Attorney-in-Fact.
------------------------------------
8(a) The Grantor agrees that from time to time, at its expense,
it will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the Secured
Party may reasonably request, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral (but any failure to request or assure that the
Grantor execute and deliver such instrument or documents or to take such
action shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interest, regardless of
whether any such item was or was not executed and delivered or action taken
in a similar context or on a prior occasion). Without limiting the
generality of the foregoing, the Grantor will, promptly and from time to
time at the request of the Secured Party: (i) mark, or permit the Secured
Party to mark, conspicuously its books, records, and accounts showing or
dealing with the Collateral, and each item of Chattel Paper included in the
Collateral, with a legend, in form and substance reasonably satisfactory to
the Secured Party, indicating that each such item of Collateral and each
such item of Chattel Paper is subject to the Security Interest granted
hereby; (ii) deliver and pledge to the Secured Party, all Instruments and
Documents (specifically including any Instrument
-7-
<PAGE>
or Document evidencing amounts owed to the Grantor by any Subsidiary), duly
indorsed or accompanied by duly executed instruments of transfer or
assignment, with full recourse to the Grantor, all in form and substance
satisfactory to the Secured Party; (iii) execute and file such Financing
Statements or continuation statements in respect thereof, or amendments
thereto, and such other instruments or notices (including fixture filings
with any necessary legal descriptions as to any goods included in the
Collateral which the Secured Party determines might be deemed to be
fixtures, and instruments and notices with respect to vehicle titles), as
may be necessary or desirable, or as the Secured Party may request, in
order to perfect, preserve, and enhance the Security Interest granted or
purported to be granted hereby; and (iv) use reasonable efforts to obtain
waivers, in form satisfactory to the Secured Party, of any claim to any
Collateral from any landlords or mortgagees of any property where any
Inventory or Equipment is located.
8(b) The Grantor hereby authorizes the Secured Party to execute
and file one or more Financing Statements or continuation statements in
respect thereof, and amendments thereto, in the event that the Secured
Party reasonably believes that prompt action would be necessary to protect
its rights in all or any part of the Collateral. The Secured Party may
file such Financing Statements or continuation statements without the
signature of the Grantor where permitted by law. A photocopy or other
reproduction of this Agreement or any Financing Statement covering the
Collateral or any part thereof shall be sufficient as a Financing Statement
where permitted by law.
8(c) The Grantor will furnish to the Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail and in form
and substance reasonably satisfactory to the Secured Party.
Section 9. Taxes and Claims. The Grantor will promptly pay all taxes
----------------
and other governmental charges levied or assessed upon or against any Collateral
or upon or against the creation, perfection or continuance of the Security
Interest, as well as all other claims of any kind (including claims for labor,
material and supplies) against or with respect to the Collateral, except to the
extent (a) such taxes, charges or claims are being contested in good faith by
appropriate proceedings, (b) such proceedings do not involve any material danger
of the sale, forfeiture or loss of any of the Collateral or any interest therein
and (c) such taxes, charges or claims are adequately reserved against on the
Grantor's books in accordance with generally accepted accounting principles.
Section 10. Books and Records. The Grantor will keep and maintain at
-----------------
its own cost and expense satisfactory and complete records of the Collateral,
including a record of all payments received and credits granted with respect to
all Accounts, Chattel Paper and other items included in the Collateral.
-8-
<PAGE>
Section 11. Inspection, Reports, Verifications. Upon one day's
----------------------------------
advance notice, the Grantor will at all reasonable times during normal business
hours permit the Secured Party or its representatives to examine or inspect any
Collateral, any evidence of Collateral and the Grantor's books and records
concerning the Collateral, wherever located. The Grantor will from time to time
when requested by the Secured Party furnish to the Secured Party a report on its
Accounts, Chattel Paper, General Intangibles and Instruments, naming the Account
Debtors or other obligors thereon, the amount due and the aging thereof. Upon
the occurrence and during the continuance of an Event of Default, the Secured
Party or its designee is authorized to contact Account Debtors and other Persons
obligated on any such Collateral from time to time to verify the existence,
amount and/or terms of such Collateral; provided that nothing in this sentence
--------
shall restrict or limit in any manner the right of the Secured Party, either
Agent or any Lender to contact such Account Debtors or other Persons during the
course of any audit conducted in accordance with the "Loan Documents" (as
defined in the Credit Agreement).
Section 12. Notice of Loss. The Grantor will promptly notify the
--------------
Secured Party of any loss of or material damage to any material item of
Collateral or of any substantial adverse change, known to Grantor, in any
material item of Collateral or the prospect of payment or performance thereof.
Section 13. Insurance. The Grantor will keep the Equipment and
---------
Inventory insured against "all risks" for the full replacement cost thereof
subject to a deductible, and with an insurance company or companies,
satisfactory to the Secured Party, the policies to protect the Secured Party,
the Agents and the Lenders, as their interests may appear, with such policies or
certificates with respect thereto to be delivered to the Secured Party at its
request. Each such policy or the certificate with respect thereto shall provide
that such policy shall not be canceled or allowed to lapse unless at least 30
days prior written notice is given to the Secured Party.
Section 14. Lawful Use; Fair Labor Standards Act. The Grantor will
------------------------------------
use and keep the Collateral, and will require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or
local law, statute or ordinance. All Inventory of the Grantor as of the date of
this Agreement that was produced by the Grantor or with respect to which the
Grantor performed any manufacturing or assembly process was produced by the
Grantor (or such manufacturing or assembly process was conducted) in compliance
in all material respects with all requirements of the Fair Labor Standards Act,
and all Inventory produced, manufactured or assembled by the Grantor after the
date of this Agreement will be so produced, manufactured or assembled, as the
case may be.
Section 15. Action by the Secured Party; Power of Attorney.
----------------------------------------------
Effective upon and during the continuance of an Event of Default, if the Grantor
at any time fails to perform or observe any of the foregoing agreements, the
Secured Party shall have (and the Grantor hereby grants to the Secured Party)
the right, power and authority (but not the duty) to perform or observe such
agreement on behalf and in the name, place and stead of the Grantor (or, at the
Secured Party's option, in the Secured Party's name) and to take any and all
other actions which
-9-
<PAGE>
the Secured Party may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of Liens,
the procurement and maintenance of insurance, the execution of assignments,
security agreements and Financing Statements, and the indorsement of
instruments); and the Grantor shall thereupon pay to the Secured Party on demand
the amount of all monies expended and all reasonable costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the
Secured Party in connection with or as a result of the performance or observance
of such agreements or the taking of such action by the Secured Party, together
with interest thereon from the date expended or incurred at the highest lawful
rate then applicable to any of the Obligations, and all such monies expended,
costs and expenses and interest thereon shall be part of the Obligations secured
by the Security Interest. The Grantor hereby appoints the Secured Party the
Grantor's attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor or otherwise, from time to time in the
Secured Party's good-faith discretion, to take any action and to execute any
instrument that the Secured Party may reasonably believe is necessary or
advisable to accomplish the purposes of this Agreement, in a manner consistent
with the terms hereof and the terms of the Credit Agreement, including, without
limitation, to receive, indorse and collect all instruments made payable to the
Grantor representing any Collateral or any part thereof and to give full
discharge for the same; provided that the Secured Party shall not exercise such
--------
power of attorney hereunder prior to the occurrence and continuance of an Event
of Default except to the extent necessary to exercise its rights under Section
8(b) and Section 16 hereof. The Grantor agrees that the foregoing may be done by
the Secured Party in its own name (to the same extent and with the same force
and effect as could have been done by the Grantor had this Agreement not been
made) or in the name of the Grantor. The foregoing power of attorney is coupled
with an interest and is therefore irrevocable by the Grantor.
Section 16. Insurance Claims. As additional security for the payment
----------------
and performance of the Obligations, the Grantor hereby assigns to the Secured
Party, for the benefit of the Secured Party, the Agents and the Lenders, any and
all monies (including proceeds of insurance and refunds of unearned premiums)
due or to become due under, and all other rights of the Grantor with respect to,
any and all policies of insurance now or at any time hereafter covering the
Collateral or any evidence thereof or any business records or valuable papers
pertaining thereto. The Secured Party may (but need not), in the Secured
Party's name or in Grantor's name, execute and deliver proofs of claim, receive
all such monies, indorse checks and other instruments representing payment of
such monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy (a) for any loss from which insurance proceeds for
such loss are in excess of $100,000 whether or not a Default or Event of Default
has occurred or (b) for any reason upon the occurrence and during the
continuance of any Event of Default. Notwithstanding any of the foregoing, so
long as no Event of Default exists the Grantor shall be entitled to all
insurance proceeds with respect to any of the Collateral; provided that any
--------
proceeds received in respect of Equipment and Inventory are applied to the cost
of replacement of such Equipment or Inventory.
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<PAGE>
Section 17. The Secured Party's Duties. The powers conferred on the
--------------------------
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Secured
Party shall be deemed to have exercised reasonable care in the safekeeping of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to the safekeeping which the Secured Party accords its own
property of like kind. Except for the safekeeping of any Collateral in its
possession and the accounting for monies and for other properties actually
received by it hereunder, the Secured Party shall have no duty, as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Secured Party has or is deemed to have knowledge
of such matters, or as to the taking of any necessary steps to preserve rights
against any Persons or any other rights pertaining to any Collateral. The
Secured Party will take action in the nature of exchanges, conversions,
redemptions, tenders and the like requested in writing by the Grantor with
respect to the Collateral in the Secured Party's possession if the Secured Party
in its reasonable judgment determines that such action will not impair the
Security Interest or the value of the Collateral, but a failure of the Secured
Party to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care.
Section 18. Default. Each of the following occurrences shall
-------
constitute an Event of Default under this Agreement: (a) the Grantor shall fail
to observe or perform any covenant or agreement applicable to the Grantor under
this Agreement and such failure to comply shall continue for thirty (30)
calendar days after the earlier to occur of (i) the date the Grantor gives
notice of such failure to the Secured Party, or (ii) the date the Secured Party
gives written notice of such failure to the Grantor; or (b) any representation
or warranty made by the Grantor in this Agreement or any schedule, exhibit,
supplement or attachment hereto or in any reports or certificates heretofore or
at any time hereafter submitted by or on behalf of the Grantor to the Secured
Party shall prove to have been materially false or misleading when made; or (c)
any Event of Default shall occur under either Credit Agreement beyond the
applicable cure period specified therein.
Section 19. Remedies on Default. Upon the occurrence of an Event of
-------------------
Default and at any time thereafter:
19(a) The Secured Party may exercise and enforce any and all
rights and remedies available upon default to a secured party under the
Uniform Commercial Code.
19(b) The Secured Party shall have the right to enter upon and
into and take possession of all or such part or parts of the properties of
the Grantor, including lands, plants, buildings, Equipment, Inventory and
other property as may be necessary or appropriate in the judgment of the
Secured Party to permit or enable the Secured Party to manufacture,
produce, process, store or sell or complete the manufacture, production,
processing, storing or sale of all or any part of the Collateral, as the
Secured Party may elect, and to use and operate said properties for said
purposes and for such length of time
-11-
<PAGE>
as the Secured Party may deem necessary or appropriate for said purposes
without the payment of any compensation to Grantor therefor. The Secured
Party may require the Grantor to, and the Grantor hereby agrees that it
will, at its expense and upon request of the Secured Party forthwith,
assemble all or part of the Collateral as directed by the Secured Party and
make it available to the Secured Party at a place or places to be
designated by the Secured Party.
19(c) Any sale of Collateral may be in one or more parcels at
public or private sale, at any of the Secured Party's offices or elsewhere,
for cash, on credit, or for future delivery, and upon such other terms as
the Secured Party may reasonably believe are commercially reasonable. The
Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given, and the Secured Party may
adjourn any public or private sale from time to time by announcement made
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
19(d) The Secured Party is hereby granted a license or other
right to use, without charge, all of the Grantor's property, including,
without limitation, all of the Grantor's labels, trademarks, copyrights,
patents and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for
sale and selling any Collateral, and the Grantor's rights under all
licenses and all franchise agreements shall inure to the Secured Party's
benefit until the Obligations are paid in full.
19(e) If notice to the Grantor of any intended disposition of
Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given in
the manner specified for the giving of notice in Section 24 hereof at least
ten calendar days prior to the date of intended disposition or other
action, and the Secured Party may exercise or enforce any and all other
rights or remedies available by law or agreement against the Collateral,
against the Grantor, or against any other Person or property.
Section 20. Remedies as to Certain Rights to Payment. Upon the
----------------------------------------
occurrence of an Event of Default and at any time thereafter the Secured Party
may notify any Account Debtor or other Person obligated on any Accounts or other
Collateral that the same have been assigned or transferred to the Secured Party
and that the same should be performed as requested by, or paid directly to, the
Secured Party, as the case may be. The Grantor shall join in giving such
notice, if the Secured Party so requests. The Secured Party may, in the Secured
Party's name or in the Grantor's name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such Collateral or grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change the obligation of any
such Account Debtor or other Person. If any payments on any such Collateral are
received by the Grantor after an Event of Default has occurred, such payments
-12-
<PAGE>
shall be held in trust by the Grantor as the property of the Secured Party and
shall not be commingled with any funds or property of the Grantor and shall be
forthwith remitted to the Secured Party for application on the Obligations.
Section 21. Application of Proceeds. All cash proceeds received by
-----------------------
the Secured Party in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in accordance with the
Intercreditor Agreement, be held by the Secured Party as collateral for, or then
or at any time thereafter be applied in whole or in part by the Secured Party
against, all or any part of the Obligations (including, without limitation, any
expenses of the Secured Party payable pursuant to Section 22 hereof).
Section 22. Costs and Expenses; Indemnity. The Grantor will pay or
-----------------------------
reimburse the Secured Party on demand for all reasonable out-of-pocket expenses
(including in each case all filing and recording fees and taxes and all
reasonable fees and expenses of counsel and of any experts and agents) incurred
by the Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest. The Grantor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
and the Security Interest hereby created (including enforcement of this
Agreement) or the Secured Party's actions pursuant hereto, except claims, losses
or liabilities resulting from the Secured Party's gross negligence or willful
misconduct. Any liability of the Grantor to indemnify and hold the Secured
Party harmless pursuant to the preceding sentence shall be part of the
Obligations secured by the Security Interest. The obligations of the Grantor
under this Section shall survive any termination of this Agreement.
Section 23. Waivers; Remedies; Marshaling. Notwithstanding any
-----------------------------
provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Grantor; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure herefrom by the Grantor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. The Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. Mere delay or failure to act shall not preclude the exercise or
enforcement of any rights and remedies available to the Secured Party. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singly in any order or sequence, or concurrently, at the Secured
Party's option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. To the extent permitted by applicable law, the Grantor hereby waives all
requirements of law, if any, relating to the marshaling of assets which would be
applicable in connection with the enforcement by the Secured Party of its
remedies hereunder, absent this waiver.
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<PAGE>
Section 24. Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
pursuant to the applicable Credit Agreement. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from three days after the date of mailing if mailed.
Section 25. Grantor Acknowledgments. The Grantor hereby
-----------------------
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, (b) the Secured Party, the Agents and
the Lenders have no fiduciary relationship to the Grantor, the relationship
being solely that of debtor and creditor, and (c) no joint venture exists
between the Grantor, the Secured Party, the Agents and the Lenders.
Section 26. Continuing Security Interest; Assignments under Credit
------------------------------------------------------
Agreement. This Agreement shall (a) create a continuing security interest in the
- ---------
Collateral and shall remain in full force and effect until payment in full of
the Obligations and the expiration of the obligations, if any, of the Lenders to
extend credit accommodations to the Grantor or New Kitchen Craft, (b) be binding
upon the Grantor, its successors and assigns, and (c) inure to the benefit of
the Lenders and the Agent, and be enforceable by, the Secured Party, and their
respective successors, transferees, and assigns. Without limiting the
generality of the foregoing clause (c), the Lenders or the Agents may assign or
otherwise transfer all or any portion of their rights and obligations under the
Credit Agreements to any other Persons to the extent and in the manner provided
in the Credit Agreements and may similarly transfer all or any portion of their
rights under this Security Agreement to such Persons.
Section 27. Termination of Security Interest. Upon payment in full
--------------------------------
of the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Lenders to extend credit accommodations to the Grantor or Kitchen Craft, the
Security Interest granted hereby shall terminate. Upon any such termination,
the Secured Party will return to the Grantor such of the Collateral then in the
possession of the Secured Party as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
Any reversion or return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Grantor
and shall be without warranty by, or recourse on, the Secured Party. As used in
this Section, "Grantor" includes any assigns of Grantor, any Person holding a
subordinate security interest in any of the Collateral or whoever else may be
lawfully entitled to any part of the Collateral.
Section 28. Affiliate Debt. The Grantor represents and warrants that
--------------
except for the "Kitchen Craft Note" (as defined in the USBNA Credit Agreement),
there are no Instruments
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<PAGE>
evidencing Affiliate Debt in favor of or assigned to the Grantor. The Grantor
hereby covenants and agrees that upon receipt of any such Instrument, the
Grantor shall promptly execute documents, which shall be satisfactory in form
and substance to the Secured Party, and which in any event, shall not contain
any term or provision which prohibits or restricts the creation by the Grantor
of a security interest therein in favor of the Secured Party, which pledge such
Instrument to the Secured Party, for the benefit of the Secured Party, the
Agents and the Lenders, and deliver such documents, together with such
Instrument, to the Secured Party for the purpose of securing payment of the
Obligations.
Section 29. Compliance with Pledge Agreement Covenants. The Grantor
------------------------------------------
shall perform or comply with all covenants made by Omega Holdings, Inc.
("Omega") pertaining to the Grantor in Omega's Pledge Agreement, including but
not limited to the provisions of Section 7(b) of Omega's Pledge Agreement which
prohibit the issuance of stock or other securities in addition to or in
substitution of the "Pledged Shares" (as defined in the Pledge Agreement),
except to the Omega.
SECTION 30. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF MINNESOTA. Whenever possible, each provision of this Agreement and
any other statement, instrument or transaction contemplated hereby or relating
hereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or any other statement, instrument or
transaction contemplated hereby or relating hereto.
SECTION 31. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
-----------------------
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE GRANTOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GRANTOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
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<PAGE>
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
SECTION 32. WAIVER OF NOTICE AND HEARING. THE GRANTOR HEREBY WAIVES
----------------------------
ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.
SECTION 33. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR AND THE
--------------------
SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 34. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
Section 35. General. All representations and warranties contained in
-------
this Agreement or in any other agreement between the Grantor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations. The Grantor waives notice of
the acceptance of this Agreement by the Secured Party. Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
BULRAD ILLINOIS, INC.
By /s/ ROBERT L. MORAN
---------------------------------
Name ____________________________
Title ___________________________
Address for Grantor:
U.S. BANK NATIONAL
ASSOCIATION, as Collateral Agent
By /s/ MARK R. OLMON
----------------------------
Name ____________________________
Title ___________________________
Address for the Secured Party:
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mark R. Olmon, MPFP0702
Telecopier No.: (612) 973-0825
-17-
<PAGE>
SCHEDULE I
to
Security Agreement
Locations of Equipment and Inventory
as of Date of Security Agreement
[Locations to be provided, including county. Locations not owned by Grantor
should be specified with name of landlord or warehouse.]
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<PAGE>
SCHEDULE II
to
Security Agreement
Trade Names and Trade Styles
[To be provided.]
-19-
<PAGE>
EXHIBIT 10.29
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of January 29, 1999 is made and given
by OMEGA KITCHEN CRAFT HOLDINGS CORP., a Delaware corporation (the "Pledgor"),
to U.S. BANK NATIONAL ASSOCIATION, a national banking association, as collateral
agent for the "Lenders" (as defined below) pursuant to the "Intercreditor
Agreement" (as defined below) (in such capacity, the "Secured Party").
RECITALS
--------
A. Omega Cabinets, Ltd., a Delaware corporation ("Omega") and Panther
Transport, Inc., an Iowa corporation ("Panther") (each a "Borrower" and
collectively, the "Borrowers"), together with certain Affiliates, certain
financial institutions (the "Banks") and U.S. Bank National Association, as
Agent, have entered into an Amended and Restated Credit Agreement dated as of
January 29, 1999 (as the same may hereafter be amended, restated, or otherwise
modified from time to time, the "USBNA Credit Agreement") pursuant to which the
Banks have agreed to extend to the Borrowers certain credit accommodations.
B. Omega has executed and delivered a guaranty (the "CIBC Guaranty")
to the financial institutions party to a Credit Agreement dated as of January
29, 1999 among 3578275 Canada, Inc., as assumed by operation of law in an
amalgamation by Kitchen Craft of Canada, Ltd. ("New Kitchen Craft"), such
financial institutions party thereto, and Canadian Imperial Bank of Commerce, as
Agent (as the same may hereafter be amended, supplemented, extended, restated or
otherwise modified from time to time, the "CIBC Credit Agreement", and together
with the USBNA Credit Agreement, the "Credit Agreements"), pursuant to which
CIBC Guaranty Omega has guaranteed the obligations of New Kitchen Craft under
the CIBC Credit Agreement.
C. Pledgor is a wholly-owned Subsidiary of Omega.
D. The Pledgor is the owner of the shares (the "Pledged Shares") of
stock described in Part I of Schedule I hereto issued by the corporation or
corporations named therein.
E. It is a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreements that
this Agreement be executed and delivered by the Pledgor.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to enter into the Credit Agreements and to extend credit
accommodations thereunder, the Pledgor hereby agrees with the Secured Party, for
the benefit of the Lenders and the Agents, as follows:
<PAGE>
Section 1. Defined Terms.
-------------
1(a) As used in this Agreement, the following terms shall have the
meanings indicated:
"Agent" shall mean the "Agent" (as defined in the USBNA Credit
-----
Agreement) or the "Agent" (as defined in the CIBC Credit Agreement).
"CIBC Guaranty" shall have the meaning given to such term in Recital
-------------
B.
"Collateral" shall have the meaning given to such term in Section 2.
----------
"Credit Agreements" shall have the meaning given in Recital B.
-----------------
"Event of Default" shall have the meaning given to such term in
----------------
Section 11.
"Intercreditor Agreement" shall mean the Intercreditor Agreement dated
-----------------------
as of January 29, 1999 among the Lenders, as the same may be amended,
supplemented, extended, restated or otherwise modified from time to time.
"Kitchen Craft": shall have the meaning given to such term in Recital
-------------
B.
"Lenders" shall mean, collectively, the "Banks" (as defined in the
-------
USBNA Credit Agreement) and the "Lenders" (as defined in the CIBC Credit
Agreement).
"Lien" shall mean any security interest, mortgage, pledge, lien,
----
charge, encumbrance, title retention agreement or analogous instrument or device
(including the interest of the lessors under capitalized leases), in, of or on
any assets or properties of the Person referred to.
"Obligations" shall mean all (a) all indebtedness, liabilities and
-----------
obligations of the Pledgor to the Lenders and the Agents of every kind, nature
or description under the USBNA Credit Agreement or the CIBC Guaranty, including
without limitation each Borrower's respective obligation on any promissory note
or notes under the USBNA Credit Agreement and any note or notes hereafter issued
in substitution or replacement thereof and any letter of credit reimbursement
obligations and fees, and in all of the foregoing cases whether due or to become
due, and whether now existing or hereafter arising or incurred and (b) all
liabilities of the Pledgor under this Agreement, and in all of the foregoing
cases whether due or to become due, and whether now existing or hereafter
arising or incurred.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company or partnership, joint venture, firm, association, trust,
unincorporated organization,
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<PAGE>
government or governmental agency or political subdivision or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Pledgor" shall have the meaning given to such term in the Preamble.
-------
"Pledged Shares" shall have the meaning given to such term in Recital
--------------
D above.
"Secured Party" shall have the meaning given to such term in the
-------------
Preamble.
"Security Interest" shall have the meaning given to such term in
-----------------
Section 2.
1(b) Terms Defined in Uniform Commercial Code. All other terms used
----------------------------------------
in this Agreement that are not specifically defined herein or the definitions of
which are not incorporated herein by reference shall have the meaning assigned
to such terms in the Uniform Commercial Code in effect in the State of Minnesota
as of the date first above written to the extent such other terms are defined
therein.
1(c) Singular/Plural, Etc. Unless the context of this Agreement
--------------------
otherwise clearly requires, references to the plural include the singular, the
singular, the plural and "or" has the inclusive meaning represented by the
phrase "and/or." The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation." The words "hereof,"
"herein," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
References to Sections are references to Sections in this Pledge Agreement
unless otherwise provided.
Section 2. Pledge. As security for the payment and performance of
------
all of the Obligations, the Pledgor hereby pledges to the Secured Party, for the
benefit of the Secured Party, the Agents and the Lenders, and grants to the
Secured Party a security interest, for the benefit of the Secured Party, the
Agents and the Lenders (the "Security Interest"), in the following (the
"Collateral"):
2(a) The Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the Pledged Shares.
2(b) All additional shares of stock of any issuer of the Pledged
Shares from time to time acquired by the Pledgor in any manner, and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares.
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<PAGE>
2(c) All proceeds of any and all of the foregoing (including
proceeds that constitute property of types described above).
Notwithstanding Sections 2(a), (b) and (c) above, the payment and performance of
the Obligations shall not be secured by more than sixty-six percent (66%) of the
outstanding stock or other equity interests in any foreign corporation.
Section 3. Delivery of Collateral. All certificates and instruments
----------------------
representing or evidencing the Pledged Shares shall be delivered to the Secured
Party contemporaneously with the execution of this Agreement. All certificates
and instruments representing or evidencing Collateral received by the Pledgor
after the execution of this Agreement shall be delivered to the Secured Party
promptly upon the Pledgor's receipt thereof. All such certificates and
instruments shall be held by or on behalf of the Secured Party pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Secured Party. The Secured Party shall have the
right at any time, whether before or after an Event of Default, to cause any or
all of the Collateral to be transferred of record into the name of the Secured
Party or its nominee (but subject to the rights of the Pledgor under Section 6)
and to exchange certificates representing or evidencing Collateral for
certificates of smaller or larger denominations. Notwithstanding any of the
foregoing, as to any Collateral consisting of book-entry or uncertificated
securities or securities which are held by a third Person, the Pledgor shall
deliver to the Secured Party evidence satisfactory to the Secured Party that
such Collateral has been registered in the name of, or as pledged to, the
Secured Party. Such evidence shall include the acknowledgment of the issuer or
Person holding such Collateral that such issuer or Person holds such Collateral
as agent for the Secured Party and that such Collateral is identified on the
books of such issuer or third Person as belonging to or pledged to the Secured
Party.
Section 4. Certain Warranties and Covenants. The Pledgor makes the
--------------------------------
following warranties and covenants:
4(a) The Pledgor has title to the Pledged Shares and will have
title to each other item of Collateral hereafter acquired, free of all
Liens except the Security Interest.
4(b) The Pledgor has full power and authority to execute this
Pledge Agreement, to perform the Pledgor's obligations hereunder and to
subject the Collateral to the Security Interest created hereby.
4(c) No financing statement covering all or any part of the
Collateral is on file in any public office (except for any financing
statements filed by the Secured Party.
4(d) The Pledged Shares have been duly authorized and validly
issued by the issuer thereof and are fully paid and non-assessable. The
Pledged Shares are not subject to any offset or similar right or claim of
the issuers thereof.
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4(e) The Pledged Shares constitute the percentage of the issued
and outstanding shares of stock of the respective issuers thereof indicated
on Schedule I (if any such percentage is so indicated).
Section 5. Further Assurances. The Pledgor agrees that at any time
------------------
and from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that may be necessary or that the Secured Party may reasonably request,
in order to perfect and protect the Security Interest or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Collateral (but any failure to request or assure that the Pledgor execute
and deliver such instruments or documents or to take such action shall not
affect or impair the validity, sufficiency or enforceability of this Agreement
and the Security Interest, regardless of whether any such item was or was not
executed and delivered or action taken in a similar context or on a prior
occasion).
Section 6. Voting Rights; Dividends; Etc.
-----------------------------
6(a) Subject to paragraph (d) of this Section 6, the Pledgor
shall be entitled to exercise or refrain from exercising any and all voting
and other consensual rights pertaining to the Pledged Shares or any other
stock that becomes part of the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Credit
Agreement; provided, however, that the Pledgor shall not exercise or
refrain from exercising any such right if such action could reasonably be
expected to have a material adverse effect on the value of the Collateral
or any material part thereof.
6(b) Subject to paragraph (e) of this Section 6, the Pledgor
shall be entitled to receive, retain, and use in any manner not prohibited
by the Credit Agreement any and all interest and dividends paid in respect
of the Collateral; provided, however, that any and all
-------- -------
(i) dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Collateral,
(ii) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral,
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shall be, and shall be forthwith delivered to the Secured Party to hold as,
Collateral and shall, if received by the Pledgor, be received in trust for
the benefit of the Secured Party, be segregated from the other property or
funds of the Pledgor, and be forthwith delivered to the Secured Party as
Collateral in the same form as so received (with any necessary indorsement
or assignment). The Pledgor shall, upon request by the Secured Party,
promptly execute all such documents and do all such acts as may be
necessary or desirable to give effect to the provisions of this Section 6
(b).
6(c) The Secured Party shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to Section 6 (a) hereof and to receive the
dividends and interest that it is authorized to receive and retain pursuant
to Section 6 (b) hereof.
6(d) Upon the occurrence and during the continuance of any Event
of Default, the Secured Party shall have the right in its sole discretion,
and the Pledgor shall execute and deliver all such proxies and other
instruments as may be necessary or appropriate to give effect to such
right, to terminate all rights of the Pledgor to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 6 (a) hereof, and all such
rights shall thereupon become vested in the Secured Party who shall
thereupon have the sole right to exercise or refrain from exercising such
voting and other consensual rights; provided, however, that the Secured
Party shall not be deemed to possess or have control over any voting rights
with respect to any Collateral unless and until the Secured Party has given
written notice to the Pledgor that any further exercise of such voting
rights by the Pledgor is prohibited and that the Secured Party and/or its
assigns will henceforth exercise such voting rights; and provided, further,
that neither the registration of any item of Collateral in the Secured
Party's name nor the exercise of any voting rights with respect thereto
shall be deemed to constitute a retention by the Secured Party of any such
Collateral in satisfaction of the Obligations or any part thereof.
6(e) Upon the occurrence and during the continuance of any Event
of Default:
(i) all rights of the Pledgor to receive the dividends and interest
that it would otherwise be authorized to receive and retain pursuant
to Section 6(b) hereof shall cease, and all such rights shall
thereupon become vested in the Secured Party who shall thereupon have
the sole right to receive and hold such dividends as Collateral, and
(ii) all payments of interest and dividends that are received by the
Pledgor contrary to the provisions of paragraph (i) of this Section 6
(e) shall be received in trust for the benefit of the Lenders and the
Secured Party, shall be segregated from
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other funds of the Pledgor and shall be forthwith paid over to the
Secured Party as Collateral in the same form as so received (with any
necessary indorsement).
Section 7. Transfers and Other Liens; Additional Shares.
--------------------------------------------
7(a) Except as may be permitted by the Credit Agreement, the
Pledgor agrees that it will not (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, or (ii) create or permit to exist any Lien, upon or
with respect to any of the Collateral.
7(b) The Pledgor agrees that it will (i) cause each issuer of
the Pledged Shares that it controls not to issue any stock or other
securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to the Pledgor, and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and
all additional shares of stock or other securities of each issuer of the
Pledged Shares.
Section 8. Secured Party Appointed Attorney-in-Fact. Effective upon
---------------------------------------
and during the continuance of an Event of Default, the Pledgor hereby appoints
the Secured Party the Pledgor's attorney-in-fact, with full authority in the
place and stead of such Pledgor and in the name of such Pledgor or otherwise,
from time to time in the Secured Party's good-faith discretion, to take any
action and to execute any instrument that the Secured Party may reasonably
believe necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of the Pledgor under Section 6 hereof), in a manner
consistent with the terms hereof, including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor representing any
dividend or other distribution in respect of the Collateral or any part thereof
and to give full discharge for the same.
Section 9. Secured Party May Perform. Upon the occurrence and during
-------------------------
the continuance of an Event of Default, if the Pledgor fails to perform any
agreement contained herein, the Secured Party may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Secured Party
incurred in connection therewith shall be payable by the Pledgor under Section
14 hereof.
Section 10. The Secured Party's Duties. The powers conferred on the
--------------------------
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Secured
Party shall be deemed to have exercised reasonable care in the safekeeping of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to the safekeeping which the Secured Party accords its own
property of like kind. Except for the safekeeping of any Collateral in its
possession and the accounting for monies and for other properties actually
received by it hereunder, the Secured Party shall have no duty, as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Secured Party has or is deemed to have knowledge
of such matters, or as to
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the taking of any necessary steps to preserve rights against any Persons or any
other rights pertaining to any Collateral. The Secured Party will take action in
the nature of exchanges, conversions, redemption, tenders and the like requested
in writing by the Pledgor with respect to any of the Collateral in the Secured
Party's possession if the Secured Party in its reasonable judgment determines
that such action will not impair the Security Interest or the value of the
Collateral, but a failure of the Secured Party to comply with any such request
shall not of itself be deemed a failure to exercise reasonable care.
Section 11. Default. Each of the following occurrences shall
-------
constitute an Event of Default under this Agreement: (a) the Pledgor shall fail
to observe or perform any covenant or agreement applicable to the Pledgor under
this Agreement within fifteen (15) days after the earlier to occur of (i) the
date the Pledgor gives notice of such failure to the Secured Party, or (ii) the
date the Secured Party gives notice of such failure to the Pledgor; or (b) any
representation or warranty made by the Pledgor in this Agreement or in any
financial statements, reports or certificates heretofore or at any time
hereafter submitted by or on behalf of the Pledgor to the Secured Party shall
prove to have been false or materially misleading when made; or (c) any Event of
Default shall occur under either Credit Agreement (beyond the applicable cure
period specified therein).
Section 12. Remedies upon Default. If any Event of Default shall
---------------------
have occurred and be continuing:
12(a) The Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
on default under the Uniform Commercial Code of the State of Minnesota (the
"Code") in effect at that time (whether or not the Code then applies to the
affected Collateral), and may, without notice except as specified below,
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Secured
Party's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Secured Party may reasonably believe are
commercially reasonable. The Pledgor agrees that, to the extent notice of
sale shall be required by law, at least ten days' prior notice to the
Pledgor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
The Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Secured Party may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the extent
permitted by applicable law, the Pledgor hereby waives all requirements of
law, if any, relating to the marshalling of assets which would be
applicable in connection with the enforcement by the Secured Party of its
remedies hereunder, absent this waiver.
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12(b) The Secured Party may notify any Person obligated on any
of the Collateral that the same has been assigned or transferred to the
Secured Party and that the same should be performed as requested by, or
paid directly to, the Secured Party, as the case may be. The Pledgor shall
join in giving such notice, if the Secured Party so requests. The Secured
Party may, in the Secured Party's name or in the Pledgor's name, demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such Collateral or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligation of any such Person.
12(c) Any cash held by the Secured Party as Collateral and all
cash proceeds received by the Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in accordance with the Intercreditor Agreement, be held by
the Secured Party as collateral for, or then or at any time thereafter be
applied in whole or in part by the Secured Party against, all or any part
of the Obligations (including any expenses of the Secured Party payable
pursuant to Section 14 hereof).
Section 13. Waiver of Certain Claims. The Pledgor acknowledges that
------------------------
because of present or future circumstances, a question may arise under the
Securities Act of 1933, as from time to time amended (the "Securities Act"),
with respect to any disposition of the Collateral permitted hereunder. The
Pledgor understands that compliance with the Securities Act may very strictly
limit the course of conduct of the Secured Party if the Secured Party were to
attempt to dispose of all or any portion of the Collateral and may also limit
the extent to which or the manner in which any subsequent transferee of the
Collateral or any portion thereof may dispose of the same. There may be other
legal restrictions or limitations affecting the Secured Party in any attempt to
dispose of all or any portion of the Collateral under the applicable Blue Sky or
other securities laws or similar laws analogous in purpose or effect. The
Secured Party may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such Collateral for their own account for investment only and not to
engage in a distribution or resale thereof. The Pledgor agrees that to the
extent not in violation of applicable law, the Secured Party shall not incur any
liability, and any liability of the Pledgor for any deficiency shall not be
impaired, as a result of the sale of the Collateral or any portion thereof at
any such private sale in a manner that the Secured Party reasonably believes is
commercially reasonable (within the meaning of Section 9-504(3) of the Uniform
Commercial Code). The Pledgor hereby waives any claims against the Secured
Party, either Agent or any Lender arising by reason of the fact that the price
at which the Collateral may have been sold at such sale was less than the price
that might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Secured Party shall accept the first
offer received and does not offer any portion of the Collateral to more than one
possible purchaser. The Pledgor further agrees that to the extent not in
violation of applicable law (including federal and state securities laws), the
Secured Party has no obligation to delay sale of any Collateral for the period
of time necessary to permit the issuer of such Collateral to qualify or
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register such Collateral for public sale under the Securities Act, applicable
Blue Sky laws and other applicable state and federal securities laws, even if
said issuer would agree to do so. Without limiting the generality of the
foregoing, the provisions of this Section would apply if, for example, the
Secured Party were to place all or any portion of the Collateral for private
placement by an investment banking firm, or if such investment banking firm
purchased all or any portion of the Collateral for its own account, or if the
Secured Party placed all or any portion of the Collateral privately with a
purchaser or purchasers.
Section 14. Costs and Expenses; Indemnity. The Pledgor will pay or
-----------------------------
reimburse the Secured Party on demand for all reasonable out-of-pocket expenses
(including in each case all filing and recording fees and taxes and all
reasonable fees and expenses of counsel and of any experts and agents) incurred
by the Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest. The Pledgor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
(including enforcement of this Agreement) or the Secured Party's actions
pursuant hereto, except claims, losses or liabilities resulting from the Secured
Party's gross negligence or willful misconduct. Any liability of the Pledgor to
indemnify and hold the Secured Party harmless pursuant to the preceding sentence
shall be part of the Obligations secured by the Security Interest. The
obligations of the Pledgor under this Section shall survive any termination of
this Agreement.
Section 15. Waivers and Amendments; Remedies. Notwithstanding any
--------------------------------
provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Pledgor; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure herefrom by the Pledgor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. The Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver so signed shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any rights and remedies available to the Secured
Party. All rights and remedies of the Secured Party shall be cumulative and may
be exercised singly in any order or sequence, or concurrently, at the Secured
Party's option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other.
Section 16. Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
pursuant to the applicable Credit Agreement. All periods of notice shall be
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measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from three days after the date of mailing if mailed.
Section 17. Pledgor Acknowledgments. The Pledgor hereby acknowledges
-----------------------
that (a) the Pledgor has been advised by counsel in the negotiation, execution
and delivery of this Agreement, (b) the Lenders, the Agents and the Secured
Party have no fiduciary relationship to the Pledgor, the relationship being
solely that of debtor and creditor, and (c) no joint venture exists between the
Pledgor, the Lenders, the Agents and the Secured Party.
Section 18. Continuing Security Interest; Assignments under Credit
------------------------------------------------------
Agreement. This Agreement shall create a continuing security interest in the
- ---------
Collateral and shall (a) remain in full force and effect until the payment in
full of the Obligations (except for contingent indemnity and other contingent
obligations not yet due and payable) and the expiration of the obligation, if
any, of the Lenders to extend credit accommodations to the Pledgor, (b) be
binding upon the Pledgor, its successors and assigns, and (c) inure, together
with the rights and remedies of the Secured Party hereunder, to the benefit of
the Secured Party, the Lenders and the Agents, and be enforceable by the Secured
Party and its respective successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), the Lenders or the Agents may assign
or otherwise transfer all or any portion of their rights and obligations under
the Credit Agreements to any other Person to the extent and in the manner
provided in the Credit Agreements, and may transfer all or any portion of their
rights under this Pledge Agreement to such Persons in connection therewith.
Section 19. Termination of Security Interest. Upon payment in full
--------------------------------
of the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Lenders to extend credit accommodations to the Pledgor or Kitchen Craft, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination, the Secured
Party will return to the Pledgor such of the Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof and execute and deliver
to the Pledgor such documents as the Pledgor shall reasonably request to
evidence such termination. Any reversion or return of the Collateral upon
termination of this Agreement and any instruments of transfer or termination
shall be at the expense of the Pledgor and shall be without warranty by, or
recourse on, the Secured Party. As used in this Section, "Pledgor" includes any
assigns of Pledgor, any Person holding a subordinate security interest in any
part of the Collateral or whoever else may be lawfully entitled to any part of
the Collateral.
SECTION 20. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS; PROVIDED, HOWEVER, THAT NO EFFECT SHALL BE
GIVEN
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TO CONFLICT OF LAWS PRINCIPLES OF THE STATE OF MINNESOTA, EXCEPT TO THE EXTENT
THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF MINNESOTA. Whenever possible,
each provision of this Agreement and any other statement, instrument or
transaction contemplated hereby or relating hereto shall be interpreted in such
manner as to be effective and valid under such applicable law, but, if any
provision of this Agreement or any other statement, instrument or transaction
contemplated hereby or relating hereto shall be held to be prohibited or invalid
under such applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto.
SECTION 21. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
-----------------------
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE PLEDGOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE PLEDGOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
SECTION 22. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE
--------------------
SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 23. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
Section 24. General. All representations and warranties contained in
-------
this Agreement or in any other agreement between the Pledgor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations. The Pledgor waives notice of
the acceptance of this Agreement by the Secured
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Party. Captions in this Agreement are for reference and convenience only and
shall not affect the interpretation or meaning of any provision of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
PLEDGOR:
OMEGA KITCHEN CRAFT HOLDINGS CORP.
By /s/ ROBERT L. MORAN
---------------------------
Name ________________________
Title________________________
Address for Pledgor:
1205 Peters Drive
Waterloo, Iowa 50703
U.S. BANK NATIONAL ASSOCIATION
By /s/ MARK R. OLMON
---------------------------
Name ________________________
Title________________________
Address for the Secured Party:
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mark R. Olmon, MPFP0702
Telecopier No.: (612) 973-0825
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SCHEDULE I
PLEDGED STOCK
- -------------
Stock Issuer:
Percentage Ownership: 100%
Class of Stock:
Certificate No(s).:
Par Value:
Number of Shares:
Stock Issuer:
Percentage Ownership: 100%
Class of Stock:
Certificate No(s).:
Par Value:
Number of Shares:
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EXHIBIT 10.30
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of January 29, 1999 is made and given
by OMEGA KITCHEN CRAFT U.S. CORP., a Delaware corporation (the "Pledgor"), to
U.S. BANK NATIONAL ASSOCIATION, a national banking association, as collateral
agent for the "Lenders" (as defined below) pursuant to the "Intercreditor
Agreement" (as defined below) (in such capacity, the "Secured Party").
RECITALS
--------
A. Omega Cabinets, Ltd., a Delaware corporation ("Omega") and
Panther Transport, Inc., an Iowa corporation ("Panther") (each a "Borrower" and
collectively, the "Borrowers"), together with certain Affiliates, certain
financial institutions (the "Banks") and U.S. Bank National Association, as
Agent, have entered into an Amended and Restated Credit Agreement dated as of
January 29, 1999 (as the same may hereafter be amended, restated, or otherwise
modified from time to time, the "USBNA Credit Agreement") pursuant to which the
Banks have agreed to extend to the Borrowers certain credit accommodations.
B. Omega has executed and delivered a guaranty (the "CIBC Guaranty")
to the financial institutions party to a Credit Agreement dated as of January
29, 1999 among 3578275 Canada, Inc., as assumed by operation of law in an
amalgamation by Kitchen Craft of Canada, Ltd. ("New Kitchen Craft"), such
financial institutions party thereto, and Canadian Imperial Bank of Commerce, as
Agent (as the same may hereafter be amended, supplemented, extended, restated or
otherwise modified from time to time, the "CIBC Credit Agreement", and together
with the USBNA Credit Agreement, the "Credit Agreements"), pursuant to which
CIBC Guaranty Omega has guaranteed the obligations of New Kitchen Craft under
the CIBC Credit Agreement.
C. Pledgor is a wholly-owned Subsidiary of Omega.
D. The Pledgor is the owner of the shares (the "Pledged Shares") of
stock described in Part I of Schedule I hereto issued by the corporation or
corporations named therein.
E. It is a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreements that
this Agreement be executed and delivered by the Pledgor.
F. The Pledgor finds it advantageous, desirable and in the best
interests of the Pledgor to comply with the requirement that this Agreement be
executed and delivered by the Pledgor.
<PAGE>
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to enter into the Credit Agreements and to extend credit
accommodations thereunder, the Pledgor hereby agrees with the Secured Party, for
the benefit of the Lenders and the Agents, as follows:
Section 1. Defined Terms.
-------------
1(a) As used in this Agreement, the following terms shall have the
meanings indicated:
"Agent" shall mean the "Agent" (as defined in the USBNA Credit
-----
Agreement) or the "Agent" (as defined in the CIBC Credit Agreement).
"CIBC Guaranty" shall have the meaning given to such term in Recital
-------------
B.
"Collateral" shall have the meaning given to such term in Section 2.
----------
"Credit Agreements" shall have the meaning given in Recital B.
-----------------
"Event of Default" shall have the meaning given to such term in
----------------
Section 11.
"Intercreditor Agreement" shall mean the Intercreditor Agreement dated
-----------------------
as of January 29, 1999 among the Lenders, as the same may be amended,
supplemented, extended, restated or otherwise modified from time to time.
"Kitchen Craft": shall have the meaning given to such term in Recital
-------------
B.
"Lenders" shall mean, collectively, the "Banks" (as defined in the
-------
USBNA Credit Agreement) and the "Lenders" (as defined in the CIBC Credit
Agreement).
"Lien" shall mean any security interest, mortgage, pledge, lien,
----
charge, encumbrance, title retention agreement or analogous instrument or device
(including the interest of the lessors under capitalized leases), in, of or on
any assets or properties of the Person referred to.
"Obligations" shall mean all (a) all indebtedness, liabilities and
-----------
obligations of the Pledgor to the Lenders and the Agents of every kind, nature
or description under the USBNA Credit Agreement or the CIBC Guaranty, including
without limitation each Borrower's respective obligation on any promissory note
or notes under the USBNA Credit Agreement and any note or notes hereafter issued
in substitution or replacement thereof and any letter of credit reimbursement
obligations and fees, and in all of the foregoing cases whether due or to become
due, and whether now existing or hereafter arising or incurred and (b) all
liabilities of the Pledgor
-2-
<PAGE>
under this Agreement, and in all of the foregoing cases whether due or to become
due, and whether now existing or hereafter arising or incurred.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company or partnership, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.
"Pledgor" shall have the meaning given to such term in the Preamble.
-------
"Pledged Shares" shall have the meaning given to such term in Recital
--------------
D above.
"Secured Party" shall have the meaning given to such term in the
-------------
Preamble.
"Security Interest" shall have the meaning given to such term in
-----------------
Section 2.
1(b) Terms Defined in Uniform Commercial Code. All other terms used
----------------------------------------
in this Agreement that are not specifically defined herein or the definitions of
which are not incorporated herein by reference shall have the meaning assigned
to such terms in the Uniform Commercial Code in effect in the State of Minnesota
as of the date first above written to the extent such other terms are defined
therein.
1(c) Singular/Plural, Etc. Unless the context of this Agreement
--------------------
otherwise clearly requires, references to the plural include the singular, the
singular, the plural and "or" has the inclusive meaning represented by the
phrase "and/or." The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation." The words "hereof,"
"herein," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
References to Sections are references to Sections in this Pledge Agreement
unless otherwise provided.
Section 2. Pledge. As security for the payment and performance of
------
all of the Obligations, the Pledgor hereby pledges to the Secured Party, for the
benefit of the Secured Party, the Agents and the Lenders, and grants to the
Secured Party a security interest, for the benefit of the Secured Party, the
Agents and the Lenders (the "Security Interest"), in the following (the
"Collateral"):
2(a) The Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the Pledged Shares.
2(b) All additional shares of stock of any issuer of the Pledged
Shares from time to time acquired by the Pledgor in any manner, and the
certificates representing
-3-
<PAGE>
such additional shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares.
2(c) All proceeds of any and all of the foregoing (including
proceeds that constitute property of types described above).
Notwithstanding Sections 2(a), (b) and (c) above, the payment and performance of
the Obligations shall not be secured by more than sixty-six percent (66%) of the
outstanding stock or other equity interests in any foreign corporation.
Section 3. Delivery of Collateral. All certificates and instruments
----------------------
representing or evidencing the Pledged Shares shall be delivered to the Secured
Party contemporaneously with the execution of this Agreement. All certificates
and instruments representing or evidencing Collateral received by the Pledgor
after the execution of this Agreement shall be delivered to the Secured Party
promptly upon the Pledgor's receipt thereof. All such certificates and
instruments shall be held by or on behalf of the Secured Party pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Secured Party. The Secured Party shall have the
right at any time, whether before or after an Event of Default, to cause any or
all of the Collateral to be transferred of record into the name of the Secured
Party or its nominee (but subject to the rights of the Pledgor under Section 6)
and to exchange certificates representing or evidencing Collateral for
certificates of smaller or larger denominations. Notwithstanding any of the
foregoing, as to any Collateral consisting of book-entry or uncertificated
securities or securities which are held by a third Person, the Pledgor shall
deliver to the Secured Party evidence satisfactory to the Secured Party that
such Collateral has been registered in the name of, or as pledged to, the
Secured Party. Such evidence shall include the acknowledgment of the issuer or
Person holding such Collateral that such issuer or Person holds such Collateral
as agent for the Secured Party and that such Collateral is identified on the
books of such issuer or third Person as belonging to or pledged to the Secured
Party.
Section 4. Certain Warranties and Covenants. The Pledgor makes the
--------------------------------
following warranties and covenants:
4(a) The Pledgor has title to the Pledged Shares and will have
title to each other item of Collateral hereafter acquired, free of all
Liens except the Security Interest.
4(b) The Pledgor has full power and authority to execute this
Pledge Agreement, to perform the Pledgor's obligations hereunder and to
subject the Collateral to the Security Interest created hereby.
4(c) No financing statement covering all or any part of the
Collateral is on file in any public office (except for any financing
statements filed by the Secured Party.
-4-
<PAGE>
4(d) The Pledged Shares have been duly authorized and validly
issued by the issuer thereof and are fully paid and non-assessable. The
Pledged Shares are not subject to any offset or similar right or claim of
the issuers thereof.
4(e) The Pledged Shares constitute the percentage of the issued
and outstanding shares of stock of the respective issuers thereof indicated
on Schedule I (if any such percentage is so indicated).
Section 5. Further Assurances. The Pledgor agrees that at any time
------------------
and from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that may be necessary or that the Secured Party may reasonably request,
in order to perfect and protect the Security Interest or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Collateral (but any failure to request or assure that the Pledgor execute
and deliver such instruments or documents or to take such action shall not
affect or impair the validity, sufficiency or enforceability of this Agreement
and the Security Interest, regardless of whether any such item was or was not
executed and delivered or action taken in a similar context or on a prior
occasion).
Section 6. Voting Rights; Dividends; Etc.
-----------------------------
6(a) Subject to paragraph (d) of this Section 6, the Pledgor
shall be entitled to exercise or refrain from exercising any and all voting
and other consensual rights pertaining to the Pledged Shares or any other
stock that becomes part of the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Credit
Agreement; provided, however, that the Pledgor shall not exercise or
refrain from exercising any such right if such action could reasonably be
expected to have a material adverse effect on the value of the Collateral
or any material part thereof.
6(b) Subject to paragraph (e) of this Section 6, the Pledgor
shall be entitled to receive, retain, and use in any manner not prohibited
by the Credit Agreement any and all interest and dividends paid in respect
of the Collateral; provided, however, that any and all
-------- -------
(i) dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Collateral,
(ii) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
-5-
<PAGE>
(iii) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to the Secured Party to hold as,
Collateral and shall, if received by the Pledgor, be received in trust for
the benefit of the Secured Party, be segregated from the other property or
funds of the Pledgor, and be forthwith delivered to the Secured Party as
Collateral in the same form as so received (with any necessary indorsement
or assignment). The Pledgor shall, upon request by the Secured Party,
promptly execute all such documents and do all such acts as may be
necessary or desirable to give effect to the provisions of this Section 6
(b).
6(c) The Secured Party shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to Section 6 (a) hereof and to receive the
dividends and interest that it is authorized to receive and retain pursuant
to Section 6 (b) hereof.
6(d) Upon the occurrence and during the continuance of any Event
of Default, the Secured Party shall have the right in its sole discretion,
and the Pledgor shall execute and deliver all such proxies and other
instruments as may be necessary or appropriate to give effect to such
right, to terminate all rights of the Pledgor to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 6 (a) hereof, and all such
rights shall thereupon become vested in the Secured Party who shall
thereupon have the sole right to exercise or refrain from exercising such
voting and other consensual rights; provided, however, that the Secured
Party shall not be deemed to possess or have control over any voting rights
with respect to any Collateral unless and until the Secured Party has given
written notice to the Pledgor that any further exercise of such voting
rights by the Pledgor is prohibited and that the Secured Party and/or its
assigns will henceforth exercise such voting rights; and provided, further,
that neither the registration of any item of Collateral in the Secured
Party's name nor the exercise of any voting rights with respect thereto
shall be deemed to constitute a retention by the Secured Party of any such
Collateral in satisfaction of the Obligations or any part thereof.
6(e) Upon the occurrence and during the continuance of any Event
of Default:
(i) all rights of the Pledgor to receive the dividends and interest
that it would otherwise be authorized to receive and retain pursuant
to Section 6(b) hereof shall cease, and all such rights shall
thereupon become vested in the Secured Party who shall thereupon have
the sole right to receive and hold such dividends as Collateral, and
-6-
<PAGE>
(ii) all payments of interest and dividends that are received by the
Pledgor contrary to the provisions of paragraph (i) of this Section 6
(e) shall be received in trust for the benefit of the Lenders and the
Secured Party, shall be segregated from other funds of the Pledgor and
shall be forthwith paid over to the Secured Party as Collateral in the
same form as so received (with any necessary indorsement).
Section 7. Transfers and Other Liens; Additional Shares.
--------------------------------------------
7(a) Except as may be permitted by the Credit Agreement, the
Pledgor agrees that it will not (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to,
any of the Collateral, or (ii) create or permit to exist any Lien, upon or
with respect to any of the Collateral.
7(b) The Pledgor agrees that it will (i) cause each issuer of
the Pledged Shares that it controls not to issue any stock or other
securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to the Pledgor, and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and
all additional shares of stock or other securities of each issuer of the
Pledged Shares.
Section 8. Secured Party Appointed Attorney-in-Fact. Effective upon
----------------------------------------
and during the continuance of an Event of Default, the Pledgor hereby appoints
the Secured Party the Pledgor's attorney-in-fact, with full authority in the
place and stead of such Pledgor and in the name of such Pledgor or otherwise,
from time to time in the Secured Party's good-faith discretion, to take any
action and to execute any instrument that the Secured Party may reasonably
believe necessary or advisable to accomplish the purposes of this Agreement
(subject to the rights of the Pledgor under Section 6 hereof), in a manner
consistent with the terms hereof, including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor representing any
dividend or other distribution in respect of the Collateral or any part thereof
and to give full discharge for the same.
Section 9. Secured Party May Perform. Upon the occurrence and during
-------------------------
the continuance of an Event of Default, if the Pledgor fails to perform any
agreement contained herein, the Secured Party may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Secured Party
incurred in connection therewith shall be payable by the Pledgor under Section
14 hereof.
Section 10. The Secured Party's Duties. The powers conferred on the
--------------------------
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Secured
Party shall be deemed to have exercised reasonable care in the safekeeping of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to the safekeeping which the Secured Party accords its own
property of like kind. Except for the safekeeping of any Collateral in its
possession and the accounting for monies and for other properties actually
received by it hereunder, the Secured
-7-
<PAGE>
Party shall have no duty, as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Collateral, whether or not the Secured Party has
or is deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve rights against any Persons or any other rights
pertaining to any Collateral. The Secured Party will take action in the nature
of exchanges, conversions, redemption, tenders and the like requested in writing
by the Pledgor with respect to any of the Collateral in the Secured Party's
possession if the Secured Party in its reasonable judgment determines that such
action will not impair the Security Interest or the value of the Collateral, but
a failure of the Secured Party to comply with any such request shall not of
itself be deemed a failure to exercise reasonable care.
Section 11. Default. Each of the following occurrences shall
-------
constitute an Event of Default under this Agreement: (a) the Pledgor shall fail
to observe or perform any covenant or agreement applicable to the Pledgor under
this Agreement within fifteen (15) days after the earlier to occur of (i) the
date the Pledgor gives notice of such failure to the Secured Party, or (ii) the
date the Secured Party gives notice of such failure to the Pledgor; or (b) any
representation or warranty made by the Pledgor in this Agreement or in any
financial statements, reports or certificates heretofore or at any time
hereafter submitted by or on behalf of the Pledgor to the Secured Party shall
prove to have been false or materially misleading when made; or (c) any Event of
Default shall occur under either Credit Agreement (beyond the applicable cure
period specified therein).
Section 12. Remedies upon Default. If any Event of Default shall
---------------------
have occurred and be continuing:
12(a) The Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
on default under the Uniform Commercial Code of the State of Minnesota (the
"Code") in effect at that time (whether or not the Code then applies to the
affected Collateral), and may, without notice except as specified below,
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Secured
Party's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Secured Party may reasonably believe are
commercially reasonable. The Pledgor agrees that, to the extent notice of
sale shall be required by law, at least ten days' prior notice to the
Pledgor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
The Secured Party shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Secured Party may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the extent
permitted by applicable law, the Pledgor hereby waives all requirements of
law, if any,
-8-
<PAGE>
relating to the marshalling of assets which would be applicable in
connection with the enforcement by the Secured Party of its remedies
hereunder, absent this waiver.
12(b) The Secured Party may notify any Person obligated on any
of the Collateral that the same has been assigned or transferred to the
Secured Party and that the same should be performed as requested by, or
paid directly to, the Secured Party, as the case may be. The Pledgor shall
join in giving such notice, if the Secured Party so requests. The Secured
Party may, in the Secured Party's name or in the Pledgor's name, demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such Collateral or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligation of any such Person.
12(c) Any cash held by the Secured Party as Collateral and all
cash proceeds received by the Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in accordance with the Intercreditor Agreement, be held by
the Secured Party as collateral for, or then or at any time thereafter be
applied in whole or in part by the Secured Party against, all or any part
of the Obligations (including any expenses of the Secured Party payable
pursuant to Section 14 hereof).
Section 13. Waiver of Certain Claims. The Pledgor acknowledges that
------------------------
because of present or future circumstances, a question may arise under the
Securities Act of 1933, as from time to time amended (the "Securities Act"),
with respect to any disposition of the Collateral permitted hereunder. The
Pledgor understands that compliance with the Securities Act may very strictly
limit the course of conduct of the Secured Party if the Secured Party were to
attempt to dispose of all or any portion of the Collateral and may also limit
the extent to which or the manner in which any subsequent transferee of the
Collateral or any portion thereof may dispose of the same. There may be other
legal restrictions or limitations affecting the Secured Party in any attempt to
dispose of all or any portion of the Collateral under the applicable Blue Sky or
other securities laws or similar laws analogous in purpose or effect. The
Secured Party may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such Collateral for their own account for investment only and not to
engage in a distribution or resale thereof. The Pledgor agrees that to the
extent not in violation of applicable law, the Secured Party shall not incur any
liability, and any liability of the Pledgor for any deficiency shall not be
impaired, as a result of the sale of the Collateral or any portion thereof at
any such private sale in a manner that the Secured Party reasonably believes is
commercially reasonable (within the meaning of Section 9-504(3) of the Uniform
Commercial Code). The Pledgor hereby waives any claims against the Secured
Party, either Agent or any Lender arising by reason of the fact that the price
at which the Collateral may have been sold at such sale was less than the price
that might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Secured Party shall accept the first
offer received and does not offer any portion of the Collateral to more than one
possible
-9-
<PAGE>
purchaser. The Pledgor further agrees that to the extent not in violation of
applicable law (including federal and state securities laws), the Secured Party
has no obligation to delay sale of any Collateral for the period of time
necessary to permit the issuer of such Collateral to qualify or register such
Collateral for public sale under the Securities Act, applicable Blue Sky laws
and other applicable state and federal securities laws, even if said issuer
would agree to do so. Without limiting the generality of the foregoing, the
provisions of this Section would apply if, for example, the Secured Party were
to place all or any portion of the Collateral for private placement by an
investment banking firm, or if such investment banking firm purchased all or any
portion of the Collateral for its own account, or if the Secured Party placed
all or any portion of the Collateral privately with a purchaser or purchasers.
Section 14. Costs and Expenses; Indemnity. The Pledgor will pay or
-----------------------------
reimburse the Secured Party on demand for all reasonable out-of-pocket expenses
(including in each case all filing and recording fees and taxes and all
reasonable fees and expenses of counsel and of any experts and agents) incurred
by the Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest. The Pledgor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
(including enforcement of this Agreement) or the Secured Party's actions
pursuant hereto, except claims, losses or liabilities resulting from the Secured
Party's gross negligence or willful misconduct. Any liability of the Pledgor to
indemnify and hold the Secured Party harmless pursuant to the preceding sentence
shall be part of the Obligations secured by the Security Interest. The
obligations of the Pledgor under this Section shall survive any termination of
this Agreement.
Section 15. Waivers and Amendments; Remedies. Notwithstanding any
--------------------------------
provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Pledgor; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure herefrom by the Pledgor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. The Security
Interest can be released, only explicitly in a writing signed by the Secured
Party. A waiver so signed shall be effective only in the specific instance and
for the specific purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any rights and remedies available to the Secured
Party. All rights and remedies of the Secured Party shall be cumulative and may
be exercised singly in any order or sequence, or concurrently, at the Secured
Party's option, and the exercise or enforcement of any such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other.
Section 16. Notices. Except when telephonic notice is expressly
-------
authorized by this Agreement, any notice or other communication to any party in
connection with this
-10-
<PAGE>
Agreement shall be in writing and shall be sent by manual delivery, telegram,
telex, facsimile transmission, overnight courier or United States mail (postage
prepaid) addressed to such party at the address specified pursuant to the
applicable Credit Agreement. All periods of notice shall be measured from the
date of delivery thereof if manually delivered, from the date of sending thereof
if sent by telegram, telex or facsimile transmission, from the first Business
Day after the date of sending if sent by overnight courier, or from three days
after the date of mailing if mailed.
Section 17. Pledgor Acknowledgments. The Pledgor hereby acknowledges
-----------------------
that (a) the Pledgor has been advised by counsel in the negotiation, execution
and delivery of this Agreement, (b) the Lenders, the Agents and the Secured
Party have no fiduciary relationship to the Pledgor, the relationship being
solely that of debtor and creditor, and (c) no joint venture exists between the
Pledgor, the Lenders, the Agents and the Secured Party.
Section 18. Continuing Security Interest; Assignments under Credit
------------------------------------------------------
Agreement. This Agreement shall create a continuing security interest in the
- ---------
Collateral and shall (a) remain in full force and effect until the payment in
full of the Obligations (except for contingent indemnity and other contingent
obligations not yet due and payable) and the expiration of the obligation, if
any, of the Lenders to extend credit accommodations to the Pledgor, (b) be
binding upon the Pledgor, its successors and assigns, and (c) inure, together
with the rights and remedies of the Secured Party hereunder, to the benefit of
the Secured Party, the Lenders and the Agents, and be enforceable by the Secured
Party and its respective successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), the Lenders or the Agents may assign
or otherwise transfer all or any portion of their rights and obligations under
the Credit Agreements to any other Person to the extent and in the manner
provided in the Credit Agreements, and may transfer all or any portion of their
rights under this Pledge Agreement to such Persons in connection therewith.
Section 19. Termination of Security Interest. Upon payment in full
--------------------------------
of the Obligations (except for contingent indemnity and other contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Lenders to extend credit accommodations to the Pledgor or Kitchen Craft, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination, the Secured
Party will return to the Pledgor such of the Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof and execute and deliver
to the Pledgor such documents as the Pledgor shall reasonably request to
evidence such termination. Any reversion or return of the Collateral upon
termination of this Agreement and any instruments of transfer or termination
shall be at the expense of the Pledgor and shall be without warranty by, or
recourse on, the Secured Party. As used in this Section, "Pledgor" includes any
assigns of Pledgor, any Person holding a subordinate security interest in any
part of the Collateral or whoever else may be lawfully entitled to any part of
the Collateral.
SECTION 20. GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE
-11-
<PAGE>
GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA, BUT GIVING EFFECT TO FEDERAL
LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS; PROVIDED, HOWEVER, THAT
NO EFFECT SHALL BE GIVEN TO CONFLICT OF LAWS PRINCIPLES OF THE STATE OF
MINNESOTA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF MINNESOTA. Whenever possible, each provision of this Agreement and any
other statement, instrument or transaction contemplated hereby or relating
hereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Agreement or any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or any other statement, instrument or
transaction contemplated hereby or relating hereto.
SECTION 21. CONSENT TO JURISDICTION. AT THE OPTION OF THE SECURED
-----------------------
PARTY, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE PLEDGOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE PLEDGOR COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
THE SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
SECTION 22. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE
--------------------
SECURED PARTY, BY ITS ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 23. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
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<PAGE>
Section 24. General. All representations and warranties contained in
-------
this Agreement or in any other agreement between the Pledgor and the Secured
Party shall survive the execution, delivery and performance of this Agreement
and the creation and payment of the Obligations. The Pledgor waives notice of
the acceptance of this Agreement by the Secured Party. Captions in this
Agreement are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Agreement.
-13-
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
PLEDGOR:
OMEGA KITCHEN CRAFT U.S. CORP.
By /s/ ROBERT L. MORAN
-------------------------------
Name ____________________________
Title____________________________
Address for Pledgor:
1205 Peters Drive
Waterloo, Iowa 50703
U.S. BANK NATIONAL ASSOCIATION
By /s/ MARK R. OLMON
-------------------------------------
Name ____________________________
Title____________________________
Address for the Secured Party:
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mark R. Olmon, MPFP0702
Telecopier No.: (612) 973-0825
-14-
<PAGE>
SCHEDULE I
PLEDGED STOCK
- -------------
Stock Issuer:
Percentage Ownership: 100%
Class of Stock:
Certificate No(s).:
Par Value:
Number of Shares:
Stock Issuer:
Percentage Ownership: 100%
Class of Stock:
Certificate No(s).:
Par Value:
Number of Shares:
-15-
<PAGE>
EXHIBIT 10.31
Execution Copy
GUARANTY OF SUBSIDIARY
BULRAD ILLINOIS, INC.
THIS GUARANTY, dated as of January 29, 1999, is made and given by
BULRAD ILLINOIS, INC., an Illinois corporation (the "Guarantor").
RECITALS
A. Omega Cabinets, Ltd., a Delaware corporation (the "Borrower"),
certain financial institutions and U.S. Bank National Association, as agent,
have entered into an Amended and Restated Credit Agreement dated as of January
29, 1999 (as the same may hereafter be amended, restated, or otherwise modified
from time to time, the "Credit Agreement"). Capitalized terms used in this
Guaranty without definition shall have the meaning given in the Credit
Agreement.
B. The Guarantor is a wholly-owned subsidiary of the Borrower.
C. It is a condition precedent to the obligation of the Bank to
continue extending credit accommodations pursuant to the terms of the Credit
Agreement that this Guaranty be executed and delivered by the Guarantor.
D. The Guarantor expects to derive benefits from the extension of
credit accommodations to the Borrower by the Banks and finds it advantageous,
desirable and in its best interests to execute and deliver this Guaranty to the
Banks.
NOW, THEREFORE, In consideration of the credit accommodations to be
extended to the Borrower and for other good and valuable consideration, the
Guarantor hereby covenants and agrees with the Banks as follows:
Section 1. Defined Terms. As used in this Guaranty, the following
-------------
terms shall have the meaning indicated:
"Agent" shall mean U.S. Bank National Association, acting as agent for
-----
the benefit of itself and the other Banks, or such other institution as may be
appointed as "Agent" under the Credit Agreement.
"Banks" shall mean the institutions that are from time to time party
-----
to the Credit Agreement as lenders.
"Borrower" shall have the meaning indicated in Recital A.
--------
"Credit Agreement" shall have the meaning indicated in Recital A.
----------------
<PAGE>
"Guarantor" shall have the meaning indicated in the opening paragraph
---------
hereof.
"Intercreditor Agreement" shall mean that certain Intercreditor
-----------------------
Agreement by and among the Agent, the Banks, Canadian Imperial Bank of Commerce
("CIBC") and the other banks party to the CIBC Loan Documents (as defined in the
Credit Agreement) (collectively, the "Lenders") in form and substance acceptable
to the Agent and the Lenders (as defined therein), executed by a duly authorized
officer of each of the Lenders and dated the Closing Date.
"Obligations" shall mean all indebtedness, liabilities and obligations
-----------
of the Borrower to the Banks and the Agent of every kind, nature or description
under the Credit Agreement, including without limitation the Borrower's
obligation on any promissory note or notes under the Credit Agreement and any
note or notes hereafter issued in substitution or replacement thereof and any
letter of credit reimbursement obligations and fees, and in all of the foregoing
cases whether due or to become due, and whether now existing or hereafter
arising or incurred.
"Person" shall mean any individual, corporation, partnership, joint
------
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision, limited liability company or
partnership or any other entity, whether acting in an individual, fiduciary or
other capacity.
"Pledge Agreements": Collectively, (i) the Amended and Restated Pledge
----------------
Agreement whereby the Borrower pledges all of its Stock in its Subsidiaries to
the Agent for the benefit of the Lenders, (ii) the Amended and Restated Pledge
Agreement whereby Holdings pledges all of its Stock in the Borrower to the Agent
for the benefit of the Lenders, (iii) the Pledge Agreement whereby KC Holdings
pledges sixty-five percent of its Stock in New Kitchen Craft together with the
Kitchen Craft Note to the Agent for the benefit of the Lenders, (iv) the Pledge
Agreement whereby Omega KC U.S. pledges all of its Stock in its Subsidiaries to
the Agent for the benefit of the Lenders and (v) any Subsidiary Pledge
Agreement, each in form and substance satisfactory to the Agent, and as each of
the same may hereafter be amended, supplemented, extended, restated or otherwise
modified from time to time (terms used in this definition shall have the
meanings given to them in the Credit Agreement).
Section 2. The Guaranty. Subject always to the following Section,
------------
the Guarantor hereby absolutely and unconditionally guarantees to the Banks and
the Agent the payment when due (whether at a stated maturity or earlier by
reason of acceleration or otherwise) and performance of the Obligations.
Section 3. Limitation; Insolvency Laws. As used in this Section: (a)
---------------------------
the term "Applicable Insolvency Laws" means the laws of the United States of
America or of any State, province, nation or other governmental unit relating to
bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors,
dissolution, insolvency, fraudulent transfers or conveyances or other similar
laws (including, without limitation, 11 U. S. C. (S)547, (S)548, (S)550
-2-
<PAGE>
and other "avoidance" provisions of Title 11 of the United Stated Code) as
applicable in any proceeding in which the validity and/or enforceability of this
Guaranty or any Specified Lien is in issue; and (b) "Specified Lien" means any
security interest, mortgage, lien or encumbrance securing this Guaranty, in
whole or in part. Notwithstanding any other provision of this Guaranty, if, in
any proceeding, a court of competent jurisdiction determines that this Guaranty
or any Specified Lien would, but for the operation of this Section, be subject
to avoidance and/or recovery or be unenforceable by reason of Applicable
Insolvency Laws, this Guaranty and each such Specified Lien shall be valid and
enforceable only to the maximum extent that would not cause this Guaranty or
such Specified Lien to be subject to avoidance, recovery or unenforceability. To
the extent that any payment to, or realization by, the Banks or the Agent on the
guaranteed Obligations exceeds the limitations of this Section and is otherwise
subject to avoidance and recovery in any such proceeding, the amount subject to
avoidance shall in all events be limited to the amount by which such actual
payment or realization exceeds such limitation, and this Guaranty as limited
shall in all events remain in full force and effect and be fully enforceable
against the Guarantor. This Section is intended solely to reserve the rights of
the Banks and the Agent hereunder against the Guarantor in such proceeding to
the maximum extent permitted by Applicable Insolvency Laws and neither the
Guarantor, the Borrower, any other guarantor of the Obligations nor any Person
shall have any right, claim or defense under this Section that would not
otherwise be available under Applicable Insolvency Laws in such proceeding.
Section 4. Continuing Guaranty. This Guaranty is a complete and
-------------------
continuing guaranty of payment and performance of the Obligations. This
Guaranty being a guarantee of payment and not of collectibility and being
absolute and unconditional, the obligations of the Guarantor hereunder shall not
be released, in whole or in part, by any action or thing which might, but for
this provision of this Guaranty, be deemed a legal or equitable discharge of a
surety or guarantor, other than irrevocable payment and performance in full of
the Obligations. No notice of the Obligations to which this Guaranty may apply,
or of any renewal or extension thereof need be given to the Guarantor and none
of the foregoing acts shall release the Guarantor from liability hereunder. The
Guarantor hereby expressly waives (a) demand of payment, presentment, protest,
notice of dishonor, nonpayment or nonperformance on any and all forms of the
Obligations; (b) notice of acceptance of this Guaranty and notice of any
liability to which it may apply; (c) all other notices and demands of any kind
and description relating to the Obligations now or hereafter provided for by any
agreement, statute, law, rule or regulation; and (d) any and all defenses of the
Borrower pertaining to the Obligations except for the defense of discharge by
payment. The Guarantor shall not be exonerated with respect to the Guarantor's
liabilities under this Guaranty by any act or thing except irrevocable payment
and performance of the Obligations, it being the purpose and intent of this
Guaranty that the Obligations constitute the direct and primary obligations of
the Guarantor and that the covenants, agreements and all obligations of the
Guarantor hereunder be absolute, unconditional and irrevocable. The Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage, deed of trust or security agreement securing all or any part of the
Obligations, whether or not the liability of the Borrower or any other Person
for such deficiency is discharged pursuant
-3-
<PAGE>
to statute, judicial decision or otherwise. The acceptance of this Guaranty by
the Banks and the Agent is not intended and does not release any liability
previously existing of any guarantor or surety of any indebtedness of the
Borrower to any Bank.
Section 5. Other Transactions. Each of the Banks and the Agent is
------------------
expressly authorized (a) to exchange, surrender or release with or without
consideration any or all collateral and security which may at any time be placed
with it by the Borrower or by any other Person, or to forward or deliver any or
all such collateral and security directly to the Borrower for collection and
remittance or for credit, or to collect the same in any other manner without
notice to the Guarantor; and (b) to amend, modify, extend or supplement the
Credit Agreement, any note or other instrument evidencing the Obligations or any
part thereof and any other agreement with respect to the Obligations, waive
compliance by the Borrower or any other Person with the respective terms thereof
and settle or compromise any of the Obligations without notice to the Guarantor
and without in any manner affecting the absolute liabilities of the Guarantor
hereunder. No invalidity, irregularity or unenforceability of all or any part
of the Obligations or of any security therefor or other recourse with respect
thereto shall affect, impair or be a defense to this Guaranty. The liabilities
of the Guarantor hereunder shall not be affected or impaired by any failure,
delay, neglect or omission on the part of any Bank or the Agent to realize upon
any of the Obligations of the Borrower to the Banks or the Agent, or upon any
collateral or security for any or all of the Obligations, nor by the taking by
any Bank or the Agent of (or the failure to take) any other guaranty or
guaranties to secure the Obligations, nor by the taking by any Bank or the Agent
of (or the failure to take or the failure to perfect its security interest in or
other Lien on) collateral or security of any kind. No act or omission of any
Bank or the Agent, whether or not such action or failure to act varies or
increases the risk of, or affects the rights or remedies of the Guarantor, shall
affect or impair the obligations of the Guarantor hereunder. The Guarantor
acknowledges that this Guaranty is in effect and binding without reference to
whether this Guaranty is signed by any other Person or Persons, that possession
of this Guaranty by any Bank or the Agent shall be conclusive evidence of due
delivery hereof by the Guarantor and that this Guaranty shall continue in full
force and effect, both as to the Obligations then existing and/or thereafter
created, notwithstanding the release of or extension of time to any other
guarantor of the Obligations or any part thereof.
Section 6. Actions Not Required. The Guarantor hereby waives any and
--------------------
all right to cause a marshaling of the assets of the Borrower or any other
action by any court or other governmental body with respect thereto or to cause
the Banks or the Agent to proceed against any security for the Obligations or
any other recourse which the Banks or the Agent may have with respect thereto
and further waives any and all requirements that the Banks or the Agent
institute any action or proceeding at law or in equity, or obtain any judgment,
against the Borrower or any other Person, or with respect to any collateral
security for the Obligations, as a condition precedent to making demand on or
bringing an action or obtaining and/or enforcing a judgment against, the
Guarantor upon this Guaranty. The Guarantor further acknowledges that time is
of the essence with respect to the Guarantor's obligations under this Guaranty.
Any remedy or right hereby granted which shall be found to be unenforceable as
to any Person or under any
-4-
<PAGE>
circumstance, for any reason, shall in no way limit or prevent the enforcement
of such remedy or right as to any other Person or circumstance, nor shall such
unenforceability limit or prevent enforcement of any other remedy or right
hereby granted.
Section 7. No Subrogation. Notwithstanding any payment or payments
--------------
made by the Guarantor hereunder or any setoff or application of funds of the
Guarantor by the Banks or the Agent, the Guarantor shall not be entitled to be
subrogated to any of the rights of any Bank or the Agent against the Borrower or
any other guarantor or any collateral security or guaranty or right of offset
held by any Bank or the Agent for the payment of the Obligations, nor shall the
Guarantor seek or be entitled to seek any contribution or reimbursement from the
Borrower or any other guarantor in respect of payments made by the Guarantor
hereunder.
Section 8. Application of Payments. Any and all payments upon the
-----------------------
Obligations made by the Guarantor or by any other Person, and/or the proceeds of
any or all collateral or security for any of the Obligations, shall be applied
by the Banks and the Agent as provided in the Credit Agreement and the
Intercreditor Agreement, respectively.
Section 9. Recovery of Payment. If any payment received by any Bank
-------------------
or the Agent and applied to the Obligations is subsequently set aside,
recovered, rescinded or required to be returned for any reason (including,
without limitation, the bankruptcy, insolvency or reorganization of the Borrower
or any other obligor), the Obligations to which such payment was applied shall
for the purposes of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such Obligations as fully as if such application had never been made.
References in this Guaranty to amounts "irrevocably paid" or to "irrevocable
payment" refer to payments that cannot be set aside, recovered, rescinded or
required to be returned for any reason.
Section 10. Borrower's Financial Condition. The Guarantor is
------------------------------
familiar with the financial condition of the Borrower, and the Guarantor has
executed and delivered this Guaranty based on the Guarantor's own judgment and
not in reliance upon any statement or representation of any Bank or the Agent.
Neither the Banks nor the Agent shall have any obligation to provide the
Guarantor with any advice whatsoever or to inform the Guarantor at any time of
the Banks' or the Agent's actions, evaluations or conclusions on the financial
condition or any other matter concerning the Borrower.
Section 11. Remedies. All remedies afforded to the Banks or the
--------
Agent by reason of this Guaranty are separate and cumulative remedies and it is
agreed that no one of such remedies, whether or not exercised by any Bank or the
Agent, shall be deemed to be in exclusion of any of the other remedies available
to any Bank or the Agent and no one such remedy shall in any way limit or
prejudice any other legal or equitable remedy which any Bank or the Agent may
have hereunder and with respect to the Obligations. Mere delay or failure to
act shall not preclude the exercise or enforcement of any rights and remedies
available to any Bank or the Agent.
-5-
<PAGE>
Section 12. Bankruptcy of the Borrower. The Guarantor expressly
--------------------------
agrees that the liabilities and obligations of the Guarantor under this Guaranty
shall not in any way be impaired or otherwise affected by the institution by or
against the Borrower or any other Person of any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or any other similar
proceedings for relief under any bankruptcy law or similar law for the relief of
debtors and that any discharge of any of the Obligations pursuant to any such
bankruptcy or similar law or other law shall not diminish, discharge or
otherwise affect in any way the obligations of the Guarantor under this
Guaranty, and that upon the institution of any of the above actions, such
obligations shall be enforceable against the Guarantor.
Section 13. Costs and Expenses. The Guarantor will pay or reimburse
------------------
each Bank and the Agent on demand for all out-of-pocket expenses (including in
each case all reasonable fees and expenses of counsel) incurred by that Bank or
the Agent arising out of or in connection with the enforcement of this Guaranty
against the Guarantor or arising out of or in connection with any failure of the
Guarantor to fully and timely perform the obligations of the Guarantor
hereunder.
Section 14. Waivers and Amendments. This Guaranty can be waived,
----------------------
modified, amended, terminated or discharged only explicitly in a writing signed
by all of the Banks and the Agent. A waiver so signed shall be effective only
in the specific instance and for the specific purpose given.
Section 15. Notices. Except when telephonic notice is expressly
-------
authorized by this Guaranty, any notice or other communication to any party in
connection with this Guaranty shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed.
Section 16. Guarantor Acknowledgments. The Guarantor hereby
-------------------------
acknowledges that (a) counsel has advised the Guarantor in the negotiation,
execution and delivery of this Guaranty, (b) the Banks and the Agent have no
fiduciary relationship to the Guarantor, the relationship being solely that of
debtor and creditors, and (c) no joint venture exists between the Guarantor, the
Banks and the Agent.
Section 17. Representations and Warranties. The Guarantor hereby
------------------------------
represents and warrants to the Banks and the Agent that:
17(a) The Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the
-6-
<PAGE>
corporate power and authority and the legal right to own and operate its
properties and to conduct the business in which it is currently engaged.
17(b) The Guarantor has the corporate power and authority and
the legal right to execute and deliver, and to perform its obligations
under, this Guaranty and has taken all necessary corporate action to
authorize such execution, delivery and performance.
17(c) This Guaranty constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
17(d) The execution, delivery and performance of this Guaranty
will not (i) violate any provision of any law, statute, rule or regulation
or any order, writ, judgment, injunction, decree, determination or award of
any court, governmental agency or arbitrator presently in effect having
applicability to the Guarantor, (ii) violate or contravene any provision of
its Articles of Incorporation or bylaws, or (iii) result in a breach of or
constitute a default under any indenture, loan or credit agreement or any
other agreement, lease or instrument to which it is a party or by which it
or any of its properties may be bound or result in the creation of any lien
thereunder. The Guarantor is not in default under or in violation of any
such law, statute, rule or regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, loan or credit
agreement or other agreement, lease or instrument in any case in which the
consequences of such default or violation could have a material adverse
effect on its business, operations, properties, assets or condition
(financial or otherwise).
17(e) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by,
any governmental or public body or authority is required on the part of the
Guarantor to authorize, or is required in connection with the execution,
delivery and performance of, or the legality, validity, binding effect or
enforceability of, this Guaranty.
17(f) There are no actions, suits or proceedings pending or, to
the knowledge of the Guarantor, threatened against or affecting it or any
of its properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which, if determined
adversely to the Guarantor, would have a material adverse effect on its
business, operations, property or condition (financial or otherwise) or on
its ability to perform its obligations hereunder.
17(g) The Guarantor expects to derive benefits from the
transactions resulting in the creation of the Obligations. The Banks and
the Agent may rely
-7-
<PAGE>
conclusively on the continuing warranty, hereby made, that the Guarantor
continues to be benefitted by the Banks' extension of credit accommodations
to the Borrower and the Banks and the Agent shall have no duty to inquire
into or confirm the receipt of any such benefits, and this Guaranty shall
be effective and enforceable by the Banks and the Agent without regard to
the receipt, nature or value of any such benefits.
17(h) All representations and warranties pertaining to the
Guarantor made by the Borrowers in the Credit Agreement are true and
correct.
Section 18. Covenants. The Guarantor hereby covenants and agrees
---------
that for so long as this Guaranty remains in full force and effect, (a) the
Guarantor shall perform and comply with all covenants made by the Borrower
pertaining to the Guarantor in the Credit Agreement; and (b) the Guarantor shall
perform or comply with all covenants made by the Borrower pertaining to the
Guarantor in the Pledge Agreement, including but not limited to the provisions
of Section 7(b) of the Pledge Agreement which prohibit the issuance of stock or
other securities in addition to or in substitution of the "Pledged Shares" (as
defined in the Pledge Agreement), except to the Borrower.
Section 19. Continuing Guaranty; Assignments under Credit Agreement.
-------------------------------------------------------
This Guaranty shall (a) remain in full force and effect until irrevocable
payment in full of the Obligations and the expiration of the obligations, if
any, of the Banks to extend credit accommodations to the Borrower, (b) be
binding upon the Guarantor, its successors and assigns and (c) inure to the
benefit of, and be enforceable by, each Bank, the Agent and their respective
successors, transferees, and assigns. Without limiting the generality of the
foregoing clause (c), any Bank or the Agent may assign or otherwise transfer all
or any portion of its rights and obligations under the Credit Agreement to any
other Persons to the extent and in the manner provided in the Credit Agreement
and may similarly transfer all or any portion of its rights under this Guaranty
to such Persons.
Section 20. Reaffirmation. The Guarantor agrees that when so
-------------
requested by any Bank or the Agent from time to time it will promptly execute
and deliver to such Bank or the Agent a written reaffirmation of this Guaranty
in such form as such Bank or the Agent may require.
Section 21. Revocation. Notwithstanding any other provision hereof,
----------
the Guarantor may revoke this Guaranty prospectively as to future transactions
by written notice to that effect actually received by the Agent. No such
revocation shall release, impair or affect in any manner any liability hereunder
with respect to Obligations created, contracted, assumed or incurred prior to
receipt by the Agent of written notice of revocation, or Obligations created,
contracted, assumed or incurred after receipt of such notice pursuant to any
contract entered into by the Banks or the Agent prior to receipt of such notice,
or any renewals or extensions thereof, theretofore or thereafter made, or any
interest accrued or accruing on such Obligations, or all other costs, expenses
and attorneys' fees arising from such Obligations.
-8-
<PAGE>
Section 22. Governing Law and Construction. THE VALIDITY,
------------------------------
CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO
NATIONAL BANKS. Whenever possible, each provision of this Guaranty and any
other statement, instrument or transaction contemplated hereby or relating
hereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Guaranty or any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty or any other statement, instrument or
transaction contemplated hereby or relating hereto.
Section 23. Consent to Jurisdiction. AT THE OPTION OF THE BANKS OR
-----------------------
THE AGENT, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA; AND THE GUARANTOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE GUARANTOR
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
GUARANTY, THE BANKS OR THE AGENT AT ITS OPTION SHALL BE ENTITLED TO HAVE THE
CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
Section 24. Waiver of Jury Trial. EACH OF THE GUARANTOR, EACH BANK
--------------------
AND THE AGENT, BY THEIR ACCEPTANCE OF THIS GUARANTY, IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 25. Counterparts. This Guaranty may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
Section 26. General. All representations and warranties contained in
-------
this Guaranty or in any other agreement between the Guarantor and the Banks or
the Agent shall survive the execution, delivery and performance of this Guaranty
and the creation and payment
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<PAGE>
of the Obligations. Captions in this Guaranty are for reference and convenience
only and shall not affect the interpretation or meaning of any provision of this
Guaranty.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
-10-
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date
first above written.
BULRAD ILLINOIS, INC.
By s/ ROBERT L. MORAN
--------------------------
Name ________________________
Title _______________________
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<PAGE>
EXHIBIT 10.33
SECURITY AGREEMENT
For valuable consideration, the undersigned (the "Customer") agrees
with Canadian Imperial Bank of Commerce, in its capacity as administrative agent
(the "Agent") under the Credit Agreement made as of January 29, 1999 between the
Customer as borrower, the Agent, as one Lender, and the various other Lenders
(as such term is defined thereunder), (as such credit agreement may be amended,
restated, supplemented or otherwise modified from time to time, the "Credit
Agreement") as follows:
1. GRANT OF SECURITY. The Customer mortgages, charges and assigns to
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the Agent, and grants to the Agent, and the Agent takes, a Security
Interest in the property described in the following paragraph or paragraphs
of this section (as applicable in accordance with the NOTE appearing at the
end of this section), and in all property described in any schedules,
documents or listings that the Customer may from time to time sign and
provide to the Agent in connection with this Agreement, and in all present
and future Accessions to, and all Proceeds of, any such property
(collectively, the "Collateral") as a general and continuing collateral
security for the due payment and performance of the Obligations:
[_] (a) SPECIFIC PERSONAL PROPERTY: the Personal Property described in
Schedule A.
[X] (b) ALL PERSONAL PROPERTY: all of the Customer's present and after-
acquired undertaking and Personal Property (including any property
that may be described in Schedule A) but excluding Consumer Goods.
[_] (c) ALL REAL PROPERTY: all of the Customer's present and after-acquired
real property including any property that may be described in
Schedule A), together with all buildings placed, installed or
erected on any such property and all fixtures.
Provided that, notwithstanding the foregoing, nothing in this section 1 shall
mortgage, charge or assign any Intellectual Property (as that term is defined in
the Credit Agreement) but shall grant a security interest therein.
NOTE: CHECK APPROPRIATE BOX OR BOXES TO INDICATE WHICH OF PARAGRAPHS (A),
(B) OR (C) ARE TO APPLY. IF NO BOX IS CHECKED OFF, PARAGRAPH (B) WILL
APPLY.
2. GOVERNING LAW. This Agreement is governed by laws of Manitoba and
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the federal laws of Canada applicable in that Province.
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ADDITIONAL TERMS AND CONDITIONS. THE ADDITIONAL TERMS AND CONDITIONS (INCLUDING
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ANY SCHEDULES) ON THE FOLLOWING PAGES FORM PART OF THIS AGREEMENT.
The Customer has signed this Agreement on January , 1999.
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3578275 CANADA INC.
by /s/ DONALD CIHAK
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1180 Springfield Road
Winnipeg, Manitoba R2C 2Z2
<PAGE>
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ADDITIONAL TERMS AND CONDITIONS
3. RECEIVABLES. If the Collateral includes Receivables, the Agent
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may, during the continuance of an Event of Default, advise any Person who
is liable to make any payment to the Customer of the existence of this
Agreement. The Agent may from time to time confirm with such Persons the
existence and the amount of the Receivables. During the continuance of an
Event of Default, the Agent may collect and otherwise deal with the
Receivables in such manner and upon such terms as the Agent considers
appropriate.
4. RECEIPTS PRIOR TO DEFAULT. Until and during such time as the
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Obligations are declared to be forthwith due and payable pursuant to
section 9.2 of the Credit Agreement, all amounts received by the Agent as
Proceeds of the Collateral will be applied on account of the Obligations in
such manner and at such times as the Agent may consider appropriate or, at
the Agent's option, may be held unappropriated in a collateral account or
released to the customer.
5. DEFAULT.
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(a) RIGHTS UPON DEFAULT. Upon and during such time as the Obligations are
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declared to be forthwith due and payable pursuant to section 9.2 of
the Credit Agreement, the Agent and the Receiver, as applicable, will
to the extent permitted by law have the following rights.
(i) APPOINTMENT OF RECEIVER. The Agent may by instrument in writing
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appoint any Person as a Receiver of all or any part of the
Collateral. The Agent may from time to time remove or replace a
Receiver, or make application to any court of competent
jurisdiction for the appointment of a Receiver. Any Receiver
appointed by the Agent will (for purposes relating to
responsibility for the Receiver's acts or omissions) be
considered to be the Customer's agent. The Agent may from time to
time fix the Receiver's remuneration and the Customer will pay
the Agent the amount of such remuneration. The Agent will not be
liable to the Customer or any other Person in connection with
appointing or not appointing a Receiver or in connection with the
Receiver's actions or omissions.
(ii) DEALINGS WITH THE COLLATERAL. The Agent or a Receiver may take
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possession of all or any part of the Collateral and retain it for
as long as the Agent or the Receiver considers appropriate,
receive any rents and profits from the Collateral, carry on (or
concur in carrying on) all or any part of the Customer's business
or refrain from doing so, borrow on the security of the
Collateral, repair the Collateral, process the Collateral,
prepare the Collateral for sale, lease or other disposition, and
sell or lease (or concur in selling or leasing) or otherwise
dispose of the Collateral on such terms and conditions (including
among other things by arrangement providing for deferred
<PAGE>
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payment) as the Agent or the Receiver considers appropriate. The
Agent or the Receiver may (without charge and to the exclusion
of all other Persons including the Customer) enter upon any
Place of Business.
(iii) REALIZATION. The Agent or a Receiver may use, collect, sell,
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lease or otherwise dispose of, realize upon, release to the
Customer or other Persons and otherwise deal with, the
Collateral in such manner, upon such terms (including among
other things by arrangement providing for deferred payment) and
at such times as the Agent or the Receiver considers
appropriate. The Agent or the Receiver may make any sale, lease
or other disposition of the Collateral in the name of and on
behalf of the Customer or otherwise .
(iv) APPLICATION OF PROCEEDS AFTER DEFAULT. All Proceeds of
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Collateral received by the Agent or a Receiver may be applied to
discharge or satisfy any expenses (including among other things
the Receiver's remuneration and other expenses of enforcing the
Agent's rights under this Agreement), Charges, borrowings, taxes
and other outgoings affecting the Collateral or which are
considered advisable by the Agent or the Receiver to preserve,
repair, process, maintain or enhance the Collateral or prepare
it for sale, lease or other disposition, or to keep in good
standing any Charges on the Collateral ranking in priority to
any Charge created by this Agreement, or to sell, lease or
otherwise dispose of the Collateral. The balance of such
Proceeds will be applied to the Obligations in such manner and
at such times as the Agent consider appropriate and thereafter
will be accounted for as required by law.
(b) OTHER LEGAL RIGHTS. Before and during the continuation of an Event of
------------------
Default, the Agent will have, in addition to the rights specifically
provided in this Agreement, the rights of a secured party under the
PPSA, as well as the rights recognized at law and in equity. No right
will be exclusive of or dependent upon or merge in any other right,
and one or more of such rights may be exercised independently or in
combination from time to time.
(c) DEFICIENCY. The Customer will remain liable to the Agent for payment
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of any Obligations that are outstanding following realization of all
or any part of the Collateral.
6. THE AGENT NOT LIABLE. The Agent will not be liable to the
--------------------
Customer or any other Person for any failure or delay in exercising any of
its rights under this Agreement (including among other things any failure
to take possession of, collect or sell, lease or otherwise dispose of, any
Collateral). None of the Agent, a Receiver or any agent of the
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Agent (including, in Alberta any sheriff) is required to take, or will have
any liability for any failure to take or delay in taking, any steps
necessary or advisable to preserve rights against other Persons under any
Chattel Paper, Securities or Instrument in possession of the Agent, a
Receiver or the Agent's agent.
7. FURTHER ASSURANCES. The Customer will from time to time as soon
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as practicable following the request by the Agent take such action
(including among other things the signing and delivery of financing
statements and financing change statements, other schedules, documents or
listings describing property included in the Collateral, further
assignments and other documents, and the registration of this Agreement) as
the Agent may require in connection with the Collateral or as the Agent
might consider necessary to give effect to this Agreement. If permitted by
law, the Customer waives the right to sign or receive a copy of any
financing statement or financing change statement, or any statement issued
by any registry that confirms any registration of a financing statement or
financing change statement, relating to this Agreement. The Customer
irrevocably appoints the Manager or the Acting Manager from time to time of
the Agent's branch specified on the first page of this Agreement as the
Customer's attorney (with full powers of substitution and delegation) to
sign, during the continuance of an Event of Default, all documents required
to give effect to this section. Nothing in this section affects the right
of the Agent as secured party, or any other Person on the Agent's behalf,
to sign and file or deliver (as applicable) all such financing statements,
financing change statements, notices, verification agreements and other
documents relating to the Collateral and this Agreement as the Agent or
such other Person considers appropriate.
8. DEALINGS BY THE AGENT. The Agent may from time to time increase,
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reduce, discontinue or otherwise vary the Customer's credit facilities,
grant extensions of time and other indulgences, take and give up any
Charge, abstain from taking, perfecting or registering any Charge, accept
compositions, grant releases and discharges and otherwise deal with the
Customer, customers of the Customer, guarantors and others, and with the
Collateral and any Charges held by the Agent, as the Agent considers
appropriate without affecting the Customer's obligations to the Agent or
the Agent's rights under this Agreement.
9. DEFINITIONS. In this Agreement;
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"ACCESSIONS", "ACCOUNT", "CHATTEL PAPER", DOCUMENT OF TITLE", "EQUIPMENT",
"GOODS", "INSTRUMENT", INTANGIBLE", "INVENTORY", "PROCEEDS", "PURCHASE-
MONEY SECURITY INTEREST" and "SECURITY INTEREST" have the respective
meanings given to them in the PPSA.
"BOOKS AND RECORDS" means all books, records, files, papers, disks,
documents and other repositories of data recording, evidencing or relating
to the Collateral to which the Customer (or any Person on the Customer's
behalf) has access.
<PAGE>
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"CHARGE" means any mortgage, charge, pledge, hypothecation, lien (statutory
or otherwise), assignment, financial lease, title retention agreement or
arrangement, security interest or other encumbrance of any nature however
arising, or any other security agreement or arrangement creating in favour
of any creditor a right in respect of a particular property that is prior
to the right of any other creditor in respect of such property.
"CONSUMER GOODS" has the meaning given to it in the PPSA, except that, if
this Agreement is governed by the laws of the Yukon, it does not include
special consumer goods as that term is defined in the Yukon PPSA.
"EVENT OF DEFAULT" has the meaning ascribed thereto in the Credit
Agreement.
"MONEY" has the meaning given to it in the PPSA or, if there is no such
definition, means a medium of exchange authorized or adopted by the
Parliament of Canada as part of the currency of Canada, or by a foreign
government as part of its currency.
"OBLIGATIONS" has the meaning ascribed thereto as the Credit Agreement.
"PERSON" means any natural person or artificial body (including among
others any firm, corporation or government).
"PERSONAL PROPERTY" means personal property and includes among other things
Inventory, Equipment, Receivables, Books and Records, Chattel Paper, Goods,
Documents of Title, Instruments, Intangibles (including intellectual
property), Money and Securities, and includes all Accessions to such
property.
"PLACE OF BUSINESS" means a location where the Customer carries on business
or where any of the Collateral is located (including any location described
in Schedule B).
"PPSA" means the legislation that applies in the province or territory
noted in section 2 of this Agreement, as such legislation may be amended,
renamed or replaced from time to time (and includes all regulations from
time to time made under such legislation) as follows: in the case of
Ontario, the Personal Property Security Act, 1989; in the case of Alberta,
British Columbia, Manitoba, Prince Edward Island, Saskatchewan and the
Yukon Territory, the Personal Property Security Act; and in the case of any
other province or territory, such legislation as deals generally with
Charges on personal property;
"RECEIVABLES" means all debts, claims and choses in action (including among
other things Accounts and Chattel Paper) now or in the future due or owing
to or owned by the Customer.
"RECEIVER" means a receiver or a receiver and manager.
<PAGE>
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"SECURITIES" has the meaning given to it in the PPSA or, if there is no
such definition and the PPSA defines "security" instead, it means the
plural of that term.
"SERIAL NUMBER" means the number that the Person who manufactured or
constructed a Serial Number Good permanently marked or attached to it for
identification purposes or, if applicable, such other number as the PPSA
stipulates as the serial number or vehicle information number to be used
for registration purposes of such Serial Number Good.
"SERIAL NUMBER GOOD" means a motor vehicle, trailer, mobile home, aircraft
airframe, aircraft engine or aircraft propeller, boat or an outboard motor
for a boat.
10. GENERAL.
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(a) RESERVATION OF THE LAST DAY OF ANY LEASE. The Charges created by this
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Agreement do not extend to the last day of the term of any lease or
agreement for lease; however, the Customer will hold such last day in
trust for the Agent and, upon the exercise by the Agent of any of its
rights under this Agreement during the continuation of an Event of
Default, will assign such last day as directed by the Agent.
(b) ATTACHMENT OF SECURITY INTEREST. The Security Interests created by
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this Agreement are intended to attach (i) to existing Collateral when
the Customer signs this Agreement, and (ii) to Collateral subsequently
acquired by the Customer, immediately upon the Customer acquiring any
rights in such Collateral. The parties do not intend to postpone the
attachment of any Security Interest created by this Agreement.
(c) PURCHASE-MONEY SECURITY INTEREST. If the Agent gives value for the
--------------------------------
purpose of enabling the Customer to acquire rights in or to any of the
Collateral, the Customer will in fact apply such value to acquire
those rights (and will provide the Agent with such evidence in this
regard as the Agent may require), the Customer grants to the Agent,
and the Agent takes, a Purchase-Money Security Interest in such
Collateral to the extent that the value is applied to acquire such
rights. A certificate or affidavit of any of the Agent's authorized
representatives is admissible in evidence to establish the amount of
any such value.
(d) DESCRIPTION OF COLLATERAL IN SCHEDULE A. The fact that box (b) or box
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(c) of section 1 has been checked without there being any property
described in Schedule A does not affect the nature or validity of the
Agent's security in the Collateral.
(e) ENTIRE AGREEMENT. The Agent has not made any representation or
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undertaken any obligation in connection with the subject matter of
this Agreement other than as specifically set out in this Agreement,
and in particular nothing continued in this
<PAGE>
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Agreement will require the Agent to make, renew or extend the time for
payment of any loan or other credit accommodation to the Customer or
any other Person.
(f) ADDITIONAL SECURITY. The Charges created by this Agreement are in
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addition and without prejudice to any other Charge now or later held
by the Agent. No Charge held by the Agent will be exclusive of or
dependent upon or merge in any other Charge, and the Agent may
exercise its rights under such Charges independently or in
combination.
(g) SEVERABILITY; HEADINGS. Any provision of this Agreement that is void
----------------------
or unenforceable in any jurisdiction is, as to that jurisdiction,
ineffective to that extent without invalidating the remaining
provisions of this Agreement. The headings in this Agreement are for
convenience only and do not limit or extend the provisions of this
Agreement.
(h) INTERPRETATION. When the context so requires, the singular will be
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read as the plural, and vice versa.
(i) COPY OF AGREEMENT. The Customer acknowledges receipt of a copy of this
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Agreement.
(j) WAIVERS. If this Agreement is governed by the laws of Saskatchewan and
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the Customer is a corporation, the Customer agrees that The Limitation
of Civil Rights Act, The Land Contracts (Actions) Act and Part IV
(excepting only section 46 of The Saskatchewan Farm Security Act do
not apply insofar as they relate to actions as defined in those Acts,
or insofar as they relate to or affect this Agreement, the rights of
the Agent under this Agreement or any instrument, Charge, security
agreement or other document of any nature that renews, extends or is
collateral to this Agreement.
(k) NOTICE. The Agent may send to the Customer copies of any document
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required by the PPSA to be delivered by the Agent to the Customer in
accordance with the notice provisions of the Credit Agreement.
(l) ENUREMENT ASSIGNMENT. This Agreement will enure to the
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benefit of and be binding upon (i) the Agent, its successors and
assigns, and (ii) the Customer and the Customer's successors and
permitted assigns. The Customer will not assign this Agreement without
the Agent's prior written consent.
<PAGE>
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SCHEDULE A
The following is a description of property included in the Collateral.
<PAGE>
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SCHEDULE B
The following are the Places of Business (if space is insufficient, use a
separate sheet):
1180 Springfield Road 210-19700 Langley By Pass
Winnipeg, Manitoba Langley, British Columbia
800 Cloverdale Avenue 4141 Lougheed Highway
Victoria, British Columbia Burnaby, British Columbia
9519A-49th Street 9529-9543-41st. Avenue
Edmonton, Alberta Edmonton, Alberta
2866 Calgary Trail 1434 Broad Street
Edmonton, Alberta Regina, Saskatchewan
1500 Regent Avenue 1870 Portage Avenue
Winnipeg, Manitoba Winnipeg, Manitoba
1050 St. James Avenue 289 King Street
Winnipeg, Manitoba Winnipeg, Manitoba
495 Archibald Avenue 510 Gardiners Road
Winnipeg, Manitoba Kingston, Ontario
2287 Gladwin Crescent 515 Wellington Road
Ottawa, Ontario London, Ontario
<PAGE>
EXHIBIT 10.34
GUARANTY OF OMEGA CABINETS, LTD.
THIS GUARANTY, dated as of January 29, 1999, is made and given by
OMEGA CABINETS, LTD., a Delaware corporation (the "Guarantor").
RECITALS
Pursuant to a certain credit agreement dated January 29, 1999, made among
3578275 Canada Inc. (the "Borrower"), Canadian Imperial Bank of Commerce, in its
own capacity as a Lender and as Agent for the other Lenders, and various other
Lenders therein set out, the Lenders agreed to provide credit facilities to the
Borrower, subject to the terms and on the conditions therein set forth, as such
credit agreement may be amended, restated, supplemented or otherwise modified
from time to time (the "Credit Agreement"). CAPITALIZED TERMS USED IN THIS
GUARANTY WITHOUT DEFINITION SHALL HAVE THE MEANING GIVEN IN THE CREDIT
AGREEMENT.
B. It is a condition precedent to the obligation of the Lenders to extend
credit accommodations pursuant to the terms of the Credit Agreement that this
Guaranty be executed and delivered by the Guarantor.
C. The Borrower is an indirect wholly-owned subsidiary of the Guarantor.
D. The Guarantor expects to derive benefits from the extension of credit
accommodations to the Borrower by the Lenders and finds it advantageous,
desirable and in its best interests to execute and deliver this Guaranty to the
Lenders.
NOW, THEREFORE, In consideration of the credit accommodations to be
extended to the Borrower and for other good and valuable consideration, the
Guarantor hereby covenants and agrees with the Lenders as follows:
Section 1. Defined Terms. As used in this Guaranty, the following terms shall
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have the meaning indicated:
"Affiliate" When used with reference to any Person, (a) each Person that,
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directly or indirectly, controls, is controlled by or is under common control
with, the Person referred to, (b) each Person which beneficially owns or holds,
directly or indirectly, ten percent or more of any class of voting stock of the
Person referred to (or if the Person referred to is not a corporation, five
percent or more of the equity interest), (c) each Person, ten percent or more of
the voting stock (or if such Person is not a corporation, ten percent or more of
the equity interest) of which is beneficially owned or held, directly or
indirectly, by the Person referred to, and (d) each of such Person's officers,
directors, joint venturers and partners. The term control (including the terms
"controlled by" and "under common control with") means the possession, directly,
of the power to direct or cause the direction of the management and policies of
the Person in question.
<PAGE>
"Affiliate Debt" shall mean indebtedness owing to the Guarantor from any
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Affiliate.
"Agent" shall mean Canadian Imperial Bank of Commerce, acting as agent for the
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benefit of itself and the other Lenders, or such other Person as may be
appointed as "Agent" under the Credit Agreement, from time to time.
"Lenders" shall mean the institutions that are from time to time party to the
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Credit Agreement as Lenders, as defined as such therein, and "Lender" shall mean
any one of them.
"Borrower" shall have the meaning indicated in Recital A.
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"Credit Agreement" shall have the meaning indicated in Recital A.
----------------
"Guarantor" shall have the meaning indicated in the opening paragraph hereof.
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"Instrument" shall mean a draft, check, certificate of deposit, note, bill of
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exchange, security or any other writing which evidences a right to the payment
of money and is not itself a security agreement or lease and is of a type which
is transferred in the ordinary course of business by delivery with any necessary
endorsement or assignment.
"Intercreditor Agreement" The Intercreditor Agreement dated as of January 29,
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1999, made by and among Canadian Imperial Bank of Commerce, the other Lenders
thereunder, U.S. Bank National Association, and the other lenders that are
parties to the Omega Credit Agreement.
"Obligations" has the meaning ascribed thereto in the Credit Agreement.
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"Person" shall mean any individual, corporation, partnership, joint venture,
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firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision, limited liability company or
partnership or any other entity, whether acting in an individual, fiduciary or
other capacity.
Section 2. The Guaranty. The Guarantor hereby absolutely and unconditionally
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guarantees to the Lenders and the Agent the payment when due (whether at a
stated maturity or earlier by reason of acceleration or otherwise) and
performance of the Obligations.
Section 3. Continuing Guaranty. This Guaranty is a complete and continuing
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guaranty of payment and performance of the Obligations. This Guaranty being a
guarantee of payment and not of collectibility and being absolute and
unconditional, the obligations of the Guarantor hereunder shall not be released,
in whole or in part, by any action or thing which might, but for this provision
of this Guaranty, be deemed a legal or equitable discharge of a surety or
guarantor, other than
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<PAGE>
irrevocable payment and performance in full of the Obligations. No notice of the
Obligations to which this Guaranty may apply, or of any renewal or extension
thereof need be given to the Guarantor and none of the foregoing acts shall
release the Guarantor from liability hereunder. The Guarantor hereby expressly
waives (a) demand of payment, presentment, protest, notice of dishonor,
nonpayment or nonperformance on any and all forms of the Obligations; (b) notice
of acceptance of this Guaranty and notice of any liability to which it may
apply; (c) all other notices and demands of any kind and description relating to
the Obligations now or hereafter provided for by any agreement, statute, law,
rule or regulation; and (d) any and all defenses of the Borrower pertaining to
the Obligations except for the defense of discharge by payment. The Guarantor
shall not be exonerated with respect to the Guarantor's liabilities under this
Guaranty by any act or thing except irrevocable payment and performance of the
Obligations, it being the purpose and intent of this Guaranty that the
Obligations constitute the direct and primary obligations of the Guarantor and
that the covenants, agreements and all obligations of the Guarantor hereunder be
absolute, unconditional and irrevocable. The Guarantor shall be and remain
liable for any deficiency remaining after foreclosure of any mortgage, deed of
trust or security agreement securing all or any part of the Obligations, whether
or not the liability of the Borrower or any other Person for such deficiency is
discharged pursuant to statute, judicial decision or otherwise. The acceptance
of this Guaranty by the Lenders and the Agent is not intended and does not
release any liability previously existing of any guarantor or surety of any
indebtedness of the Borrower to any Lender. For further certainty, and without
in any way limiting the generality of the foregoing or any provisions hereafter,
the Guarantor agrees that to the extent permitted by applicable law, the
Lenders' rights under this Guarantee will not be prejudiced by the existence or
occurrence (with or without the knowledge or consent of the Guarantor), of any
of the following:
(i) any act or omission on the part of the Agent or the Lenders which may
impair or prejudice the rights of the Guarantor, including rights to
obtain subrogation, exoneration, contribution, indemnification, or
any other reimbursement from the Borrower or any Person, or otherwise
act as a deemed release or discharge; or any action which any of the
Agent or the Lenders or the Borrower may take or refrain from taking
with respect to the Obligations;
(ii) to the extent permitted by applicable law, any incapacity,
disability, or lack or limitation of status or of the power of the
Borrower or of the Borrower's directors, managers, officers or
agents; the discovery that the Borrower is not or may not be a legal
entity; or any irregularity, defect or informality in the incurring
of any of the Obligations; or
(iii) the invalidity, unenforceability, or irrecoverability of any of the
Obligations as against the Borrower, or any other Person.
Section 4. Other Transactions. Each of the Lenders and the Agent is expressly
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authorized (a) in accordance with the terms of the Credit Agreement, to
exchange, surrender or release with or without consideration any or all
collateral and security which may at any time be placed with it by the Borrower
or by any other Person, or to forward or deliver any or all such collateral and
security
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<PAGE>
directly to the Borrower for collection and remittance or for credit,
or to collect the same in any other manner without notice to the Guarantor; and
(b) to amend, modify, extend or supplement the Credit Agreement, any note or
other instrument evidencing the Obligations or any part thereof and any other
agreement with respect to the Obligations, waive compliance by the Borrower or
any other Person with the respective terms thereof and settle or compromise any
of the Obligations without notice to the Guarantor (except for notice in the
event of any increase in the amount of the Obligations beyond the Commitments,
interest and fees in respect thereof, and any extension of the maturity date
thereof; PROVIDED, HOWEVER that failure to give any such notice to the Guarantor
-----------------
shall not in any way affect the Guarantor's liability hereunder, including any
liability for any increased amount of Obligations or any liability beyond the
maturity date) and without in any manner affecting the absolute liabilities of
the Guarantor hereunder. No invalidity, irregularity or unenforceability of all
or any part of the Obligations or of any security therefor or other recourse
with respect thereto shall affect, impair or be a defense to this Guaranty. The
liabilities of the Guarantor hereunder shall not be affected or impaired by any
failure, delay, neglect or omission on the part of any Lender or the Agent to
realize upon any of the Obligations of the Borrower to the Lenders or the Agent,
or upon any collateral or security for any or all of the Obligations, nor by the
taking by any Lender or the Agent of (or the failure to take) any other guaranty
or guaranties to secure the Obligations, nor by the taking by any Lender or the
Agent of (or the failure to take or the failure to perfect its security interest
in or other Lien on) collateral or security of any kind. Except as otherwise
provided herein, no act or omission of any Lender or the Agent, whether or not
such action or failure to act varies or increases the risk of, or affects the
rights or remedies of the Guarantor, shall affect or impair the obligations of
the Guarantor hereunder. The Guarantor acknowledges that this Guaranty is in
effect and binding without reference to whether this Guaranty is signed by any
additional Person or Persons, that possession of this Guaranty by any Lender or
the Agent shall be conclusive evidence of due delivery hereof by the Guarantor
and that this Guaranty shall continue in full force and effect, both as to the
Obligations then existing and/or thereafter created, notwithstanding the release
of or extension of time to any other guarantor of the Obligations or any part
thereof.
Section 5. Actions Not Required. To the extent permitted by applicable law,
--------------------
the Guarantor hereby waives any and all right to cause a marshaling of the
assets of the Borrower or any other action by any court or other governmental
body with respect thereto or to cause the Lenders or the Agent to proceed
against any security for the Obligations or any other recourse which the Lenders
or the Agent may have with respect thereto and further waives any and all
requirements that the Lenders or the Agent institute any action or proceeding at
law or in equity, or obtain any judgment, against the Borrower or any other
Person, or with respect to any collateral security for the Obligations, as a
condition precedent to making demand on or bringing an action or obtaining
and/or enforcing a judgment against, the Guarantor upon this Guaranty. The
Guarantor further acknowledges that time is of the essence with respect to the
Guarantor's obligations under this Guaranty. Any remedy or right hereby granted
which shall be found to be unenforceable as to any Person or under any
circumstance, for any reason, shall in no way limit or prevent the enforcement
of such remedy or right as to any other Person or circumstance, nor shall such
unenforceability limit or prevent enforcement of any other remedy or right
hereby granted.
-4-
<PAGE>
Section 6. No Subrogation. Notwithstanding any payment or payments made by the
--------------
Guarantor hereunder or any setoff or application of funds of the Guarantor by
the Lenders or the Agent, until the Obligations (other than indemnities and
other contingent obligations not yet due and payable shall have been paid in
full) the Guarantor shall not exercise any right of subrogation to any of the
rights of any Lender or the Agent against the Borrower or any other guarantor or
any collateral security or guaranty or right of offset held by any Lender or the
Agent for the payment of the Obligations, nor shall the Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other guarantor in respect of payments made by the Guarantor hereunder.
Section 7. Application of Payments. Any and all payments upon the Obligations
-----------------------
made by the Guarantor or by any other Person, and/or the proceeds of any or all
collateral or security for any of the Obligations, shall be applied by the
Lenders and the Agent as provided in the Credit Agreement and the Intercreditor
Agreement, respectively.
Section 8. Recovery of Payment. If any payment received by any Lender or the
-------------------
Agent and applied to the Obligations is subsequently set aside, recovered,
rescinded or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of any Borrower or any
other obligor), the Obligations to which such payment was applied shall for the
purposes of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such Obligations as fully as if such application had never been made.
References in this Guaranty to amounts "irrevocably paid" or to "irrevocable
payment" refer to payments that cannot be set aside, recovered, rescinded or
required to be returned for any reason.
Section 9. Borrowers' Financial Condition. The Guarantor is familiar with the
------------------------------
financial condition of the Borrower, and the Guarantor has executed and
delivered this Guaranty based on the Guarantor's own judgment and not in
reliance upon any statement or representation of any Lender or the Agent.
Neither the Lenders nor the Agent shall have any obligation to provide the
Guarantor with any advice whatsoever or to inform the Guarantor at any time of
the Lenders' or the Agent's actions, evaluations or conclusions on the financial
condition or any other matter concerning the Borrower.
Section 10. Remedies. All remedies afforded to the Lenders or the Agent by
--------
reason of this Guaranty are separate and cumulative remedies and it is agreed
that no one of such remedies, whether or not exercised by any Lender or the
Agent, shall be deemed to be in exclusion of any of the other remedies available
to any Lender or the Agent and no one such remedy shall in any way limit or
prejudice any other legal or equitable remedy which any Lender or the Agent may
have hereunder and with respect to the Obligations. Mere delay or failure to
act shall not preclude the exercise or enforcement of any rights and remedies
available to any Lender or the Agent.
Section 11. Bankruptcy of the Borrower. The Guarantor expressly agrees that to
--------------------------
the extent permitted by applicable law, the liabilities and obligations of the
Guarantor under this Guaranty shall not in any way be impaired or otherwise
affected by the institution by or against the Borrower or any
-5-
<PAGE>
other Person of any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or any other similar proceedings for relief under any
bankruptcy law or similar law for the relief of debtors and that any discharge
of any of the Obligations pursuant to any such bankruptcy or similar law or
other law shall not diminish, discharge or otherwise affect in any way the
obligations of the Guarantor under this Guaranty, and that upon the institution
of any of the above actions, such obligations shall be enforceable against the
Guarantor.
Section 12. Costs and Expenses. The Guarantor will pay or reimburse each
------------------
Lender and the Agent on demand for all reasonable out-of-pocket expenses
(including in each case all reasonable fees and expenses of counsel) incurred by
that Lender or the Agent arising out of or in connection with the enforcement of
this Guaranty against the Guarantor or arising out of or in connection with any
failure of the Guarantor to fully and timely perform the obligations of the
Guarantor hereunder.
Section 13. Waivers and Amendments. Notwithstanding any provisions to the
----------------------
contrary herein, any term of this Guaranty may be amended with the written
consent of the Guarantor; provided that no amendment, modification, termination,
discharge or waiver of any provision of this Guaranty or consent to any
departure herefrom by the Guarantor or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Agent, and then
such amendment, modification, termination, discharge, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Section 14. Notices. Except when telephonic notice is expressly authorized by
-------
this Guaranty, any notice or other communication to any party in connection with
this Guaranty shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or mail (postage
prepaid) addressed to such party at the address specified in the Credit
Agreement, or at such other address as such party shall have specified to the
other party hereto in writing. All periods of notice shall be measured from the
date of delivery thereof if manually delivered, from the date of sending thereof
if sent by telegram, telex or facsimile transmission, from the first Business
Day after the date of sending if sent by overnight courier, or from three days
after the date of mailing if mailed.
Section 15. Guarantor Acknowledgments. The Guarantor hereby acknowledges that
-------------------------
(a) counsel has advised the Guarantor in the negotiation, execution and delivery
of this Guaranty, (b) the Lenders and the Agent have no fiduciary relationship
to the Guarantor, the relationship being solely that of debtor and creditors,
and (c) no joint venture exists between the Guarantor, the Lenders and the
Agent.
Section 16. Representations and Warranties. The Guarantor hereby represents
------------------------------
and warrants to the Lenders and the Agent that:
16(a) The Guarantor is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority and the
legal right to own and operate its properties and to conduct the
business in which it is currently engaged.
-6-
<PAGE>
16(b) The Guarantor has the corporate power and authority and the legal
right to execute and deliver, and to perform its obligations under,
this Guaranty and has taken all necessary corporate action to
authorize such execution, delivery and performance.
16(c) This Guaranty constitutes its legal, valid and binding obligation
enforceable in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
16(d) The execution, delivery and performance of this Guaranty will not
(i) violate any provision of any law, statute, rule or regulation or
any order, writ, judgment, injunction, decree, determination or
award of any court, governmental agency or arbitrator presently in
effect having applicability to the Guarantor, (ii) violate or
contravene any provision of its Articles of Incorporation or bylaws,
or (iii) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or
instrument to which it is a party or by which it or any of its
properties may be bound or result in the creation of any lien
thereunder. The Guarantor is not in default under or in violation of
any such law, statute, rule or regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture,
loan or credit agreement or other agreement, lease or instrument in
any case in which the consequences of such default or violation
would have or would be reasonably likely to have a material adverse
effect on its business, operations, properties, assets or condition
(financial or otherwise).
16(e) No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority is required on the part of
the Guarantor to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity,
binding effect or enforceability of, this Guaranty.
16(f) There are no actions, suits or proceedings pending or, to the
knowledge of the Guarantor, threatened against or affecting it or
any of its properties before any court or arbitrator, or any
governmental department, board, agency or other instrumentality
which would be reasonably likely to be determined adversely to the
Guarantor, which would have a material adverse effect on its
business, operations, property or condition (financial or otherwise)
or on its ability to perform its obligations hereunder.
16(g) The Guarantor expects to derive benefits from the transactions
resulting in the creation of the Obligations. The Lenders and the
Agent may rely conclusively on the continuing warranty, hereby made,
that the Guarantor continues to be benefited by the Lenders'
extension of credit accommodations to the Borrower and the Lenders
-7-
<PAGE>
and the Agent shall have no duty to inquire into or confirm the
receipt of any such benefits, and this Guaranty shall be effective
and enforceable by the Lenders and the Agent without regard to the
receipt, nature or value of any such benefits.
16(h) All representations and warranties pertaining to the Guarantor made
by the Borrower in the Credit Agreement are true and correct.
Section 17. Covenants. The Guarantor hereby covenants and agrees that for so
---------
long as this Guaranty remains in full force and effect, the Guarantor:
17(a) shall perform and comply with all covenants made by the Borrower
pertaining to the Guarantor in the Credit Agreement;
17(b) shall use all dividends and other payments from its Affiliates
allowed under the Credit Agreement for the purposes set forth in the
Credit Agreement; and
17(c) shall immediately deliver directly to the Agent at the address for
service specified in the Credit Agreement, all of the information
and documentation relating to the Guarantor from time to time
required to be delivered by the Borrower to the Lenders pursuant to
section 8.3 -Reporting Requirements of the Credit Agreement in the
event that the Borrower fails to do so.
Section 18. Affiliate Debt. The Guarantor represents and warrants that there
--------------
are no Instruments evidencing Affiliate Debt in favor of or assigned to the
Guarantor other than the Kitchen Craft Note. The Guarantor hereby covenants and
agrees that upon receipt of any such Instrument the Guarantor shall immediately
execute documents, which shall be satisfactory in form and substance to the
Agent, which pledge such Instrument to the Agent, for the benefit of the
Lenders, and deliver such documents, together with such Instrument, to the Agent
for the purpose of securing payment of the Obligations.
Section 19. Continuing Guaranty; Assignments under Credit Agreement. This
-------------------------------------------------------
Guaranty shall:
(a) remain in full force and effect until irrevocable payment in full of
the Obligations and the expiration of the obligations, if any, of the
Lenders to extend credit accommodations to the Borrower;
(b) be binding upon the Guarantor, its successors and assigns; and
(c) inure to the benefit of, and be enforceable by, each Lender, the Agent
and their respective successors, transferees, and assigns. Without
limiting the generality of the foregoing clause (c), any Lender or the
Agent may assign or otherwise transfer all or any portion of its
rights and obligations under the Credit Agreement to any other Persons
to the extent and in the manner provided in the Credit Agreement and
may similarly transfer all or any portion of its rights under this
Guaranty to such Persons.
-8-
<PAGE>
The Guarantor acknowledges and agrees that this Guarantee and all of the
Guarantor's liabilities and obligations hereunder shall survive notwithstanding
the amalgamation scheduled to occur forthwith after the execution of this
Guarantee between the Borrower and Kitchen Craft of Canada Ltd., and this
Guarantee shall continue in full force and effect as if the company resulting
from such amalgamation was the Borrower hereunder and the Obligations were the
obligations of such company.
Section 20. Reaffirmation. The Guarantor agrees that when so requested by any
-------------
Lender or the Agent from time to time it will promptly execute and deliver to
such Lender or the Agent a written reaffirmation of this Guaranty in such form
as such Lender or the Agent may require.
Section 21. Revocation. Notwithstanding any other provision hereof, the
----------
Guarantor may revoke this Guaranty prospectively as to future transactions by
written notice to that effect actually received by the Agent. No such
revocation shall release, impair or affect in any manner any liability hereunder
with respect to Obligations created, contracted, assumed or incurred prior to
receipt by the Agent of written notice of revocation, or Obligations created,
contracted, assumed or incurred after receipt of such notice pursuant to any
contract entered into by the Lenders or the Agent prior to receipt of such
notice, or any renewals or extensions thereof, theretofore or thereafter made,
or any interest accrued or accruing on such Obligations, or all other costs,
expenses and attorneys' fees arising from such Obligations.
Section 22. The Guarantor hereby agrees to make all payments required to be
made under this Guarantee without regard to any right of setoff or counterclaim
that it has or may have against the Borrower or any Lender.
Section 23. The Lenders will not be liable to the Guarantor for any of their
employees, officers, directors or agents, or any receivers appointed by the
Lenders, in the course of any of its or their actions, or for any act or
omission on the part of the Lenders, except for their own gross negligence or
wilful misconduct.
Section 24. Except for demonstrable errors or omissions, the amount appearing
due in any account stated by the Lenders or settled between the Lenders and the
Borrower will be prima facie evidence as to that amount being due.
Section 25. The Guarantor postpones and subordinates in favour of the Lenders,
all debts and liabilities that the Borrower now owes (other than the Kitchen
Craft Note) or later may from time to time owe to the Guarantor in any manner
until the Lenders are paid in full, except as may otherwise be agreed in writing
by the Majority Lenders. The Guarantor further assigns to the Lenders all such
debts and liabilities, to the extent of the Obligations, until the Lenders are
paid in full. If the Guarantor receives any monies in payment of any of such
debts and liabilities, the Guarantor will hold them in trust for, and will
immediately pay them to, the Lenders without reducing the Guarantor's liability
under this Guarantee.
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<PAGE>
Section 26. Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND
------------------------------
ENFORCEABILITY OF THIS GUARANTY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE , WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT
GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
Whenever possible, each provision of this Guaranty and any other statement,
instrument or transaction contemplated hereby or relating hereto shall be
interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this Guaranty or any other statement, instrument
or transaction contemplated hereby or relating hereto shall be held to be
prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty or any other statement, instrument or transaction contemplated hereby
or relating hereto.
Section 27. Consent to Jurisdiction. AT THE OPTION OF THE LENDERS OR THE
-----------------------
AGENT, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR DELAWARE STATE
COURT; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH
COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN
THE EVENT THE GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE
UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS GUARANTY, THE LENDERS OR THE AGENT AT ITS OPTION
SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND
VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER
APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.
Section 28. Waiver of Jury Trial. EACH OF THE GUARANTOR, EACH LENDER AND THE
--------------------
AGENT, BY THEIR ACCEPTANCE OF THIS GUARANTY, IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 29. Counterparts. This Guaranty may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
Section 30. General. All representations and warranties contained in this
-------
Guaranty or in any other agreement between the Guarantor and the Lenders or the
Agent shall survive the execution, delivery and performance of this Guaranty and
the creation and payment of the Obligations. Captions in this Guaranty are for
reference and convenience only and shall not affect the interpretation or
meaning
-10-
<PAGE>
of any provision of this Guaranty. Any provision of this Guarantee that is void
or unenforceable in a jurisdiction is, as to that jurisdiction, ineffective to
that extent without invalidating the remaining provisions. This Guarantee is in
addition and without prejudice to any security of any kind now or in the future
held by the Lenders. There are no representations, collateral agreements or
conditions with respect to, or affecting the Guarantor's liability under this
Guarantee other than as contained in this Guarantee.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date
first above written.
GUARANTOR: OMEGA CABINETS, LTD.
/s/ Donald E. Cihak
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<PAGE>
EXHIBIT 10.35
CIBC
500-One Lombard Place
Winnipeg, Manitoba
R3C 2P3
GUARANTEE
THIS GUARANTEE, dated as of February , 1999, is made and given
by Kitchen Craft Cabinetry Ltd., a British Columbia company (such company,
together with its successors, the "Guarantor") in favour of the Lenders and the
Agent (as those terms are hereafter defined).
RECITALS
A. Pursuant to the Credit Agreement (as hereinafter defined), the Lenders
agreed to provide credit facilities to the Borrower, subject to the terms and on
the conditions therein set forth. CAPITALIZED TERMS USED IN THIS GUARANTEE THAT
ARE NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANING ASCRIBED THERETO IN THE
CREDIT AGREEMENT.
B. It was a condition precedent to the obligation of the Lenders to
extend credit accommodations pursuant to the terms of the Credit Agreement that
this Guarantee be executed and delivered by the Guarantor.
C. The Guarantor expects to derive benefits from the extension of credit
accommodations to the Borrower by the Lenders and finds it advantageous,
desirable and in its best interests to execute and deliver this Guarantee to the
Lenders.
NOW, THEREFORE, In consideration of the credit accommodations extended
to the Borrower and for other good and valuable consideration, the Guarantor
hereby covenants and agrees with the Lenders and the Agent as follows:
1. THE GUARANTEE. The Guarantor hereby absolutely and unconditionally
guarantees to the Lenders and the Agent the payment when due (whether
at a stated maturity or earlier by reason of acceleration or
otherwise) of the Obligations.
2. GOVERNING LAW. This Guarantee is governed by the laws of British
Columbia and all federal laws applicable therein (without reference to
the choice of law rules), and the Guarantor irrevocably agrees to
submit to the non-exclusive jurisdiction of its courts.
3. COPY RECEIVED. The Guarantor acknowledges having received a copy of
this Guarantee.
4. PAYMENT ON DEMAND. The Guarantor will immediately pay the Lenders on
demand:
<PAGE>
-2-
(a) the amount (and in the currency) of the Obligations (when due), plus
any expenses (including all legal fees and disbursements) incurred by
the Lenders in enforcing any of the Lenders' rights under this
Guarantee; and
(b) interest (including interest on overdue interest, compounded monthly)
on unpaid amounts due under this Guarantee calculated from the date on
which those amounts were originally demanded until payment in full,
both before and after judgment, at the rates (and in the currency)
applicable to the Obligations.
5. MAKING DEMAND. Demand may not be made hereunder until such time as
the Borrower's Obligations are declared to be forthwith due and
payable pursuant to Section 9.2 of the Credit Agreement. Demand and
any other notices given under this Guarantee will be conclusively
considered to have been made upon the Guarantor when the envelope
containing it, addressed to the Guarantor at the last address known to
the Agent, is deposited, postage prepaid, first class mail, in a post
office, or is personally delivered to that address; provided, however,
that, notwithstanding the foregoing, any such notice shall be deemed
to have been effected on the Guarantor upon notice being served by the
Agent on the Borrower that the Borrower's Obligations are being
declared to be forthwith due and payable pursuant to Section 9.2 of
the Credit Agreement in accordance with the terms of the Credit
Agreement, and in such case no further notice of demand for payment
hereunder by the Guarantor shall be required. The Guarantor will give
the Agent prompt written notice, addressed to the Manager of the Bank
Office, of each and every change of address.
6. NO SETOFF OR COUNTERCLAIM. The Guarantor will make all payments
required to be made under this Guarantee without regard to any right
of setoff or counterclaim that the Guarantor has or may have against
the Borrower or any Lender.
7. APPLICATION OF MONEYS RECEIVED. The Agent may apply all moneys
received from the Guarantor, the Borrower or any other Person
(including under any Security that the Agent may from time to time
hold) upon such part of the Obligations as the Agent consider
appropriate.
8. EXHAUSTING RECOURSE. The Lenders do not need to exhaust their
recourse against the Borrower or any other Person or under any
Security the Agent may from time to time hold before being entitled to
full payment from the Guarantor under this Guarantee.
9. ABSOLUTE LIABILITY. The Guarantor's liability under this Guarantee is
absolute and unconditional. It will not be limited or reduced, nor
will the Lenders be responsible or owe any duty (as a fiduciary or
otherwise) to the Guarantor, nor will the Lender's rights under this
Guarantee be prejudiced, by the existence or occurrence (with or
<PAGE>
-3-
without the knowledge or consent of the Guarantor) of any one or more
of the following events:
(a) any termination, invalidity, unenforceability or release by any Lender
of any of its rights against the Borrower or against any other Person
or of any Security;
(b) any increase, reduction, renewal, substitution or other change in, or
discontinuance of, the terms relating to the Obligations or to any
credit extended by the Lenders to the Borrower; any agreement to any
proposal or scheme of arrangement concerning, or granting any
extensions of time or any other indulgences or concessions to, the
Borrower or any other Person; any taking or giving up of any Security;
abstaining from taking, perfecting or registering any Security;
allowing any Security or lapse (whether by failing to make or maintain
any registration or otherwise); or any neglect or omission by any
Lender in respect of, or in the course of, going any of these things;
(c) accepting compositions from or granting releases or discharges to the
Borrower or any other Person, or any other dealing with the Borrower
or any other Person or with any Security that the Lenders consider
appropriate;
(d) any unenforceability or loss of or in respect of any Security held
from time to time by the Agent from the Guarantor, the Borrower or any
other Person, whether the loss is due to the means or timing of any
registration, disposition or realization of any collateral that is the
subject of that Security or otherwise due to any Lenders fault or any
other reason;
(e) any change in the Borrower's name; or any reorganization (whether by
way of amalgamation, merger, transfer, sale, lease or otherwise) of
the Borrower or the Borrower's business;
(f) any change in the Guarantor's financial condition or that of the
Borrower or any other guarantor (including insolvency and bankruptcy);
(g) any event, whether or not attributable to any Lender, that may be
considered to have caused or accelerated the bankruptcy or insolvency
of the Borrower or any guarantor, or to have resulted in the
initiation of any such proceedings;
(h) the Lenders' filing of any claim for payment with any administrator,
provisional liquidator, conservator, trustee, receiver, custodian or
other similar officer appointed for the Borrower or for all or
substantially all of the Borrower's assets;
<PAGE>
-4-
(i) to the extent permitted by applicable law, any incapacity, disability,
or lack or limitation of status or of the power of Borrower's
directors, managers, officers, partners or agents; the discovery that
the Borrower is not or may not be a legal entity; or any irregularity,
defect or informality in the incurring of any of the Obligations; or
(j) any event whatsoever that might be a defence available to, or result
in a reduction or discharge of, the Guarantor, the Borrower or any
other Person in respect of either the Obligations or the Guarantor's
liability under this Guarantee.
For greater certainty, the Guarantor agrees that the Agent and Lenders may
deal with the Guarantor, the Borrower and any other Person in any manner
without affecting the Guarantor's liability under this Guarantee.
10. PRINCIPAL DEBTOR. All moneys and liabilities (whether matured or
unmatured, present or future, direct or indirect, absolute or
contingent) obtained from the Lenders will be deemed to form part of
the Obligations, notwithstanding the occurrence of any one or more of
the events described in Section 9(j). The Guarantor will pay the
Lenders as principal debtor any amount that the Lenders cannot recover
from the Guarantor, as guarantor, immediately following demand as
provided in this Guarantee.
11. NO LIABILITY FOR NEGLIGENCE, ETC. The Lenders will not be liable to
the Guarantor for any negligence or any breaches or omissions on the
part of any Lender, or any of their respective employees, officers,
directors or agents, or any receivers appointed by the Lenders, in the
course of any of its or their actions, or for any act or omission on
the part of the Lenders, except for their own gross negligence or
willful misconduct.
12. CONTINUING GUARANTEE. This is a continuing guarantee of the
Obligations.
13. TERMINATING FURTHER LIABILITY. The Guarantor may discontinue any
further liability to pay the Obligations by written notice to the Bank
Office. The Guarantor will, however, continue to be liable under this
Guarantee for any of the Obligations created, contracted, assumed or
incurred prior to receipt by the Agent of written notice of
revocation, or Obligations created, contracted, assumed or incurred
after receipt of such notice pursuant to any contract entered into by
the Lenders or the Agent prior to receipt of such notice, or any
renewals or extensions thereof, theretofore or thereafter made, or any
interest accrued or accruing on such Obligations, or all other costs,
expenses and attorneys' fees arising from such Obligations.
<PAGE>
-5-
14. STATEMENT PRIMA FACIE. Except for demonstrable errors or omissions,
the amount appearing due in any account stated by the Lenders or
settled between the Lenders and the Borrower will be prima facie
evidence as to that amount being due.
15. THE LENDERS' PRIORITY.
(a) If any payment made to the Lenders by the Borrower or any other Person
is subsequently rendered void or must otherwise be returned for any
reason, the Guarantor will be liable for that payment. Until all of
the Lender's claims against the Borrower in respect of the Obligations
have been paid in full, the Guarantor will not require that any Lender
assign to it any Security held, or any other rights that the Lenders
may have, in connection with the Obligations, and the Guarantor will
not assert any right of contribution against any other guarantor, or
claim repayment from the Borrower, for any payment that the Guarantor
makes under this Guarantee.
(b) If the Borrower is bankrupt, liquidated or wound up, or if the
Borrower makes a bulk sale of any assets under applicable law, or if
the Borrower proposes any composition with creditors or any scheme or
arrangement, the Lenders will be entitled to all dividends and other
payments until the Lenders are paid in full, and the Guarantor will
remain liable under this Guarantee.
16. ASSIGNMENT AND POSTPONEMENT OF CLAIM. The Guarantor postpones in
favour of the Lenders all debts and liabilities that the Borrower now
owes or later may from time to time owe to the Guarantor in any manner
until the Obligations are paid in full. The Guarantor further assigns
to the Agent on behalf of the Lenders all such debts and liabilities,
to the extent of the Obligations, until the Lenders are paid in full,
except as may otherwise be agreed in writing by the Majority Lenders.
If, during the continuance of an Event of Default, the Guarantor
receives any moneys in payment of any such debts and liabilities, the
Guarantor will hold them in trust for, and will immediately pay them
to, the Lenders without reducing the Guarantor's liability under this
Guarantee.
17. WITHHOLDING TAXES. Unless a law requires otherwise, the Guarantor
will make all payments under this Guarantee without deduction or
withholding for any present or future taxes of any kind. If a law
does so require, the Guarantor will pay to the Agent additional amount
as is necessary to ensure the Lenders receive the full amount the
Agent would have received if no deduction or withholding had been
made.
18. JUDGMENT CURRENCY. The Guarantor's liability to pay the Lenders in a
particular currency (the "First Currency") will not be discharged or
satisfied by any tender or recovery under any judgment expressed in or
converted into another currency (the "Other Currency") except to the
extent the tender or recovery results in the Lenders'
<PAGE>
-6-
effective receipt of the full amount of the First Currency so payable.
Accordingly, the Guarantor will be liable to the Lenders in an
additional cause of action to recover in the Other Currency the amount
(if any) by which that effective receipt falls short of the full
amount of the First Currency so payable, without being affected by any
judgment obtained for any other sums due.
19. GENERAL. Any provision of this Guarantee that is void or
unenforceable in a jurisdiction is, as to that jurisdiction,
ineffective to that extent without invalidating the remaining
provisions. This Guarantee is in addition and without prejudice to
any Security of any kind now or in the future held by the Agent.
There are no representations, collateral agreement or conditions with
respect to, or affecting the Guarantor's liability under, this
Guarantee other than as contained in this Guarantee.
20. DEFINITIONS. In this Guarantee:
(a) "Agent" means Canadian Imperial Bank of Commerce as administrative
agent under the Credit Agreement and its successors in such capacity;
(b) "Bank Office" means the Agent's office noted on the first page of this
Guarantee, or such address as the Agent may, from time to time, advise
the Guarantor in the manner provided in Section 5;
(c) "Borrower" shall mean Kitchen Craft of Canada Ltd., the successor to
the amalgamation of Kitchen Craft of Canada Ltd. and 3578275 Canada
Inc., and its successors and assigns permitted under the Credit
Agreement;
(d) "Credit Agreement" means the certain credit agreement made
among_3578275 Canada Inc., as borrower, the Agent, as one Lender, and
the various other Lenders, dated January 29, 1999, pursuant to which
the Lenders thereunder agreed to provide credit facilities aggregating
$37,000,000.00 (Canadian) to be made available thereunder to 3578275
Canada Inc., subject to the terms and conditions therein set forth, as
such credit agreement may be amended, restated, supplemented or
otherwise modified from time to time;
(e) "Guarantor" shall have the meaning indicated in the opening paragraph
hereof.
(f) "Lenders" shall mean the institutions that are from time to time party
to the Credit Agreement as Lenders, as defined as such therein, and
"Lender" shall mean any one of them.
(g) "Obligations" has the meaning ascribed thereto in the Credit
Agreement;
<PAGE>
-7-
(h) "Person" includes a natural person, personal representative,
partnership, corporation, association, organization, estate, trade
union, church or other religious organization, syndicate, joint
venture, trust, trustee in bankruptcy, government and government body
and any other entity, and, where appropriate, specifically includes
any Guarantor;
(i) "Section" means a section or paragraph of this Guarantee; and
(j) "Security" means any security held by the Agent as security for
payment of the Obligations and includes, among other things, any and
all guarantees.
IN WITNESS WHEREOF this Guarantee has been executed by the Guarantor
the day of February, 1999.
KITCHEN CRAFT CABINETRY LTD.
By: /s/ MARK BULLER
---------------------------------
(Signature and Title)
<PAGE>
EXHIBIT 10.36
SECURITY AGREEMENT
For valuable consideration, the undersigned (the "Guarantor") agrees
with Canadian Imperial Bank of Commerce, in its capacity as administrative agent
(the "Agent") under the Credit Agreement made as of January 29, 1999 between
3578275 Canada Inc., a predecessor to Kitchen Craft of Canada Ltd., as borrower,
the Agent, as one Lender, and the various other Lenders (as such term is defined
thereunder), (as such credit agreement may be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") as follows:
1. GRANT OF SECURITY. The Guarantor mortgages, charges and assigns
-----------------
to the Agent, and grants to the Agent, and the Agent takes, a Security
Interest in the property described in the following paragraph or paragraphs
of this section (as applicable in accordance with the NOTE appearing at the
end of this section), and in all property described in any schedules,
documents or listings that the Guarantor may from time to time sign and
provide to the Agent in connection with this Agreement, and in all present
and future Accessions to, and all Proceeds of, any such property
(collectively, the "Collateral") as a general and continuing collateral
security for the due payment and performance of the obligations of the
Guarantor (the "Guarantor Obligations") under its guarantee (as such
guarantee may be amended, restated, supplemental or otherwise modified from
time to time, the "Guarantee") dated as of the date hereof in favour of the
Agent:
[_] (a) SPECIFIC PERSONAL PROPERTY: the Personal Property described in
Schedule A.
[X] (b) ALL PERSONAL PROPERTY: all of the Guarantor's present and after-
acquired undertaking and Personal Property (including any property
that may be described in Schedule A) but excluding Consumer Goods.
[_] (c) ALL REAL PROPERTY: all of the Guarantor's present and after-
acquired real property including any property that may be
described in Schedule A), together with all buildings placed,
installed or erected on any such property and all fixtures.
Provided that, notwithstanding the foregoing, nothing in this section 1 shall
mortgage, charge or assign any Intellectual Property (as that term is defined in
the Credit Agreement) but shall grant a security interest therein.
NOTE: CHECK APPROPRIATE BOX OR BOXES TO INDICATE WHICH OF PARAGRAPHS (A),
(B) OR (C) ARE TO APPLY. IF NO BOX IS CHECKED OFF, PARAGRAPH (B) WILL
APPLY.
2. GOVERNING LAW. This Agreement is governed by laws of British
-------------
Columbia and the federal laws of Canada applicable in that Province.
<PAGE>
-2-
ADDITIONAL TERMS AND CONDITIONS. THE ADDITIONAL TERMS AND CONDITIONS (INCLUDING
- -------------------------------
ANY SCHEDULES) ON THE FOLLOWING PAGES FORM PART OF THIS AGREEMENT.
The Guarantor has signed this Agreement as of February , 1999.
KITCHEN CRAFT CABINETRY LTD.
by /s/ MARK BULLER
-----------------------------
<PAGE>
-3-
ADDITIONAL TERMS AND CONDITIONS
3. RECEIVABLES. If the Collateral includes Receivables, the Agent
-----------
may, during the continuance of an Event of Default and after demand has
been made under the Guarantee, advise any Person who is liable to make any
payment to the Guarantor of the existence of this Agreement. The Agent may
from time to time confirm with such Persons the existence and the amount of
the Receivables. During the continuance of an Event of Default and after
demand has been made under the Guarantee, the Agent may collect and
otherwise deal with the Receivables in such manner and upon such terms as
the Agent considers appropriate.
4. RECEIPTS PRIOR TO DEFAULT. Until and during such time as the
-------------------------
Obligations are declared to be forthwith due and payable pursuant to
section 9.2 of the Credit Agreement, all amounts received by the Agent as
Proceeds of the Collateral will be applied on account of the Obligations in
such manner and at such times as the Agent may consider appropriate or, at
the Agent's option, may be held unappropriated in a collateral account or
released to the Guarantor.
5. PLACES OF BUSINESS. The Guarantor represents and warrants that
------------------
the locations of all existing Places of Business are specified in Schedule
B. The Guarantor will promptly notify the Agent in writing of any
additional Places of Business as soon as they are established.
6. COLLATERAL FREE OF CHARGES. The Guarantor will not create, incur
--------------------------
or assume or suffer to exist or cause or permit any Encumbrance upon or in
respect of any of its Collateral, except for Permitted Encumbrances (as
defined in the Credit Agreement). The Guarantor will not do or permit
anything to adversely affect the ranking or validity of the security
created hereby except by creating a Permitted Encumbrance.
7. DEFAULT.
-------
(a) RIGHTS UPON DEFAULT. Upon and during such time as the Obligations are
-------------------
declared to be forthwith due and payable pursuant to section 9.2 of
the Credit Agreement and after demand has been made under the
Guarantee, the Agent and the Receiver, as applicable, will to the
extent permitted by law have the following rights.
(i) APPOINTMENT OF RECEIVER. The Agent may by instrument in writing
-----------------------
appoint any Person as a Receiver of all or any part of the
Collateral. The Agent may from time to time remove or replace a
Receiver, or make application to any court of competent
jurisdiction for the appointment of a Receiver. Any Receiver
appointed by the Agent will (for purposes relating to
responsibility for the Receiver's acts or omissions) be
considered to be the Guarantor's agent. The Agent may from time
to time fix the Receiver's remuneration and
<PAGE>
-4-
the Guarantor will pay the Agent the amount of such
remuneration. The Agent will not be liable to the Guarantor or
any other Person in connection with appointing or not appointing
a Receiver or in connection with the Receiver's actions or
omissions.
(ii) DEALINGS WITH THE COLLATERAL. The Agent or a Receiver may take
----------------------------
possession of all or any part of the Collateral and retain it
for as long as the Agent or the Receiver considers appropriate,
receive any rents and profits from the Collateral, carry on (or
concur in carrying on) all or any part of the Guarantor's
business or refrain from doing so, borrow on the security of the
Collateral, repair the Collateral, process the Collateral,
prepare the Collateral for sale, lease or other disposition, and
sell or lease (or concur in selling or leasing) or otherwise
dispose of the Collateral on such terms and conditions
(including among other things by arrangement providing for
deferred payment) as the Agent or the Receiver considers
appropriate. The Agent or the Receiver may (without charge and
to the exclusion of all other Persons including the Guarantor)
enter upon any Place of Business.
(iii) REALIZATION. The Agent or a Receiver may use, collect, sell,
-----------
lease or otherwise dispose of, realize upon, release to the
Guarantor or other Persons and otherwise deal with, the
Collateral in such manner, upon such terms (including among
other things by arrangement providing for deferred payment) and
at such times as the Agent or the Receiver considers
appropriate. The Agent or the Receiver may make any sale, lease
or other disposition of the Collateral in the name of and on
behalf of the Guarantor or otherwise.
(iv) APPLICATION OF PROCEEDS AFTER DEFAULT. All Proceeds of
-------------------------------------
Collateral received by the Agent or a Receiver may be applied to
discharge or satisfy any expenses (including among other things
the Receiver's remuneration and other expenses of enforcing the
Agent's rights under this Agreement), Charges, borrowings, taxes
and other outgoings affecting the Collateral or which are
considered advisable by the Agent or the Receiver to preserve,
repair, process, maintain or enhance the Collateral or prepare
it for sale, lease or other disposition, or to keep in good
standing any Charges on the Collateral ranking in priority to
any Charge created by this Agreement, or to sell, lease or
otherwise dispose of the Collateral. The balance of such
Proceeds will be applied to the Obligations in such manner and
at such times as the Agent consider appropriate and thereafter
will be accounted for as required by law.
<PAGE>
-5-
(b) OTHER LEGAL RIGHTS. Before and during the continuation of an Event of
------------------
Default and both before and after demand is made under the Guarantee,
the Agent will have, in addition to the rights specifically provided
in this Agreement, the rights of a secured party under the PPSA, as
well as the rights recognized at law and in equity. No right will be
exclusive of or dependent upon or merge in any other right, and one or
more of such rights may be exercised independently or in combination
from time to time.
(c) DEFICIENCY. The Guarantor will remain liable to the Agent for payment
----------
of any Guarantor Obligations that are outstanding following
realization of all or any part of the Collateral.
8. THE AGENT NOT LIABLE. The Agent will not be liable to the
--------------------
Guarantor or any other Person for any failure or delay in exercising any of
its rights under this Agreement (including among other things any failure
to take possession of, collect or sell, lease or otherwise dispose of, any
Collateral). None of the Agent, a Receiver or any agent of the Agent
(including, in Alberta any sheriff) is required to take, or will have any
liability for any failure to take or delay in taking, any steps necessary
or advisable to preserve rights against other Persons under any Chattel
Paper, Securities or Instrument in possession of the Agent, a Receiver or
the Agent's agent.
9. FURTHER ASSURANCES. The Guarantor will from time to time as soon
------------------
as practicable following the request by the Agent take such action
(including among other things the signing and delivery of financing
statements and financing change statements, other schedules, documents or
listings describing property included in the Collateral, further
assignments and other documents, and the registration of this Agreement) as
the Agent may require in connection with the Collateral or as the Agent
might consider necessary to give effect to this Agreement. If permitted by
law, the Guarantor waives the right to sign or receive a copy of any
financing statement or financing change statement, or any statement issued
by any registry that confirms any registration of a financing statement or
financing change statement, relating to this Agreement. The Guarantor
irrevocably appoints the Manager or the Acting Manager from time to time of
the Agent's branch specified on the first page of this Agreement as the
Guarantor's attorney (with full powers of substitution and delegation) to
sign, during the continuance of an Event of Default and after demand is
made under the Guarantee, all documents required to give effect to this
section. Nothing in this section affects the right of the Agent as secured
party, or any other Person on the Agent's behalf, to sign and file or
deliver (as applicable) all such financing statements, financing change
statements, notices, verification agreements and other documents relating
to the Collateral and this Agreement as the Agent or such other Person
considers appropriate.
10. DEALINGS BY THE AGENT. The Agent may from time to time increase,
---------------------
reduce, discontinue or otherwise vary the Guarantor's Obligations under the
Guarantee or those of Kitchen Craft under the Credit Agreement, grant
extensions of time and other indulgences,
<PAGE>
-6-
take and give up any Charge, abstain from taking, perfecting or registering
any Charge, accept compositions, grant releases and discharges and
otherwise deal with the Guarantor, customers of the Guarantor, guarantors
and others, and with the Collateral and any Charges held by the Agent, as
the Agent considers appropriate without affecting the Guarantor's
obligations to the Agent or the Agent's rights under this Agreement.
11. DEFINITIONS. In this Agreement;
-----------
"ACCESSIONS", "ACCOUNT", "CHATTEL PAPER", DOCUMENT OF TITLE", "EQUIPMENT",
"GOODS", "INSTRUMENT", INTANGIBLE", "INVENTORY", "PROCEEDS", "PURCHASE-
MONEY SECURITY INTEREST" and "SECURITY INTEREST" have the respective
meanings given to them in the PPSA.
"BOOKS AND RECORDS" means all books, records, files, papers, disks,
documents and other repositories of data recording, evidencing or relating
to the Collateral to which the Guarantor (or any Person on the Guarantor's
behalf) has access.
"CHARGE" means any mortgage, charge, pledge, hypothecation, lien (statutory
or otherwise), assignment, financial lease, title retention agreement or
arrangement, security interest or other encumbrance of any nature however
arising, or any other security agreement or arrangement creating in favour
of any creditor a right in respect of a particular property that is prior
to the right of any other creditor in respect of such property.
"CONSUMER GOODS" has the meaning given to it in the PPSA, except that, if
this Agreement is governed by the laws of the Yukon, it does not include
special consumer goods as that term is defined in the Yukon PPSA.
"EVENT OF DEFAULT" has the meaning ascribed thereto in the Credit
Agreement.
"KITCHEN CRAFT" means Kitchen Craft of Canada Ltd., the successor to the
amalgamation of Kitchen Craft of Canada Ltd. and 3578275 Canada Inc., and
its successors and assigns permitted under the Credit Agreement.
"MONEY" has the meaning given to it in the PPSA or, if there is no such
definition, means a medium of exchange authorized or adopted by the
Parliament of Canada as part of the currency of Canada, or by a foreign
government as part of its currency.
"OBLIGATIONS" has the meaning ascribed thereto as the Credit Agreement.
"PERSON" means any natural person or artificial body (including among
others any firm, corporation or government).
<PAGE>
-7-
"PERSONAL PROPERTY" means personal property and includes among other things
Inventory, Equipment, Receivables, Books and Records, Chattel Paper, Goods,
Documents of Title, Instruments, Intangibles (including intellectual
property), Money and Securities, and includes all Accessions to such
property.
"PLACE OF BUSINESS" means a location where the Guarantor carries on
business or where any of the Collateral is located (including any location
described in Schedule B).
"PPSA" means the legislation that applies in the province or territory
noted in section 2 of this Agreement, as such legislation may be amended,
renamed or replaced from time to time (and includes all regulations from
time to time made under such legislation) as follows: in the case of
Ontario, the Personal Property Security Act, 1989; in the case of Alberta,
British Columbia, Manitoba, Prince Edward Island, Saskatchewan and the
Yukon Territory, the Personal Property Security Act; and in the case of any
other province or territory, such legislation as deals generally with
Charges on personal property;
"RECEIVABLES" means all debts, claims and choses in action (including among
other things Accounts and Chattel Paper) now or in the future due or owing
to or owned by the Guarantor.
"RECEIVER" means a receiver or a receiver and manager.
"SECURITIES" has the meaning given to it in the PPSA or, if there is no
such definition and the PPSA defines "security" instead, it means the
plural of that term.
"SERIAL NUMBER" means the number that the Person who manufactured or
constructed a Serial Number Good permanently marked or attached to it for
identification purposes or, if applicable, such other number as the PPSA
stipulates as the serial number or vehicle information number to be used
for registration purposes of such Serial Number Good.
"SERIAL NUMBER GOOD" means a motor vehicle, trailer, mobile home, aircraft
airframe, aircraft engine or aircraft propeller, boat or an outboard motor
for a boat.
12. GENERAL.
-------
(a) RESERVATION OF THE LAST DAY OF ANY LEASE. The Charges created by this
----------------------------------------
Agreement do not extend to the last day of the term of any lease or
agreement for lease; however, the Guarantor will hold such last day in
trust for the Agent and, upon the exercise by the Agent of any of its
rights under this Agreement during the continuation of an Event of
Default and after demand has been made under the Guarantee, will
assign such last day as directed by the Agent.
<PAGE>
-8-
(b) ATTACHMENT OF SECURITY INTEREST. The Security Interests created by
-------------------------------
this Agreement are intended to attach (i) to existing Collateral when
the Guarantor signs this Agreement, and (ii) to Collateral
subsequently acquired by the Guarantor, immediately upon the Guarantor
acquiring any rights in such Collateral. The parties do not intend to
postpone the attachment of any Security Interest created by this
Agreement.
(c) PURCHASE-MONEY SECURITY INTEREST. If the Agent gives value for the
--------------------------------
purpose of enabling the Guarantor to acquire rights in or to any of
the Collateral, the Guarantor will in fact apply such value to acquire
those rights (and will provide the Agent with such evidence in this
regard as the Agent may require), the Guarantor grants to the Agent,
and the Agent takes, a Purchase-Money Security Interest in such
Collateral to the extent that the value is applied to acquire such
rights. A certificate or affidavit of any of the Agent's authorized
representatives is admissible in evidence to establish the amount of
any such value.
(d) DESCRIPTION OF COLLATERAL IN SCHEDULE A. The fact that box (b) or box
---------------------------------------
(c) of section 1 has been checked without there being any property
described in Schedule A does not affect the nature or validity of the
Agent's security in the Collateral.
(e) ENTIRE AGREEMENT. The Agent has not made any representation or
----------------
undertaken any obligation in connection with the subject matter of
this Agreement other than as specifically set out in this Agreement,
and in particular nothing continued in this Agreement will require the
Agent to make, renew or extend the time for payment of any loan or
other credit accommodation to the Guarantor or any other Person.
(f) ADDITIONAL SECURITY. The Charges created by this Agreement are in
-------------------
addition and without prejudice to any other Charge now or later held
by the Agent. No Charge held by the Agent will be exclusive of or
dependent upon or merge in any other Charge, and the Agent may
exercise its rights under such Charges independently or in
combination.
(g) SEVERABILITY; HEADINGS. Any provision of this Agreement that is void
----------------------
or unenforceable in any jurisdiction is, as to that jurisdiction,
ineffective to that extent without invalidating the remaining
provisions of this Agreement. The headings in this Agreement are for
convenience only and do not limit or extend the provisions of this
Agreement.
(h) INTERPRETATION. When the context so requires, the singular will be
--------------
read as the plural, and vice versa.
<PAGE>
-9-
(i) COPY OF AGREEMENT. The Guarantor acknowledges receipt of a copy of
-----------------
this Agreement.
(j) WAIVERS. If this Agreement is governed by the laws of Saskatchewan and
-------
the Guarantor is a corporation, the Guarantor agrees that The
Limitation of Civil Rights Act, The Land Contracts (Actions) Act and
Part IV (excepting only section 46 of The Saskatchewan Farm Security
Act do not apply insofar as they relate to actions as defined in those
Acts, or insofar as they relate to or affect this Agreement, the
rights of the Agent under this Agreement or any instrument, Charge,
security agreement or other document of any nature that renews,
extends or is collateral to this Agreement.
(k) NOTICE. The Agent may send to the Guarantor copies of any document
------
required by the PPSA to be delivered by the Agent to the Guarantor in
accordance with the notice provisions of the Guarantee.
(l) ENUREMENT ASSIGNMENT. This Agreement will enure to the
--------------------
benefit of and be binding upon (i) the Agent, its successors and
assigns, and (ii) the Guarantor and the Guarantor's successors and
permitted assigns. The Guarantor will not assign this Agreement
without the Agent's prior written consent.
<PAGE>
SCHEDULE A
The following is a description of property included in the Collateral.
<PAGE>
SCHEDULE B
The following are the Places of Business:
2100-1 Bertell Centre
505 Burrard Street
Vancouver, British Columbia
V7X 1R4
<PAGE>
EXHIBIT 10.37
SUPPLEMENT NO. 1 TO MANAGEMENT AGREEMENT
This Supplement No. 1 to the Management Agreement is dated as of January
29, 1999 by and between Omega Holdings, Inc., a Delaware corporation, Omega
Cabinets, Ltd., a Delaware corporation and a wholly owned subsidiary of Omega
Holdings, Inc. (Omega Holdings, Inc. and Omega Cabinets, Ltd. are hereinafter
referred to collectively as the "Company"), and BCC Industrial Services, Inc., a
Delaware corporation (the "Advisor"). Reference is made to the Management
Agreement (the "Management Agreement") dated as of June 13, 1997 by and between
the Company and the Advisor.
For good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the Company and the Advisor desire to amend the
Management Agreement as follows:
Section 2 of the Management Agreement is hereby amended as follows:
The management fee payable pursuant to Section 2 of the Management
Agreement is hereby increased to $425,000 per annum effective from and after the
date hereof and an additional warrant to purchase 414.893 shares of the common
stock of Omega Holdings, Inc., in substantially the form attached as Exhibit 1
to this Supplement No. 1 to the Management Agreement, will be issued to the
Advisor. Such warrant shall be exercisable in full as of the date of the issue
at an exercise price equal to $1,371,874 per share of such common stock.
IN WITNESS WHEREOF, each of the partners has caused this Supplement No. 1
to the Management Agreement to be executed on its behalf as an instrument under
seal as of date first above written by its officer or representative thereunto
duly authorized.
THE COMPANY: THE ADVISOR:
OMEGA HOLDINGS, INC. BCC INDUSTRIAL SERVICES, INC.
By: /s/ ROBERT MORAN By: /s/ DONALD E. CIHAK
---------------- -------------------
OMEGA CABINETS, LTD.
By: /s/ ROBERT MORAN
-----------------
<PAGE>
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of January 29, 1999 (the "Effective
Date") between 3578275 Canada Inc., a Canadian corporation, (the "Company"), and
Herbert D. Buller (the "Executive").
WHEREAS, the Executive is possessed of certain experience and expertise;
and
WHEREAS, the Executive has been employed by Kitchen Craft of Canada Ltd., a
Canadian corporation ("Kitchen Craft"), since November 1, 1971; and
WHEREAS, the Executive is a party to that certain Master Transaction
Agreement dated as of January 29, 1999 by and among the Company, the Executive
and certain other parties thereto (the "Master Transaction Agreement") whereby
Executive and the other stockholders of Kitchen Craft have agreed to sell all of
the shares of capital stock of Kitchen Craft to Holdings or a subsidiary
thereof; and
WHEREAS, as a covenant in the Master Transaction Agreement, the Executive
has agreed to enter into this Employment Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the parties hereto hereby agree as follows:
1. EMPLOYMENT.
1.1 Agreement. The Company hereby agrees to employ the Executive, and the
---------
Executive hereby agrees to serve the Company, in each case on the terms and
subject to the conditions set forth herein.
1.2 Term. The employment of the Executive by the Company shall be for the
----
period commencing on the Effective Date and expiring on the second anniversary
of the Effective Date or on the date on which termination of employment is
effective pursuant to the provisions of Section 8 (the "Termination Date"). For
all purposes of this Agreement, references to the "term" of the Executive's
employment hereunder shall mean the period commencing on the Effective Date and
ending on the Termination Date.
1.3 Definitions. Capitalized terms are used in this Agreement as
-----------
specifically defined herein. Certain definitions are set forth in Section 12.
2. POSITION AND DUTIES. The Executive shall serve as the Chief Executive
Officer of the Company, and shall be accountable to, and shall have such powers,
duties and responsibilities as may from time to time be prescribed by, the Chief
Executive Officer of Holdings. The Executive shall perform and discharge,
faithfully, diligently and competently,
<PAGE>
such duties and responsibilities as agreed to from time to time by the Executive
and the Chief Executive Officer of Holdings.
3. COMPENSATION. Subject to all of the terms and conditions hereof and to the
performance by the Executive of his duties and obligations to the Company:
3.1 Salary. As compensation for services performed under and during the
------
term of his employment hereunder, the Company shall pay the Executive a salary
at a rate of (Cdn) $175,000 per annum or such higher amount as may from time to
time be established by the Company (such annual rate of salary in effect from
time to time being referred to as the "Salary"). The Salary shall be payable in
accordance with the payroll practices of the Company. Except as otherwise
provided in this Agreement, the Salary shall be prorated for any period less
than a full year.
3.2 Bonus. As additional compensation for services hereunder, the
-----
Executive shall be eligible for and shall be paid, if earned in accordance with
the terms of the applicable bonus plan, a bonus for each fiscal year, the last
day of which falls within the term of this Agreement. The amount of any such
bonus shall be determined in accordance with the then existing plan of Holdings
for payment of bonuses, which plan may be altered, modified, amended, or
terminated at any time as the Board of Directors of Holdings, in its sole
judgment, determines to be appropriate. Any bonus payable to the Executive
during the term of this Agreement is referred to herein as an "Annual Bonus".
3.3 Business Expenses. During the term of his employment hereunder, the
-----------------
Executive shall be entitled to receive prompt reimbursement by the Company for
all reasonable business expenses incurred by him on behalf of the Company or any
of its Subsidiaries or Affiliates (in accordance with the policies and
procedures established from time to time for the Company's executive officers)
in performing his duties hereunder, provided that the Executive properly
--------
accounts therefor in accordance with requirements for federal income tax
deductibility and the Company's policies and procedures.
3.4 Fringe Benefits. During the term of his employment hereunder, the
---------------
Executive shall be entitled to participate in any life insurance, health and
accident plans and retirement plans made generally available by the Company to
its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. The Company may alter, modify, add to or delete its employee
benefits at any time as the Board of Directors of the Company, in its sole
judgment, determines to be appropriate; provided, however, that during the term
-------- -------
of his employment, the Executive shall be entitled to continue the use of the
Kitchen Craft vehicle currently used by the Executive on substantially the same
basis as was enjoyed by the Executive prior to the Effective Date.
-2-
<PAGE>
3.5 Vacations. During the term of his employment hereunder, the Executive
---------
shall be entitled to an amount of paid vacation in each year as is consistent
with the practices of the Company as of the Effective Date and shall also be
entitled to all paid holidays given by the Company to its employees. The paid
vacation days shall be prorated for any period of service hereunder less than a
full year. The Executive shall not be entitled to cash compensation for any
vacation time not taken during the term hereof and shall not be entitled to
accrue unused vacation.
4. OFFICES; SUBSIDIARIES AND AFFILIATES. The Executive agrees to serve
during the term of his employment hereunder, if elected or appointed thereto, in
one or more positions as an officer or director of the Company or any one or
more of the Company's present or future Subsidiaries or Affiliates, or as an
officer, trustee, director or other fiduciary of any pension or other employee
benefit plan of the Company or any of its Subsidiaries or Affiliates. Service in
such additional positions will be without additional compensation except for
reimbursement of reasonably related business expenses on the same terms as
provided elsewhere in this Agreement. The Company agrees that in connection with
the Executive's service in additional positions as provided under this Section
4, the Executive shall be entitled to the benefit of indemnification provisions
in the by-laws of the Company, its Subsidiaries or Affiliates for which the
Executive serves in such an additional position and director and officer
liability insurance coverage carried by the Company or any such Subsidiary or
Affiliate of the Company for which the Executive serves as an officer or
director.
5. UNAUTHORIZED DISCLOSURE; INVENTIONS.
5.1 Confidential Information. The Executive acknowledges that the Company
------------------------
and its Subsidiaries and Affiliates continually develop Confidential
Information, that the Executive may develop Confidential Information for the
Company or its Subsidiaries or Affiliates and that the Executive may learn of
Confidential Information during the course of employment. The Executive will
comply with the policies and procedures of the Company and its Subsidiaries and
Affiliates for protecting Confidential Information and agrees not to disclose to
any Person (except as required by applicable law or for the proper performance
of his duties and responsibilities to the Company and its Subsidiaries or
Affiliates), or use for his own benefit or gain, any Confidential Information
obtained by the Executive incident to his employment or other association with
the Company or any of its Subsidiaries or Affiliates. The Executive understands
that this restriction shall continue to apply after his employment terminates,
regardless of the reason for such termination.
-3-
<PAGE>
5.2 Protection of Documents and Company Property. All documents,
--------------------------------------------
records, tapes and other media of every kind and description relating to the
business, present or otherwise, of the Company or its Subsidiaries or Affiliates
and any copies, in whole or in part, thereof (the "Documents"), whether or not
prepared by the Executive, and any and all equipment or other tangible personal
property provided by the Company or its Subsidiaries or Affiliates for the
Executive's use ("Company Property") shall be the sole and exclusive property of
the Company or its Subsidiaries or Affiliates. The Executive shall safeguard all
Documents and Company Property and shall surrender to the Company at the time
his employment terminates, or at such earlier time or times as the Company or
its designee may specify, all Documents and all Company Property then in the
Executive's possession or control.
5.3 Proprietary Rights. Any and all inventions, discoveries,
------------------
developments, methods, processes, compositions, works, supplier and customer
lists (including without limitation information relating to the generation and
updating thereof), concepts and ideas (whether or not patentable or
copyrightable) conceived, made, developed, created or reduced to practice by the
Executive (whether at the request or suggestion of the Company or otherwise,
whether alone or in conjunction with others, and whether during regular hours of
work or otherwise) during the term of his employment by the Company or any of
its Affiliates (whether before or after the date hereof) and for one year
thereafter, which may be directly or indirectly useful in, or relate to, the
business, ventures or other activities of or products manufactured or sold by
the Company or any of its Subsidiaries or Affiliates or any business or products
contemplated by the Company or any of its Subsidiaries or Affiliates while the
Executive was or is an employee, officer or director of the Company or any of
its Affiliates (collectively, "Proprietary Rights"), shall be promptly and fully
disclosed by the Executive to the Company and shall be the Company's exclusive
property as against the Executive and his heirs, executors, administrators,
beneficiaries, successors and assigns, and the Executive hereby assigns to the
Company his entire right, title and interest therein and shall promptly deliver
to the Company all papers, drawings, models, data and other material relating to
any of the foregoing Proprietary Rights conceived, made, developed, created or
reduced to practice by him as aforesaid. All copyrightable Proprietary Rights
shall be considered "works made for hire."
The Executive shall, upon the Company's request and without any payment
therefor, execute any documents necessary or advisable in the opinion of the
Company's counsel to assign, and confirm the Company's title in, his entire
right, title and interest in the foregoing Proprietary Rights and to direct
issuance of patents or copyrights to the Company with respect to such
Proprietary Rights as are the Company's exclusive property as against the
Executive and his heirs, executors, administrators, beneficiaries, successors
and assigns under this Section 5.3 or to vest in the Company title to such
Proprietary Rights as against the Executive and his heirs, executors,
administrators, beneficiaries, successors and assigns, the expense of securing
any such patent or copyright, however, to be borne by the Company.
-4-
<PAGE>
6. RESTRICTED ACTIVITIES. The Executive agrees that some restrictions on his
activities during and after his employment are necessary to protect the
goodwill, Confidential Information and other legitimate interests of the Company
and its Subsidiaries and Affiliates:
6.1 Non-Competition. While the Executive is employed by the Company or is
---------------
receiving payments pursuant to Section 9.4 of this Employment Agreement and for
a period of two years immediately thereafter (the "Non-Competition Period"), the
Executive shall not, directly or indirectly (including, without limitation,
through any affiliate), alone or in association with others, own, manage,
operate, control or participate in the ownership, management, operation or
control of, or be connected as an officer, employee, investor, principal, joint
venturer, stockholder, partner, director, consultant, agent or otherwise with,
or have any financial interest (through stock or other equity ownership,
investing of capital, lending of money or otherwise) (other than wholly passive
ownership of less than five percent (5%) of the outstanding equity securities of
any class registered under the Securities Exchange Act of 1934, as amended, or
similar laws of Canada) in, any business, venture or activity that, anywhere in
the United States of America or Canada, is involved in competition with the
Company or any of its Subsidiaries or Affiliates, namely (A) the manufacture,
distribution, sale or installation of (i) any products or services of the type
manufactured, distributed, sold or installed by the Company or any of its
Subsidiaries or Affiliates (including, without limitation, custom, semi-custom
and stock wood and laminate kitchen cabinets, bathroom vanities and related
accessories for distribution to independent dealers, home centers and lumber
yards) or (ii) any other products or services that compete with any products or
services of the type referred to in clause (i), or (B) any other business in
which the Company or any of its Subsidiaries or Affiliates is engaged, or is
actively considering becoming engaged, on the date hereof or thereafter during
such Executive's employment with the Company or, with respect to post-employment
activities, was so engaged or actively considering becoming engaged at the date
of termination of employment (it being agreed, however, that this Section 6.1
shall not prohibit (i) John Buller from having an ownership interest in, or
being employed by, Evin Marketing Ltd., an Alberta corporation, (ii) Herbert
Falk, Joan Falk, William Falk, or Christopher Falk from having an ownership
interest in, or being employed by, Bulrad Enterprises, Inc., a California
corporation, (iii) the Executive from lending up to (U.S.) $150,000 to Herbert
Falk, Joan Falk, William Falk, or Christopher Falk in connection with the sale
of Bulrad Enterprises, Inc. to Herbert Falk, Joan Falk, William Falk, and
Christopher Falk, on the terms and subject to the conditions previously
disclosed to the Company, and (iv) the Executive from maintaining a passive
ownership interest (not to exceed 25% of the outstanding capital stock) in KCC
Toronto Ltd., a Canadian corporation).
6.2 Agreement Not to Solicit Customers. During the Non-Competition
----------------------------------
Period, Executive shall not, directly or indirectly (including, without
limitation, through any affiliate) solicit or encourage any customer or supplier
of the Company or any Subsidiary or Affiliate of the Company to (A) terminate or
diminish its relationship with the Company or such Subsidiary or Affiliate; or
(B) conduct with any person or entity any business or activity if the
-5-
<PAGE>
effect thereof could be to terminate or diminish any business or activity that
such customer or supplier conducts or could conduct with the Company or such
Subsidiary or Affiliate.
6.3 Outside Activities. The Executive agrees that, during his
------------------
employment with the Company, he will not undertake any outside activity, whether
or not competitive with the business of the Company or any of its Subsidiaries
or Affiliates, that could reasonably give rise to a conflict of interest or
otherwise interfere with his duties and obligations to the Company or any of its
Subsidiaries or Affiliates.
6.4 Non-Solicitation of Employees. Acknowledging the strong interest
-----------------------------
of the Company in an undisrupted workplace, the Executive further agrees that
while he is employed by the Company and for a period of two years immediately
following termination of his employment, the Executive will not, as long as any
employee remains an employee of the Company or any Subsidiary or Affiliate of
the Company, and for a period of six months thereafter, directly or indirectly
(including, without limitation, through any affiliate) solicit the employment of
or hire such employee of the Company or any of its Subsidiaries or Affiliates,
assist in such hiring by any person or entity, or seek to persuade or encourage
any employee to terminate employment with the Company or any of its Subsidiaries
or Affiliates, the value of the services of such employees being acknowledged as
valuable assets of the Company.
7. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has carefully
read and considered all the terms and conditions of this Agreement, including
the restraints imposed upon him pursuant to Sections 5 and 6 hereof. The
Executive agrees that said restraints are necessary for the reasonable and
proper protection of the Company and its Subsidiaries and Affiliates and that
each and every one of the restraints is reasonable in respect to subject matter,
length of time and geographic area. The Executive further acknowledges that,
were he to breach any of the covenants contained in Sections 5 or 6 hereof, the
damage to the Company would be irreparable. The Executive therefore agrees that
the Company, in addition to any other remedies available to it, shall be
entitled to preliminary and permanent injunctive relief against any breach or
threatened breach by the Executive of any of said covenants. The parties further
agree that, in the event that any provision of Section 5 or 6 hereof shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its being extended over too great a time, too large a geographic area or too
great a range of activities, such provision shall be deemed to be modified to
permit its enforcement to the maximum extent permitted by law.
8. TERMINATION.
8.1 Death. The Executive's employment hereunder shall terminate upon his
-----
death.
8.2 Incapacity. If the Executive shall have been unable to perform his
----------
duties hereunder by reason of any physical or mental illness, injury or other
incapacity (i) for any period of 120 consecutive days or (ii) for a total of 150
days in any period of 12 consecutive
-6-
<PAGE>
calendar months, the Company may terminate the Executive's employment hereunder
by written notice to the Executive.
8.3 Cause. The Company may terminate the Executive's employment hereunder
-----
for Cause at any time upon written notice to the Executive. For the purposes of
this Agreement, "Cause" means (i) conduct of the Executive which constitutes a
material breach of any of his obligations set forth in this Agreement that is
not cured within thirty (30) days after written notice of such breach to the
Executive, (ii) conviction of a felony or indictable offense or a crime
involving moral turpitude, (iii) embezzlement, misappropriation of property of
the Company or any of its Subsidiaries or Affiliates, or any other act involving
dishonesty or fraud with respect to the Company or any of its Subsidiaries or
Affiliates, (iv) the repeated failure, after written notice, to follow
reasonable directives of the Board of Directors of Holdings, or (v) any other
event which constitutes "just cause" at common law.
8.4 Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder at any time upon 30 days' prior written notice to the
Company. In the event of termination of the Executive pursuant to this Section
8.4, the Board of Directors of Holdings may elect to waive the period of notice,
or any portion thereof.
8.5 Termination by the Company other than for Cause. Subject to Section
-----------------------------------------------
9, the Company may terminate the Executive's employment hereunder other than for
Cause at any time upon written notice to the Executive.
9. COMPENSATION UPON TERMINATION.
9.1 Death. In the event of the Executive's death during the term hereof,
-----
the Company shall pay or transfer, as the case may be, to his estate, (i) Salary
and any Annual Bonus earned and unpaid at the date of death, and (ii) any
vacation pay required by applicable law.
9.2 Incapacity. If the Executive's employment shall be terminated by
----------
reason of his incapacity pursuant to Section 8.2, the Company shall (i) continue
to pay the Executive his Salary through the Termination Date, (ii) pay the
Executive any Annual Bonus earned and unpaid at the Termination Date, and (iii)
pay the Executive any vacation pay required by applicable law.
9.3 Cause. If the Company shall terminate the Executive's employment for
-----
Cause, the Company shall have no further obligations to the Executive under this
Agreement other than payment of Salary earned and unpaid through the Termination
Date and payment of any vacation pay required by applicable law.
9.4 Termination by the Company Other than for Cause. If the Company shall
-----------------------------------------------
terminate the Executive's employment pursuant to Section 8.5 hereof, then the
Company shall pay to the Executive, without duplication, (A) his Salary earned
and unpaid through the
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<PAGE>
Termination Date, (B) any vacation pay required by applicable law, and (C) the
greater of: (I) Salary payable during the notice period required by applicable
provincial legislation; and (II) until the date (the "Severance Termination
Date") which is the second anniversary of the Effective Date, severance at a
rate equal to 100% of his Salary for such period. With respect to any
termination of employment to which this Section 9.4 applies, until the Severance
Termination Date, the Company shall, if the Executive was participating in any
medical and dental insurance plans pursuant to Section 3.4 hereof immediately
prior to the effectiveness of his termination of employment and subject to any
employee contribution applicable to the Executive immediately prior to such
effectiveness, continue to contribute to the cost of the Executive's
participation in such medical and dental insurance plans so long as the
Executive is entitled to continue such participation under applicable law and
plan terms. The obligations of the Company to the Executive under this Section
9.4 (other than with respect to Salary earned and unpaid through the Termination
Date and any vacation pay required by applicable law) are conditioned upon the
Executive's signing a release of claims in the form attached hereto as Exhibit A
---------
(the "Release") within 30 days of the date on which notice of termination is
given and upon such Release remaining in full force and effect thereafter. All
severance payments under this Section 9.4 will be in the form of salary
continuation, payable in accordance with the normal payroll practices of the
Company and will begin at the Company's next regular payroll period following
the effective date of the Release, but shall be retroactive to the Termination
Date.
9.5 Termination by the Executive. If the Executive shall terminate his
----------------------------
employment pursuant to Section 8.4 hereof, the Company shall have no further
obligations to the Executive under this Agreement other than payment of Salary
earned and unpaid through the Termination Date and payment of any vacation pay
required by applicable law (it being understood that if, in accordance with
Section 8.4, the Board of Directors of Holdings elects to waive the period of
notice, or any portion thereof, the payment of Salary under this Section 9.5
shall continue through the notice period or any portion thereof so waived).
9.6 Post-Termination Obligations Generally. Except as expressly set forth
--------------------------------------
in this Section 9 or in the Master Transaction Agreement, the Company shall have
no further obligations to the Executive following termination or expiration of
the term of the Executive's employment hereunder, and performance by the Company
of any obligation specifically provided in this Section 9 shall constitute full
settlement of any claim that the Executive may have on account of any
termination against the Company and its Subsidiaries or Affiliates and all of
their respective past and present officers, directors, stockholders, controlling
Persons, employees, agents, representatives, successors and assigns and all
other others connected with any of them, both individually and in their official
capacities.
9.7 Retirement Allowance. Upon termination of the Executive's employment
--------------------
pursuant to Section 8.1, 8.2 or 8.5, the Executive shall be paid a retirement
allowance of (Cdn) $70,000. Alternatively, if the Executive's employment
hereunder is terminated on the second anniversary of the Effective Date other
than pursuant to Section 8 and the Executive is
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<PAGE>
thereafter, or in connection therewith, entitled to an Annual Bonus, the
Executive shall receive a retirement allowance in lieu of the first (Cdn)
$70,000 of such Annual Bonus (to the extent such Annual Bonus equals or exceeds
(Cdn) $70,000) with any remaining amount of such Annual Bonus payable as such.
If the Executive's Annual Bonus described above is less than (Cdn) $70,000, the
Executive shall receive, in lieu of such Annual Bonus, a retirement allowance
equal to the amount of such Annual Bonus.
10. WITHHOLDING. All payments made by the Company under this Agreement shall
be reduced by any tax or other amounts required to be withheld by the Company
under any applicable law or legal requirement.
11. NOTICES. All notices, requests and demands to or upon the parties hereto to
be effective shall be in writing, by facsimile, by overnight courier or by
registered or certified mail, postage prepaid and return receipt requested, and
shall be deemed to have been duly given or made upon: (i) delivery by hand, (ii)
one business day after being sent by overnight courier; or (iii) in the case of
transmission by facsimile, when confirmation of receipt is obtained. Such
communications shall be addressed and directed to the parties as follows (or to
such other address as either party shall designate by giving like notice of such
change to the other party):
If to the Executive:
Box 27, Group 529
Winnipeg, Manitoba
R2C 2Z3
With a copy to:
Aikins, MacAulay & Thorvaldson
30th Floor, 360 Main Street
Winnipeg, Manitoba
R3C 4G1
Attention: E. L. Warkentin
Facsimile: (204) 957-0840
If to the Company:
KC Canada Acquisition Corp.
c/o Kitchen Craft of Canada Ltd.
1180 Springfield Road
Winnipeg, Manitoba
R2C 2Z2
Attention: President
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<PAGE>
with a copy to:
Omega Holdings, Inc.
1205 Peters Drive
Waterloo, IA 50703
Attention: President
Facsimile: (319) 235-9618
and a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Patrick Diaz, Esq.
Facsimile: (617) 951-7050
12. DEFINITIONS. Terms defined in this Agreement other than in this Section 12
are used herein as so defined, and the following terms shall have the following
respective meanings:
12.1 "Affiliate" shall mean (i) any Person directly or indirectly
---------
controlling, controlled by or under direct or indirect common control with the
Company (or other specified Person), (ii) any other Person which, together with
its Affiliates (as defined in clause (i) above), shall, directly or indirectly,
own beneficially or control the voting of at least 10% of the ownership interest
in the Company (or other specified Person) and (iii) any other Person of which
the Company (or other specified Person) and its Affiliates (as defined in
clauses (i) and (ii) above) shall, directly or indirectly, own beneficially or
control the voting of at least 10% of any class of outstanding capital stock or
other evidence of beneficial interest or of any interest as a general partner or
joint venturer.
12.2 "Confidential Information" shall mean any and all information
------------------------
relating to the Company or any of its Subsidiaries or Affiliates, including
without limitation, (A) the products and services, technical data, methods and
processes of the Company and its Subsidiaries and Affiliates, (B) their
marketing activities and strategic plans, (C) their costs and sources of supply,
(D) the identity and special needs of the customers and prospective customers of
the Company and its Subsidiaries and Affiliates, and (E) the people and
organizations with whom the Company and its Subsidiaries and Affiliates have
business relationships and those relationships. Without limiting the generality
of the foregoing, Confidential Information shall specifically include (i) any
and all customer and sales records, including the identity of contacts at the
customer, any list of customers, any list of sales transactions and/or prices
charged by the Company and its Subsidiaries and Affiliates; (ii) any and all
vendor and purchase records, including the identity of contacts at any vendor,
any list of vendors, any list of purchase transactions and/or prices paid by the
Company or its Subsidiaries or Affiliates; and (iii) any
-10-
<PAGE>
marketing program of the Company or any of its Subsidiaries or Affiliates.
Confidential Information also includes any information that the Company or any
of its Subsidiaries or Affiliates may receive or has received from others with
any understanding, express or implied, that it will not be disclosed.
Confidential Information does not include information that the Executive
demonstrates is generally known by others with whom the Company competes or
plans to compete or information required to be delivered by final order of a
court of competent jurisdiction.
12.3 "Holdings" shall mean Omega Holdings, Inc., a Delaware corporation.
--------
12.4 "Person" shall mean any individual, partnership, corporation,
------
association, trust, joint venture, limited liability company, unincorporated
organization or entity, and any government, governmental department or agency or
political subdivision thereof.
12.5 "Subsidiary" shall mean any Person of which the Company (or other
----------
specified Person) shall, directly or indirectly, own beneficially or control the
voting of at least a majority of the outstanding capital stock (or other shares
of beneficial interest) entitled to vote generally or at least a majority of the
partnership, joint venture or similar interests, or in which the Company (or
other specified Person) or a Subsidiary thereof shall be a general partner or
joint venturer without limited liability.
13. MISCELLANEOUS. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is approved by the
Board of Directors of Holdings and agreed to in writing signed by the Executive
and such officer as may be specifically authorized by the Board of Directors of
Holdings in connection with such approval. No waiver by either party hereto at
any time of compliance with or of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement and the legal relations created thereby shall be governed by the
domestic substantive laws of the Province of Manitoba without giving effect to
any choice or conflict of laws provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction. The
Executive acknowledges and agrees that, because the Company's legal remedies may
be inadequate in the event of a breach of, or other failure to perform, any of
the covenants and agreements set forth in Sections 5 or 6 hereof by the
Executive, the Company may, in addition to obtaining any other remedy or relief
available to it (including without limitation damages at law), enforce the
provisions of said Sections 5 or 6 by injunction and other equitable relief.
14. SEVERABILITY. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of
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<PAGE>
this Agreement, or the application of such portion or provision in circumstances
other than those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
15. COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes any and all prior communications, agreements and understandings,
written or oral, with respect to the terms and conditions of the Executive's
employment with the Company and each of the parties hereto hereby releases and
forever discharges each other party hereto of and from all manner of actions,
causes of action, claims and demands whatsoever under or in respect of any such
communications, agreements and understandings.
17. MERGER, ETC. From and after the effectiveness of the Amalgamation (as
defined in the Master Transaction Agreement), the term "Company" as used herein
shall refer to Kitchen Craft of Canada Ltd., a Canadian corporation, as
resulting corporation of the Amalgamation (as defined in the Master Transaction
Agreement), and this Agreement shall inure to the benefit of and be binding upon
Kitchen Craft of Canada Ltd.
18. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding
upon (i) the Executive, his heirs, executors, administrators, beneficiaries,
successors and assigns and (ii) the Company and its successors (including,
without limitation, by means of reorganization, merger, amalgamation,
consolidation or liquidation) and permitted assigns. The Company may assign this
Agreement to any Subsidiary or Affiliate or to any successor of the Company by
reorganization, merger, amalgamation, consolidation or liquidation and any
transferee of all or substantially all of the business or assets of the Company
or of any division or line of business of the Company with which the Executive
is at any time associated. The Company requires the personal services of the
Executive hereunder and the Executive may not assign this Agreement or any
rights hereunder, except to the limited extent contemplated by Section 9.1.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands under
seal, as of the date first above written.
COMPANY: 3578275 CANADA INC.
By /s/ DONALD E. CIHAK
----------------------
Name:
Title:
Executive:
/s/ HERBERT BULLER
------------------
Name:
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<PAGE>
EXHIBIT A
---------
RELEASE AND INDEMNITY
---------------------
[Name of Employee], of the City of Winnipeg, in the Province of Manitoba
(hereinafter referred to as the "Releasor", which term includes his heirs,
executors, administrators, successors and assigns), in consideration of certain
payments and benefits to be provided in connection with the termination of the
employment of the Releasor in accordance with the terms of an Employment
Agreement between the Releasor and KC Canada Acquisition Corp., a Canadian
corporation (as predecessor in interest to Kitchen Craft of Canada Ltd.) dated
as of January 29, 1999 (the "Employment Agreement"), the sufficiency of which
payments and benefits are hereby acknowledged, does hereby absolutely and
forever remise, release, acquit and discharge KITCHEN CRAFT OF CANADA LTD.
(hereinafter referred to as the "Releasee", which term includes its Subsidiaries
and Affiliates (including, without limitation, KC Canada Acquisition Corp. and
Omega Holdings, Inc.), as those terms are defined in the Employment Agreement,
and all of their respective past and present directors, officers, shareholders,
employees, agents, representatives, successors and assigns) of and from all
manner of actions, causes of action, suits, dues, debts, complaints, claims
and/or demands of any nature or kind whatsoever, contingent or otherwise, at
law, or in equity, and whether or not now known or anticipated that the Releasor
may have, have had or may in the future have against the Releasee for or by
reason of any cause, matter or thing whatsoever existing or occurring up to and
including the date of these presents, except as may exist or hereafter arise
from the Master Transaction Agreement (as such term is defined in the Employment
Agreement), and, without in any way restricting the generality of the foregoing,
including any claim which has been made or may have been made against the
Releasee for or by reason of any cause, matter or thing arising directly or
indirectly, or in any way as a result of his employment with and/or the
termination of his employment with the Releasee and, without in any way
restricting the generality of the foregoing, any claims or complaints under the
provisions of the Manitoba Employment Standards Act, the Manitoba Payment of
------------------------ ----------
Wages Act, the Manitoba Human Rights Code and/or the Manitoba Vacations with Pay
- --------- ----------------- ------------------
Act or any similar legislation.
- ---
IT IS UNDERSTOOD AND AGREED that the Releasee does not, by the aforesaid
payments or otherwise, admit any liability to the Releasor and that such
liability is denied and the Releasor hereby agrees that neither such payments
nor the taking of this Release shall now or at any time hereafter be deemed to
be an admission of liability on the part of the Releasee.
AND IT IS FURTHER UNDERSTOOD AND AGREED that the Releasor agrees not to
make any claims or take any proceedings relating to any rights that he has as of
the date hereof as a result of any matter arising out of his employment with the
Releasee and/or the termination of such employment against the Releasee or any
other person or corporation who might claim contribution or indemnity from the
Releasee as a result of such claims or proceedings and to abandon any such
claims made prior to the date of this Release.
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<PAGE>
AND IT IS FURTHER UNDERSTOOD AND AGREED that the Releasor does hereby agree
to indemnify and save harmless the Releasee against any and all liability,
taxes, penalties, interest, demands, costs or expenses that it may hereinafter
incur, suffer, or be required to pay, in excess of the amounts withheld in
connection with the payments to the Releasor, by way of statutorily required
deductions to Revenue Canada, Taxation (on account of Income Tax and Canada
Pension) or to Human Resources Development Canada (on account of Employment
Insurance Benefit repayment), attributable to the sums paid pursuant to the
Employment Agreement.
AND THE Releasor hereby confirms that he has had an opportunity to obtain
independent legal advice with respect to the signing of this Release and has had
independent legal advice with respect to the form of this Release and further
confirms that he is executing this Release voluntarily and with a full
understanding of its terms.
DATED at the City of Winnipeg, in the Province of Manitoba, this
day of , .
SIGNED, SEALED AND DELIVERED )
in the presence of:)
)
______________________________)
)
______________________________
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<PAGE>
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of January 29, 1999 (the "Effective
Date") between 3578275 Canada Inc., a Canadian corporation, (the "Company"), and
Mark Buller (the "Executive").
WHEREAS, the Executive is possessed of certain experience and expertise;
and
WHEREAS, the Executive has been employed by Kitchen Craft of Canada Ltd., a
Canadian corporation ("Kitchen Craft"), since January 1, 1987; and
WHEREAS, the Executive is a party to that certain Master Transaction
Agreement dated as of January 29, 1999 by and among the Company, the Executive
and certain other parties thereto (the "Master Transaction Agreement") whereby
Executive and the other stockholders of Kitchen Craft have agreed to sell all of
the shares of capital stock of Kitchen Craft to Holdings or a subsidiary
thereof; and
WHEREAS, as a covenant in the Master Transaction Agreement, the Executive
has agreed to enter into this Employment Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the parties hereto hereby agree as follows:
1. EMPLOYMENT.
1.1 Agreement. The Company hereby agrees to employ the Executive, and the
---------
Executive hereby agrees to serve the Company, in each case on the terms and
subject to the conditions set forth herein.
1.2 Term. The employment of the Executive by the Company shall be on a
----
full-time basis for the period commencing on the Effective Date and expiring on
the third anniversary of the Effective Date or on the date on which termination
of employment is effective pursuant to the provisions of Section 8 (the
"Termination Date"). For all purposes of this Agreement, references to the
"term" of the Executive's employment hereunder shall mean the period commencing
on the Effective Date and ending on the Termination Date.
1.3 Definitions. Capitalized terms are used in this Agreement as
-----------
specifically defined herein. Certain definitions are set forth in Section 12.
2. POSITION AND DUTIES. The Executive shall serve as President of the
Company, and shall be accountable to, and shall have such powers, duties and
responsibilities as may from time to time be prescribed by, the Chief Executive
Officer of Holdings.
<PAGE>
The Executive shall perform and discharge, faithfully, diligently and
competently, such duties and responsibilities. The Executive shall devote all
of his business time and attention and his best efforts and ability to the
business and affairs of the Company and each of its Subsidiaries and Affiliates
and shall not engage in other business, trade, professional, governmental or
academic activities (whether or not compensated) during the term of this
Agreement without prior written consent of Holdings.
3. COMPENSATION. Subject to all of the terms and conditions hereof and to the
performance by the Executive of his duties and obligations to the Company:
3.1 Salary. As compensation for services performed under and during the
------
term of his employment hereunder, the Company shall pay the Executive a salary
at a rate of (Cdn) $175,000 per annum or such higher amount as may from time to
time pursuant to an annual review be established by the Company (such annual
rate of salary in effect from time to time being referred to as the "Salary").
The Salary shall be payable in accordance with the payroll practices of the
Company. Except as otherwise provided in this Agreement, the Salary shall be
prorated for any period less than a full year.
3.2 Bonus. As additional compensation for services hereunder, the
-----
Executive shall be eligible for and shall be paid, if earned in accordance with
the terms of the applicable bonus plan, a bonus for each fiscal year, the last
day of which falls within the term of this Agreement. The amount of any such
bonus shall be determined in accordance with the then existing plan of Holdings
for payment of bonuses, which plan may be altered, modified, amended, or
terminated at any time as the Board of Directors of Holdings, in its sole
judgment, determines to be appropriate. Any bonus payable to the Executive
during the term of this Agreement is referred to herein as an "Annual Bonus".
3.3 Business Expenses. During the term of his employment hereunder, the
-----------------
Executive shall be entitled to receive prompt reimbursement by the Company for
all reasonable business expenses incurred by him on behalf of the Company or any
of its Subsidiaries or Affiliates (in accordance with the policies and
procedures established from time to time for the Company's executive officers)
in performing his duties hereunder, provided that the Executive properly
--------
accounts therefor in accordance with requirements for federal income tax
deductibility and the Company's policies and procedures.
3.4 Fringe Benefits. During the term of his employment hereunder, the
---------------
Executive shall be entitled to participate in any life insurance, health and
accident plans and retirement plans made generally available by the Company to
its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. The Company may alter, modify, add to or delete its employee
benefits at any time as the Board of Directors of the Company, in its sole
judgment, determines to be appropriate.
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<PAGE>
3.5 Vacations. During the term of his employment hereunder, the Executive
---------
shall be entitled to an amount of paid vacation in each year as is consistent
with the practices of the Company as of the Effective Date and shall also be
entitled to all paid holidays given by the Company to its employees. The paid
vacation days shall be prorated for any period of service hereunder less than a
full year. The Executive shall not be entitled to cash compensation for any
vacation time not taken during the term hereof and shall not be entitled to
accrue unused vacation.
4. OFFICES; SUBSIDIARIES AND AFFILIATES. The Executive agrees to serve
during the term of his employment hereunder, if elected or appointed thereto, in
one or more positions as an officer or director of the Company or any one or
more of the Company's present or future Subsidiaries or Affiliates, or as an
officer, trustee, director or other fiduciary of any pension or other employee
benefit plan of the Company or any of its Subsidiaries or Affiliates. Service
in such additional positions will be without additional compensation except for
reimbursement of reasonably related business expenses on the same terms as
provided elsewhere in this Agreement. The Company agrees that in connection
with the Executive's service in additional positions as provided under this
Section 4, the Executive shall be entitled to the benefit of indemnification
provisions in the by-laws of the Company, its Subsidiaries or Affiliates for
which the Executive serves in such an additional position and director and
officer liability insurance coverage carried by the Company or any such
Subsidiary or Affiliate of the Company for which the Executive serves as an
officer or director.
5. UNAUTHORIZED DISCLOSURE; INVENTIONS.
5.1 Confidential Information. The Executive acknowledges that the Company
------------------------
and its Subsidiaries and Affiliates continually develop Confidential
Information, that the Executive may develop Confidential Information for the
Company or its Subsidiaries or Affiliates and that the Executive may learn of
Confidential Information during the course of employment. The Executive will
comply with the policies and procedures of the Company and its Subsidiaries and
Affiliates for protecting Confidential Information and agrees not to disclose to
any Person (except as required by applicable law or for the proper performance
of his duties and responsibilities to the Company and its Subsidiaries or
Affiliates), or use for his own benefit or gain, any Confidential Information
obtained by the Executive incident to his employment or other association with
the Company or any of its Subsidiaries or Affiliates. The Executive understands
that this restriction shall continue to apply after his employment terminates,
regardless of the reason for such termination.
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<PAGE>
5.2 Protection of Documents and Company Property. All documents, records,
--------------------------------------------
tapes and other media of every kind and description relating to the business,
present or otherwise, of the Company or its Subsidiaries or Affiliates and any
copies, in whole or in part, thereof (the "Documents"), whether or not prepared
by the Executive, and any and all equipment or other tangible personal property
provided by the Company or its Subsidiaries or Affiliates for the Executive's
use ("Company Property") shall be the sole and exclusive property of the Company
or its Subsidiaries or Affiliates. The Executive shall safeguard all Documents
and Company Property and shall surrender to the Company at the time his
employment terminates, or at such earlier time or times as the Company or its
designee may specify, all Documents and all Company Property then in the
Executive's possession or control.
5.3 Proprietary Rights. Any and all inventions, discoveries,
------------------
developments, methods, processes, compositions, works, supplier and customer
lists (including without limitation information relating to the generation and
updating thereof), concepts and ideas (whether or not patentable or
copyrightable) conceived, made, developed, created or reduced to practice by the
Executive (whether at the request or suggestion of the Company or otherwise,
whether alone or in conjunction with others, and whether during regular hours of
work or otherwise) during the term of his employment by the Company or any of
its Affiliates (whether before or after the date hereof) and for one year
thereafter, which may be directly or indirectly useful in, or relate to, the
business, ventures or other activities of or products manufactured or sold by
the Company or any of its Subsidiaries or Affiliates or any business or products
contemplated by the Company or any of its Subsidiaries or Affiliates while the
Executive was or is an employee, officer or director of the Company or any of
its Affiliates (collectively, "Proprietary Rights"), shall be promptly and fully
disclosed by the Executive to the Company and shall be the Company's exclusive
property as against the Executive and his heirs, executors, administrators,
beneficiaries, successors and assigns, and the Executive hereby assigns to the
Company his entire right, title and interest therein and shall promptly deliver
to the Company all papers, drawings, models, data and other material relating to
any of the foregoing Proprietary Rights conceived, made, developed, created or
reduced to practice by him as aforesaid. All copyrightable Proprietary Rights
shall be considered "works made for hire."
The Executive shall, upon the Company's request and without any payment
therefor, execute any documents necessary or advisable in the opinion of the
Company's counsel to assign, and confirm the Company's title in, his entire
right, title and interest in the foregoing Proprietary Rights and to direct
issuance of patents or copyrights to the Company with respect to such
Proprietary Rights as are the Company's exclusive property as against the
Executive and his heirs, executors, administrators, beneficiaries, successors
and assigns under this Section 5.3 or to vest in the Company title to such
Proprietary Rights as against the Executive and his heirs, executors,
administrators, beneficiaries, successors and assigns, the expense of securing
any such patent or copyright, however, to be borne by the Company.
-4-
<PAGE>
6. RESTRICTED ACTIVITIES. The Executive agrees that some restrictions on his
activities during and after his employment are necessary to protect the
goodwill, Confidential Information and other legitimate interests of the Company
and its Subsidiaries and Affiliates:
6.1 Non-Competition. While the Executive is employed by the Company or is
---------------
receiving payments pursuant to Section 9.4 of this Employment Agreement and for
a period of two years immediately thereafter (the "Non-Competition Period"), the
Executive shall not, directly or indirectly (including, without limitation,
through any affiliate), alone or in association with others, own, manage,
operate, control or participate in the ownership, management, operation or
control of, or be connected as an officer, employee, investor, principal, joint
venturer, stockholder, partner, director, consultant, agent or otherwise with,
or have any financial interest (through stock or other equity ownership,
investing of capital, lending of money or otherwise) (other than wholly passive
ownership of less than five percent (5%) of the outstanding equity securities of
any class registered under the Securities Exchange Act of 1934, as amended, or
similar laws of Canada) in, any business, venture or activity that, anywhere in
the United States of America or Canada, is involved in competition with the
Company or any of its Subsidiaries or Affiliates, namely (A) the manufacture,
distribution, sale or installation of (i) any products or services of the type
manufactured, distributed, sold or installed by the Company or any of its
Subsidiaries or Affiliates (including, without limitation, custom, semi-custom
and stock wood and laminate kitchen cabinets, bathroom vanities and related
accessories for distribution to independent dealers, home centers and lumber
yards) or (ii) any other products or services that compete with any products or
services of the type referred to in clause (i), or (B) any other business in
which the Company or any of its Subsidiaries or Affiliates is engaged, or is
actively considering becoming engaged, on the date hereof or thereafter during
such Executive's employment with the Company or, with respect to post-employment
activities, was so engaged or actively considering becoming engaged at the date
of termination of employment (it being agreed, however, that this Section 6.1
shall not prohibit (i) John Buller from having an ownership interest in, or
being employed by, Evin Marketing Ltd., an Alberta corporation, (ii) Herbert
Falk, Joan Falk, William Falk, or Christopher Falk from having an ownership
interest in, or being employed by, Bulrad Enterprises, Inc., a California
corporation, (iii) Herbert D. Buller from lending up to (U.S.) $150,000 to
Herbert Falk, Joan Falk, William Falk, or Christopher Falk in connection with
the sale of Bulrad Enterprises, Inc. to Herbert Falk, Joan Falk, William Falk,
and Christopher Falk, on the terms and subject to the conditions previously
disclosed to the Company, and (iv) Herbert D. Buller from maintaining a passive
ownership interest (not to exceed 25% of the outstanding capital stock) in KCC
Toronto Ltd., a Canadian corporation).
6.2 Agreement Not to Solicit Customers. During the Non-Competition Period,
----------------------------------
Executive shall not, directly or indirectly (including, without limitation,
through any affiliate) solicit or encourage any customer or supplier of the
Company or any Subsidiary or Affiliate of the Company to (A) terminate or
diminish its relationship with the Company or such Subsidiary or Affiliate; or
(B) conduct with any person or entity any business or activity if the
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<PAGE>
effect thereof could be to terminate or diminish any business or activity that
such customer or supplier conducts or could conduct with the Company or such
Subsidiary or Affiliate.
6.3 Outside Activities. The Executive agrees that, during his employment
------------------
with the Company, he will not undertake any outside activity, whether or not
competitive with the business of the Company or any of its Subsidiaries or
Affiliates, that could reasonably give rise to a conflict of interest or
otherwise interfere with his duties and obligations to the Company or any of its
Subsidiaries or Affiliates.
6.4 Non-Solicitation of Employees. Acknowledging the strong interest of
-----------------------------
the Company in an undisrupted workplace, the Executive further agrees that while
he is employed by the Company and for a period of two years immediately
following termination of his employment, the Executive will not, as long as any
employee remains an employee of the Company or any Subsidiary or Affiliate of
the Company, and for a period of six months thereafter, directly or indirectly
(including, without limitation, through any affiliate) solicit the employment of
or hire such employee of the Company or any of its Subsidiaries or Affiliates,
assist in such hiring by any person or entity, or seek to persuade or encourage
any employee to terminate employment with the Company or any of its Subsidiaries
or Affiliates, the value of the services of such employees being acknowledged as
valuable assets of the Company.
7. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has carefully
read and considered all the terms and conditions of this Agreement, including
the restraints imposed upon him pursuant to Sections 5 and 6 hereof. The
Executive agrees that said restraints are necessary for the reasonable and
proper protection of the Company and its Subsidiaries and Affiliates and that
each and every one of the restraints is reasonable in respect to subject matter,
length of time and geographic area. The Executive further acknowledges that,
were he to breach any of the covenants contained in Sections 5 or 6 hereof, the
damage to the Company would be irreparable. The Executive therefore agrees that
the Company, in addition to any other remedies available to it, shall be
entitled to preliminary and permanent injunctive relief against any breach or
threatened breach by the Executive of any of said covenants. The parties
further agree that, in the event that any provision of Section 5 or 6 hereof
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its being extended over too great a time, too large a geographic
area or too great a range of activities, such provision shall be deemed to be
modified to permit its enforcement to the maximum extent permitted by law.
8. TERMINATION.
8.1 Death. The Executive's employment hereunder shall terminate upon his
-----
death.
8.2 Incapacity. If the Executive shall have been unable to perform his
----------
duties hereunder by reason of any physical or mental illness, injury or other
incapacity (i) for any period of 120 consecutive days or (ii) for a total of 150
days in any period of 12 consecutive
-6-
<PAGE>
calendar months, the Company may terminate the Executive's employment hereunder
by written notice to the Executive.
8.3 Cause. The Company may terminate the Executive's employment hereunder
-----
for Cause at any time upon written notice to the Executive. For the purposes of
this Agreement, "Cause" means (i) conduct of the Executive which constitutes a
material breach of any of his obligations set forth in this Agreement that is
not cured within thirty (30) days after written notice of such breach to the
Executive, (ii) conviction of a felony or indictable offense or a crime
involving moral turpitude, (iii) embezzlement, misappropriation of property of
the Company or any of its Subsidiaries or Affiliates, or any other act involving
dishonesty or fraud with respect to the Company or any of its Subsidiaries or
Affiliates, (iv) the repeated failure, after written notice, to follow
reasonable directives of the Board of Directors of Holdings, or (v) any other
event which constitutes "just cause" at common law.
8.4 Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder at any time upon 30 days' prior written notice to the
Company. In the event of termination of the Executive pursuant to this Section
8.4, the Board of Directors of Holdings may elect to waive the period of notice,
or any portion thereof.
8.5 Termination by the Company other than for Cause. Subject to Section 9,
-----------------------------------------------
the Company may terminate the Executive's employment hereunder other than for
Cause at any time upon written notice to the Executive.
9. COMPENSATION UPON TERMINATION.
9.1 Death. In the event of the Executive's death during the term hereof,
-----
the Company shall pay or transfer, as the case may be, to his estate, (i) Salary
and any Annual Bonus earned and unpaid at the date of death, and (ii) any
vacation pay required by applicable law.
9.2 Incapacity. If the Executive's employment shall be terminated by
----------
reason of his incapacity pursuant to Section 8.2, the Company shall (i) continue
to pay the Executive his Salary through the Termination Date, (ii) pay the
Executive any Annual Bonus earned and unpaid at the Termination Date, and (iii)
pay the Executive any vacation pay required by applicable law.
9.3 Cause. If the Company shall terminate the Executive's employment for
-----
Cause, the Company shall have no further obligations to the Executive under this
Agreement other than payment of Salary earned and unpaid through the Termination
Date and payment of any vacation pay required by applicable law.
9.4 Termination by the Company Other than for Cause. If the Company shall
-----------------------------------------------
terminate the Executive's employment pursuant to Section 8.5 hereof, then the
Company shall pay to the Executive, without duplication, (A) his Salary earned
and unpaid through the
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<PAGE>
Termination Date, (B) any vacation pay required by applicable law, and (C) the
greater of: (I) Salary payable during the notice period required by applicable
provincial legislation; and (II) until the date (the "Severance Termination
Date") which is the third anniversary of the Effective Date, severance at a rate
equal to 100% of his Salary for such period. With respect to any termination of
employment to which this Section 9.4 applies, until the Severance Termination
Date, the Company shall, if the Executive was participating in any medical and
dental insurance plans pursuant to Section 3.4 hereof immediately prior to the
effectiveness of his termination of employment and subject to any employee
contribution applicable to the Executive immediately prior to such
effectiveness, continue to contribute to the cost of the Executive's
participation in such medical and dental insurance plans so long as the
Executive is entitled to continue such participation under applicable law and
plan terms. The obligations of the Company to the Executive under this Section
9.4 (other than with respect to Salary earned and unpaid through the Termination
Date and any vacation pay required by applicable law) are conditioned upon the
Executive's signing a release of claims in the form attached hereto as Exhibit A
---------
(the "Release") within 30 days of the date on which notice of termination is
given and upon such Release remaining in full force and effect thereafter. All
severance payments under this Section 9.4 will be in the form of salary
continuation, payable in accordance with the normal payroll practices of the
Company and will begin at the Company's next regular payroll period following
the effective date of the Release, but shall be retroactive to the Termination
Date.
9.5 Termination by the Executive. If the Executive shall terminate his
----------------------------
employment pursuant to Section 8.4 hereof, the Company shall have no further
obligations to the Executive under this Agreement other than payment of Salary
earned and unpaid through the Termination Date and payment of any vacation pay
required by applicable law (it being understood that if, in accordance with
Section 8.4, the Board of Directors of Holdings elects to waive the period of
notice, or any portion thereof, the payment of Salary under this Section 9.5
shall continue through the notice period or any portion thereof so waived).
9.6 Post-Termination Obligations Generally. Except as expressly set forth
--------------------------------------
in this Section 9 or the Master Transaction Agreement, the Company shall have no
further obligations to the Executive following termination or expiration of the
term of the Executive's employment hereunder, and performance by the Company of
any obligation specifically provided in this Section 9 shall constitute full
settlement of any claim that the Executive may have on account of any
termination against the Company and its Subsidiaries or Affiliates and all of
their respective past and present officers, directors, stockholders, controlling
Persons, employees, agents, representatives, successors and assigns and all
other others connected with any of them, both individually and in their official
capacities.
10. WITHHOLDING. All payments made by the Company under this Agreement shall
be reduced by any tax or other amounts required to be withheld by the Company
under any applicable law or legal requirement.
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<PAGE>
11. NOTICES. All notices, requests and demands to or upon the parties hereto to
be effective shall be in writing, by facsimile, by overnight courier or by
registered or certified mail, postage prepaid and return receipt requested, and
shall be deemed to have been duly given or made upon: (i) delivery by hand, (ii)
one business day after being sent by overnight courier; or (iii) in the case of
transmission by facsimile, when confirmation of receipt is obtained. Such
communications shall be addressed and directed to the parties as follows (or to
such other address as either party shall designate by giving like notice of such
change to the other party):
If to the Executive:
7 Old Orchard Road
East St. Paul, Manitoba
R2E 0L3
With a copy to:
Aikins, MacAulay & Thorvaldson
30th Floor, 360 Main Street
Winnipeg, Manitoba
R3C 4G1
Attention: E. L. Warkentin
Facsimile: (204) 957-0840
If to the Company:
KC Canada Acquisition Corp.
c/o Kitchen Craft of Canada Ltd.
1180 Springfield Road
Winnipeg, Manitoba
R2C 2Z2
Attention: President
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<PAGE>
with a copy to:
Omega Holdings, Inc.
1205 Peters Drive
Waterloo, IA 50703
Attention: President
Facsimile: (319) 235-9618
and a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Patrick Diaz, Esq.
Facsimile: (617) 951-7050
12. DEFINITIONS. Terms defined in this Agreement other than in this Section 12
are used herein as so defined, and the following terms shall have the following
respective meanings:
12. "Affiliate" shall mean (i) any Person directly or indirectly
---------
controlling, controlled by or under direct or indirect common control with the
Company (or other specified Person), (ii) any other Person which, together with
its Affiliates (as defined in clause (i) above), shall, directly or indirectly,
own beneficially or control the voting of at least 10% of the ownership interest
in the Company (or other specified Person) and (iii) any other Person of which
the Company (or other specified Person) and its Affiliates (as defined in
clauses (i) and (ii) above) shall, directly or indirectly, own beneficially or
control the voting of at least 10% of any class of outstanding capital stock or
other evidence of beneficial interest or of any interest as a general partner or
joint venturer.
12. "Confidential Information" shall mean any and all information relating
------------------------
to the Company or any of its Subsidiaries or Affiliates, including without
limitation, (A) the products and services, technical data, methods and processes
of the Company and its Subsidiaries and Affiliates, (B) their marketing
activities and strategic plans, (C) their costs and sources of supply, (D) the
identity and special needs of the customers and prospective customers of the
Company and its Subsidiaries and Affiliates, and (E) the people and
organizations with whom the Company and its Subsidiaries and Affiliates have
business relationships and those relationships. Without limiting the generality
of the foregoing, Confidential Information shall specifically include (i) any
and all customer and sales records, including the identity of contacts at the
customer, any list of customers, any list of sales transactions and/or prices
charged by the Company and its Subsidiaries and Affiliates; (ii) any and all
vendor and purchase records, including the identity of contacts at any vendor,
any list of vendors, any list of purchase transactions and/or prices paid by the
Company or its Subsidiaries or Affiliates; and (iii) any
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<PAGE>
marketing program of the Company or any of its Subsidiaries or Affiliates.
Confidential Information also includes any information that the Company or any
of its Subsidiaries or Affiliates may receive or has received from others with
any understanding, express or implied, that it will not be disclosed.
Confidential Information does not include information that the Executive
demonstrates is generally known by others with whom the Company competes or
plans to compete or information required to be delivered by final order of a
court of competent jurisdiction.
12.3. "Holdings" shall mean Omega Holdings, Inc., a Delaware corporation.
--------
12.4. "Person" shall mean any individual, partnership, corporation,
------
association, trust, joint venture, limited liability company, unincorporated
organization or entity, and any government, governmental department or agency or
political subdivision thereof.
12.5. "Subsidiary" shall mean any Person of which the Company (or other
----------
specified Person) shall, directly or indirectly, own beneficially or control the
voting of at least a majority of the outstanding capital stock (or other shares
of beneficial interest) entitled to vote generally or at least a majority of the
partnership, joint venture or similar interests, or in which the Company (or
other specified Person) or a Subsidiary thereof shall be a general partner or
joint venturer without limited liability.
13. MISCELLANEOUS. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is approved by the
Board of Directors of Holdings and agreed to in writing signed by the Executive
and such officer as may be specifically authorized by the Board of Directors of
Holdings in connection with such approval. No waiver by either party hereto at
any time of compliance with or of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement and the legal relations created thereby shall be governed by the
domestic substantive laws of the Province of Manitoba without giving effect to
any choice or conflict of laws provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction. The
Executive acknowledges and agrees that, because the Company's legal remedies may
be inadequate in the event of a breach of, or other failure to perform, any of
the covenants and agreements set forth in Sections 5 or 6 hereof by the
Executive, the Company may, in addition to obtaining any other remedy or relief
available to it (including without limitation damages at law), enforce the
provisions of said Sections 5 or 6 by injunction and other equitable relief.
14. SEVERABILITY. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of
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<PAGE>
this Agreement, or the application of such portion or provision in circumstances
other than those as to which it is so declared illegal or unenforceable, shall
not be affected thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
15. COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof, and supersedes any
and all prior communications, agreements and understandings, written or oral,
with respect to the terms and conditions of the Executive's employment with the
Company and each of the parties hereto hereby releases and forever discharges
each other party hereto of and from all manner of actions, causes of action,
claims and demands whatsoever under or in respect of any such communications,
agreements and understandings.
17. MERGER, ETC. From and after the effectiveness of the Amalgamation (as
defined in the Master Transaction Agreement), the term "Company" as used herein
shall refer to Kitchen Craft of Canada Ltd., a Canadian corporation, as
resulting corporation of the Amalgamation (as defined in the Master Transaction
Agreement), and this Agreement shall inure to the benefit of and be binding upon
Kitchen Craft of Canada Ltd.
18. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding
upon (i) the Executive, his heirs, executors, administrators, beneficiaries,
successors and assigns and (ii) the Company and its successors (including,
without limitation, by means of reorganization, merger, amalgamation,
consolidation or liquidation) and permitted assigns. The Company may assign this
Agreement to any Subsidiary or Affiliate or to any successor of the Company by
reorganization, merger, amalgamation, consolidation or liquidation and any
transferee of all or substantially all of the business or assets of the Company
or of any division or line of business of the Company with which the Executive
is at any time associated. The Company requires the personal services of the
Executive hereunder and the Executive may not assign this Agreement or any
rights hereunder, except to the limited extent contemplated by Section 9.1.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands under
seal, as of the date first above written.
Company: 3578275 CANADA INC.
By /s/ DONALD E. CIHAK
-------------------
Name:
Title:
Executive:
/s/ MARK BULLER
----------------
Name:
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<PAGE>
EXHIBIT A
---------
RELEASE AND INDEMNITY
---------------------
[Name of Employee], of the City of Winnipeg, in the Province of Manitoba
(hereinafter referred to as the "Releasor", which term includes his heirs,
executors, administrators, successors and assigns), in consideration of certain
payments and benefits to be provided in connection with the termination of the
employment of the Releasor in accordance with the terms of an Employment
Agreement between the Releasor and KC Canada Acquisition Corp., a Canadian
corporation (as predecessor in interest to Kitchen Craft of Canada Ltd.) dated
as of January 29, 1999 (the "Employment Agreement"), the sufficiency of which
payments and benefits are hereby acknowledged, does hereby absolutely and
forever remise, release, acquit and discharge KITCHEN CRAFT OF CANADA LTD.
(hereinafter referred to as the "Releasee", which term includes its Subsidiaries
and Affiliates (including, without limitation, KC Canada Acquisition Corp. and
Omega Holdings, Inc.), as those terms are defined in the Employment Agreement,
and all of their respective past and present directors, officers, shareholders,
employees, agents, representatives, successors and assigns) of and from all
manner of actions, causes of action, suits, dues, debts, complaints, claims
and/or demands of any nature or kind whatsoever, contingent or otherwise, at
law, or in equity, and whether or not now known or anticipated that the Releasor
may have, have had or may in the future have against the Releasee for or by
reason of any cause, matter or thing whatsoever existing or occurring up to and
including the date of these presents, except as may exist or hereafter arise
from the Master Transaction Agreement (as such term is defined in the Employment
Agreement), and, without in any way restricting the generality of the foregoing,
including any claim which has been made or may have been made against the
Releasee for or by reason of any cause, matter or thing arising directly or
indirectly, or in any way as a result of his employment with and/or the
termination of his employment with the Releasee and, without in any way
restricting the generality of the foregoing, any claims or complaints under the
provisions of the Manitoba Employment Standards Act, the Manitoba Payment of
------------------------ ----------
Wages Act, the Manitoba Human Rights Code and/or the Manitoba Vacations with Pay
- --------- ----------------- ------------------
Act or any similar legislation.
- ---
IT IS UNDERSTOOD AND AGREED that the Releasee does not, by the aforesaid
payments or otherwise, admit any liability to the Releasor and that such
liability is denied and the Releasor hereby agrees that neither such payments
nor the taking of this Release shall now or at any time hereafter be deemed to
be an admission of liability on the part of the Releasee.
AND IT IS FURTHER UNDERSTOOD AND AGREED that the Releasor agrees not to
make any claims or take any proceedings relating to any rights that he has as of
the date hereof as a result of any matter arising out of his employment with the
Releasee and/or the termination of such employment against the Releasee or any
other person or corporation who might claim contribution or indemnity from the
Releasee as a result of such claims or proceedings and to abandon any such
claims made prior to the date of this Release.
-14-
<PAGE>
AND IT IS FURTHER UNDERSTOOD AND AGREED that the Releasor does hereby agree
to indemnify and save harmless the Releasee against any and all liability,
taxes, penalties, interest, demands, costs or expenses that it may hereinafter
incur, suffer, or be required to pay, in excess of the amounts withheld in
connection with the payments to the Releasor, by way of statutorily required
deductions to Revenue Canada, Taxation (on account of Income Tax and Canada
Pension) or to Human Resources Development Canada (on account of Employment
Insurance Benefit repayment), attributable to the sums paid pursuant to the
Employment Agreement.
AND THE Releasor hereby confirms that he has had an opportunity to obtain
independent legal advice with respect to the signing of this Release and has had
independent legal advice with respect to the form of this Release and further
confirms that he is executing this Release voluntarily and with a full
understanding of its terms.
DATED at the City of Winnipeg, in the Province of Manitoba, this
day of ,
SIGNED, SEALED AND DELIVERED )
in the presence of:)
)
____________________)
)
______________________________
-15-
<PAGE>
EXHIBIT 10.40
October 15, 1998
Mr. John S. Horton
6019 East Sapphire Lane
Paradise Valley, AZ 85253
Dear John:
As we've been discussing for quite some time now, we are offering you the
position of Senior Vice President of Finance for Omega Holdings. The attached
term sheet summarizes the key terms of the offer.
I apologize for the delays involved in this process but hope that you
understand the complexities involved with recent events at Omega Holdings. On
behalf of Bob Moran and Butler Capital, we hope that you will accept this offer
and become a key member of the outstanding management team at Omega.
Best regards,
/s/ Donald E. Cihak
DC/lb
cc: Bob McDonald, Russell Reynolds
Bob Moran, Omega Holdings
<PAGE>
SUMMARY OF EMPLOYMENT TERMS
POSITION: Senior Vice President of Finance, Omega Holdings
BASE SALARY: $140,000 per year, with an early salary review by the
end of the first quarter of 1999.
BONUS: 40% of Base Salary, based on the company achieving
annual performance targets. The plan has the following
sliding scale:
% Plan % Target Bonus
------ --------------
90% 25.0%
95% 62.5%
100% 100.0%
105% 125.0%
The bonus will be paid on a pro-rata basis for 1998,
with full participation in 1999.
RESTRICTED STOCK GRANT: Restricted stock equivalent to a value of $50,000 will
be granted. The stock will be restricted for 3 years
after your starting date at which time all restrictions
will lapse assuming your continued employment with the
company.
EQUITY PARTICIPATION: Eligible to purchase up to 400 shares of stock in Omega
Holdings at a fair market value purchase price of
$1,267.00 per share. This includes shares associated
with the restricted stock grant. The total shares of
400 represent .57% of the company's primary shares.
Omega Holdings will guarantee a loan from a commercial
bank for up to 50% of the purchase price of the stock.
The remainder of the purchase will consist of the
restricted stock grant and cash payments. We will work
with you on a schedule of cash payments that is
mutually satisfactory.
Stock options will be granted in a ratio of 1.5 times
shares purchased to be granted over a five-year period.
The grant will be awarded annually at the original cost
of the stock ($1000) and will be tied to the company's
achievement of financial targets to be set on an annual
basis and approved by the Board of Directors.
-2-
<PAGE>
RELOCATION: Usual and customary costs associated with your
relocation per Omega policy, including the cost of the
physical move, closing costs and temporary living
expenses for up to 90 days.
BENEFITS: Per the Omega policy.
-3-
<PAGE>
October 16, 1998
Mr. Donald E. Cihak
Managing Director
BCC Industrial Services, Inc.
767 Fifth Avenue
New York, New York 10153
As we discussed this morning, I accept your offer as Senior Vice President of
Finance for Omega Holdings. I look forward to working with the talented team
assembled at Omega and especially with yourself and Bob Moran.
I appreciate the consideration included in the offer for a salary review by the
end of first quarter 1999 and the loan guarantee for up to 50% of the purchase
of stock. As you know, I have a strong desire to increase my equity investment
from the 400 shares stated in the offer letter to 600. I understand that the
management team equity structure will be reviewed with Bob early next week.
Additionally, I would prefer the stock grant to be taxable upon receipt,
preferably in January 1999, so that final distribution will be treated under
capital gains. Finally, shown below is the proposed payment schedule for my 400
share equity investment that we discussed this morning.
<TABLE>
<CAPTION>
DATE AMOUNT DESCRIPTION
<S> <C> <C>
11/1 $ 50,000 Restricted stock grant
11/1 or ASAP 250,000 Bank loan
11/1 25,000 Cash payment
3/1 75,000 Cash payment (if home not sold)
ASAP 106,800 Cash payment from home sale
--------
</TABLE>
The cash to cover the potential increased investment would come from additional
bank loan and home sale equity. Once again, thank you for this opportunity.
Regards,
/s/ JOHN HORTON
John Horton
cc: Bob Macdonald
Bob Moran
-4-
<PAGE>
EXHIBIT 10.41
October 22, 1997
Mr. Craig S. Rae
9905 Duane Court
Huntersville, NC 28078
Dear Craig:
On behalf of Omega Cabinets, Ltd., it is my pleasure to confirm our offer
of employment as Vice President, Sales & Marketing. In this position you will
report to the President of Omega Cabinets, Ltd. and participate with the other
officers in establishing corporate policy, procedure and direction. You will
have responsibility for all aspects of sales and marketing including the
management of independent sales representatives, customer service and related
functions, sales administration, marketing and merchandising. Additionally, you
will have significant input in our product design and development process.
. BASE SALARY
You will be paid $4,615.38 bi-weekly (an amount equal to $120,000
annually).
. BONUS
Your annual bonus potential at 100% of plan will be equal to 30% of
base salary. You may earn up to an additional 25% of your bonus amount
should we attain 105% of plan (maximum 37.5% of base salary). The
actual amount of bonus paid will be based upon the company achieving
certain earnings goals and your personal performance as measured
against agreed-upon objectives.
. EQUITY
You will be offered the opportunity to join our equity ownership group
by investing in Omega Holdings, Inc. an amount up to $100,000. You
will have ample opportunity to discuss the investment details with
Lance Erlick, CFO.
You will also participate in Omega's management stock option program.
Based upon individual and company performance, the company would
intend to issue to you additional fully-diluted option shares. All
awards will be made at the discretion of the Board of Directors of
Omega Holdings, Inc.
. RELOCATION EXPENSES
<PAGE>
Omega will reimburse you for commission expenses that you incur
related to the sale of your principle residence in Huntersville, North
Carolina, not to exceed 6% of the sale price. In addition, Omega will
reimburse you for all reasonable costs associated with the physical
move of your household belongings and family. These costs are to
include the expenses incurred while transporting your family to your
new residence.
Omega will also reimburse you for temporary living expenses in the
Waterloo/Cedar Falls area for up to 90 days while you are searching
for a permanent residence. Temporary living expenses to include:
hotel/motel expenses, dining expenses for morning and evening meals,
and travel for return trips to the Huntersville area every two weeks
until you are relocated.
Please note that certain reimbursements may be taxed as ordinary
income in accordance with IRS regulations. Tim Carlson, Director of
Human Resources, will review this with you in detail.
. SIGNING BONUS
You will be paid a lump sum amount of $10,000 as reimbursement for
incidental expenses not covered in the relocation allowances.
. SEPARATIONS
If you are separated from the company for reasons other than causes
(i.e., malfeasance, gross neglect, illegal activities, etc.), you will
receive salary continuation for a maximum of six months.
. BENEFITS
You will be eligible to participate in health, life, dental, vision,
401(k), and short and long-term disability plans as provided to all
employees. For all plans the coverage is not immediate and will
require your personal enrollment. With exception of the 401(k) plan,
for which you will become eligible 1/1/99, eligibility to participate
commences sixty (60) days following your date of hire. Should you
elect to continue your present medical insurance coverage through the
COBRA provisions offered by your current employer, Omega will
reimburse you for the premium cost for a period not to exceed sixty
(60) days beyond your employment date.
. VACATION
-2-
<PAGE>
You will be entitled to two weeks of paid vacation. Our executive
staff members have additional days available on a discretionary, as-
needed basis.
Craig, we believe that you have the background and experience for this
responsibility and that you shall enjoy great personal success while helping
Omega achieve its objectives. We are excited about your joining the Omega team
. . . and getting at the many challenges and opportunities before us!!
If this opportunity meets with your expectations, please acknowledge your
acceptance by signing in the space provided and return a copy to me at your
earliest convenience.
Sincerely,
Dated this ______ day of _______, 1997 /s/ Henry P. Key
Dated this ______ day of _______, 1997 /s/ Craig S. Rae
cc: Lance Erlick
-3-
<PAGE>
EXHIBIT 10.42
OFFER AND ACCEPTANCE CONTRACT
Waterloo, Iowa, September 15, 1998
TO: Robert J. Bertch and Mary H. Bertch, husband and wife, Sellers(s)
Omega Cabinets, Ltd., Buyer(s)
as joint tenants unless otherwise specified.
Buyer(s) offer to buy property LEGALLY DESCRIBED AS: Lots Nos. 1 and 2; and The
North 54 feet of the West 225 feet of Lot No. 3 and the North 90 feet of the
East 258 feet of Lot No. 3, all in Airline-Burton Industrial Park, Waterloo,
Iowa
and COMMONLY KNOWN AS: (unnumbered) Janet Drive, Waterloo, IA 50703
SUBJECT TO RESTRICTIVE COVENANTS, ORDINANCES, AND LIMITED ACCESS PROVISIONS OF
RECORD, IF ANY AND TO EXISTING EASEMENTS, IF ANY. The property intended to be
covered by the terms hereof shall include all buildings, land, rights,
easements, and access necessary or appurtenant thereto and owned by the Sellers.
Included, if now in or on said premises and owned by Seller(s), are all fixtures
including but not limited to; attached carpeting, window shades; blinds; curtain
rods and hardware; lighting fixtures and bulbs; TV tower, antenna, satellite
dish, rotor and controls; awnings; door chimes; fireplace screen, grate, and
andirons; mailbox; water softeners and filtration systems (except rental),
bushes, shrubs, and other vegetation; and all other fixtures not hereinafter
specifically reserved by Seller(s) in writing.
RESERVED ITEMS: None
FOR THE SUM OF: Seventy Thousand Four Hundred Thirty-Five and 20/100 Dollars
($70,435.20).
1. PAYMENT shall be made as follows:
a. CASH. By payment of $0.00 herewith, to be held in escrow in trust by
----
____, and the balance of $70,435.20 in cash on or before October 1,
1998, and upon performance of Seller's obligations hereunder.
b. INSTALLMENTS. By payment of the sum of $_______, submitted herewith,
to be held in escrow in trust by _____________, and $_______ upon
execution of a Uniform Real estate Contract on or before possession date
in which Buyers agree to pay the remaining balance of $__________ at the
rate of $_______ or more per month, including interest, until the entire
purchase price is paid, with interest from date of possession at the
rate of ___% per annum until paid, such
<PAGE>
interest is to be computed monthly upon the balance owing at the
beginning of each respective interest computation period. Such monthly
payments shall commence on the _____ day of _________, 19__ and shall be
paid at a place designated by Sellers. Any payment delinquent for more
than 30 days shall draw interest at ____% per annum compounded monthly.
Notwithstanding the payment provisions herein the outstanding balance of
principal and interest shall be paid on or before the _____ day of
_______________, 19___. If Seller presently has a mortgage on subject
property Seller may declare this agreement null and void if mortgagee
accelerates said mortgage or raises the interest rate thereon to a rate
exceeding ____% per annum.
2. FINANCING. This offer is subject to Buyers obtaining/assuming a
$___________________ ( ) FHA ( ) VA ( ) Insured Conventional ( )
Conventional mortgage loan on said property or an initial rate not to
exceed _______% per annum amortized over a period of not less than _____
years.
Loan Discounts to be paid by Buyer not to exceed ____% of the mortgage
amount.
Loan Discounts to be paid by Seller not to exceed ____% of the mortgage
amount.
Loan Insurance fee to be paid by the Buyer not to exceed ____% of the
mortgage amount.
Loan Insurance fee to be paid by the Seller not to exceed ____% of the
mortgage amount.
If after a good faith effort on the part of the Buyers such loan approval
is not obtained on or before _________________, 19___, this offer shall be
null and void and said down payment shall be immediately refunded to
Buyers.
3. ASSUMPTION/AGREEMENT. If this sale contemplates a mortgage/contract
assumption, Buyers may declare this agreement null and void land demand a
refund of their down payment if such mortgage accelerates said mortgage or
raises the interest rate thereon to a rate exceeding _____% per annum. This
offer is subject to Seller's release of liability on the existing
mortgage/contract. Yes ( ) No (X).
4. POSSESSION is to be given to Buyers on the 1st day of October, 1998.
Buyers agree to take possession subject to rights of tenants now in
possession. Yes ( ) or No (X).
5. TAXES AND ASSESSMENTS. Sellers shall pay pro-rated to the date of
possession of the installment of general property taxes on said property
which will become delinquent if not paid September 30, 1999 and all prior
installments. Buyers shall pay all subsequent installments. If any
installment of general property taxes is to be pro-rated and if such taxes
cannot be determined by the date of the settlement thereof, such prorating
shall be based on the amount of the last determinable installment,
proportionately adjusted by any change in the assessed valuation
attributable to capital improvements and which are determinable on the date
of settlement. If closing takes place other than the date on the offer
taxes shall be pro-rated to the date of closing.
<PAGE>
Buyers shall pay the cost of all street oilings which are not liens on the
date hereof. Sellers shall pay all sewage disposal assessments due and all
special assessments which are liens against said premises on the date
hereof, except those for improvements which have not been completed and
accepted by the City Council on the date hereof, which Buyers will pay.
6. INTEREST AND RENTS shall be adjusted as of the date of closing.
7. OTHER TERMS AND CONDITIONS. This offer is also made subject to the
following conditions: A. Seller has leased the real estate to a tenant who
has crops growing on the real estate. Buyer agrees to be responsible for
compensating the tenant for any loss to such crop which is caused by the
actions of Buyer after the date of closing and possession.
8. SELLER agrees to provide Buyer with a Seller Disclosure of Property
Condition form.
9. CONDITION OF PROPERTY. The property as of the date of this agreement
including buildings, grounds, and all improvements will be preserved by the
Sellers in its present condition until closing. Sellers represent plumbing,
heating and cooling, electrical systems, and built-in appliances included
in this purchase agreement to be operable at the time of closing.
10. INSPECTION OF PROPERTY. THE BUYERS ARE RESPONSIBLE FOR MAKING THEIR OWN
INSPECTION OF ANY PROPERTY FOR WHICH THEY MAKE AN OFFER. (IT IS UNDERSTOOD THAT
THESE PROVISIONS ARE INDEPENDENT OF REPAIRS REQUIRED FOR FINANCING APPROVAL.)
On or before N/A , Buyers may, at their sole expense, have the
---------------
property inspected by a person or persons of their choice to determine if
there are any structural, mechanical, plumbing, electrical, environmental,
or other deficiencies. Within this same period, the Buyers may notify in
writing the Sellers of any deficiency. The Sellers shall give immediate
notice to the Buyers in writing of which steps, if any, the Sellers will
take to correct any deficiencies before closing. The Buyers shall then
immediately in writing notify the Sellers that (1) such steps are
acceptable, in which case this agreement, as so modified, shall be binding
upon all parties; or (2) that such steps are not acceptable, in which case
this agreement shall be null and void and any earnest money shall be
returned to Buyers.
11. RISK OF LOSS AND INSURANCE. Sellers shall bear the risk of loss or damage
to the property prior to closing. Sellers agree to maintain existing
insurance and Buyers may purchase additional insurance. In the event of
substantial damage or destruction
<PAGE>
prior to closing this agreement shall be null and void; provided, however,
Buyers shall have the option to complete the closing and receive insurance
proceeds regardless of the extent of damages. The property shall be deemed
substantially damaged or destroyed if it cannot be repaired to its present
condition on or before the closing date.
12. TITLE PAPERS AND ABSTRACT. At the time of the final payment hereunder, the
Sellers shall convey the premises to the Buyers by Warranty Deed and shall
furnish the Buyers an abstract of title that, in the case of platted
property, begins with the recording of the proprietors plot of the
subdivision, or with root of title, and that shows marketable record title
to the premises vested in the Sellers as of the date of this agreement
between the parties hereto. Within a reasonable time after the execution of
this agreement, such abstract, certified to a date subsequent to the date
hereof, shall be submitted to the Buyers for examination. The abstract
shall be returned to Sellers within a reasonable period of time with a copy
of a written opinion of Buyers' attorney that either approves the title or
points out specific objections to it. After all valid objections have been
satisfied or provided for, Seller shall have no obligation to pay for
further abstracting excepting any made necessary by his own affairs.
13. SURVEY. Buyers may, at Buyers' expense prior to closing, have the property
surveyed and certified by a Registered Land Surveyor. If the survey shows
any encroachment on the property or if any improvements located on the
property encroach on lands of others, the encroachments shall be treated as
a title defect. If the survey is required under Iowa Code Chapter 354,
Sellers shall pay the cost thereof. (Chapter 354 applies only to land which
has been divided using a metes and bounds description.)
14. FORM OF CONTRACT. If this sale is upon the installment plan, it shall be
on the terms and conditions of the Black Hawk County Conference of Realtors
and Lawyers Standard Form 162A adopted August, 1988, a copy of which is on
file in the office of the Black Hawk County Abstract Company, Waterloo,
Iowa, to which reference is hereby made, or the legal equivalent thereof,
which form of contract all parties agree to execute and deliver
concurrently with delivery of possession or payment of balance of down
payment, whichever first occurs.
15. RETURN OF PAYMENT. The amounts herewith tendered as part of the purchase
price of the above described property shall be returned to the Buyers in
case this offer is not accepted or if it is rescinded by Buyers for failure
of title.
16. REMEDIES OF THE PARTIES. If Buyers fail to timely perform this Agreement,
Sellers may forfeit it as provided in the Iowa Code (Chapter 656), and all
payments made shall be forfeited; or, at Sellers' option, upon thirty days'
written notice of intention to accelerate the payment of the entire balance
because of Buyers' default (during which thirty days the default is not
corrected), Sellers may declare the entire balance immediately due and
payable. Thereafter this agreement may be foreclosed in
<PAGE>
equity and the Court may appoint a receiver. If this agreement is
forfeited, or is canceled by agreement of Buyers and Sellers, Sellers agree
to pay the agent entitled to the commission one-half of the funds paid
hereunder (but in no event to exceed the agreed commission due hereunder)
as commission earned, which sum agent agrees to accept as payment in full
of his commission due for services rendered.
a. If Sellers fail to timely perform this agreement, Buyers have the
right to have all payments made returned to them. If Sellers fail or
refuse to perform this agreement without legal cause after the same has
been accepted, Sellers will pay agent the agreed commission in full.
b. Buyers and Sellers are also entitled to utilize any and all other
remedies or actions at law or in equity available to them and shall be
entitled to obtain judgment for costs and attorney fees as permitted by
law.
17. TIME IS OF THE ESSENCE of this Agreement. Failure promptly to assert
rights of Sellers hereunder shall not, however, be a waiver of such rights
or a waiver of any existing or subsequent default.
18. TO DETERMINE THE VALIDITY AND EFFECT OF THIS AGREEMENT, CONSULT YOUR
ATTORNEY.
19. ACCEPTANCE DATE. When accepted by the Sellers, this offer shall become a
binding agreement for the sale and purchase of the above described
property. If this offer is not accepted by the Sellers on or before the
30th day of September, 1998, it shall become null and void and the initial
down payment shall be repaid to the Buyers without liability on the part of
either party.
Sellers hereby accept/counter the above offer this _____ day of
_________________, 1998. If Sellers have made a counter-offer by changing and
initialing any terms, the counter-offer shall be void unless accepted and
initialed by Buyers on or before the ___ day of _______________, 19__. If
Sellers have signed and attached a counter-offer, it shall be void unless signed
by Buyers on or before said date.
OMEGA CABINETS, LTD.
By: /s/ Henry P. Key
---------------------------------- ----------------------------------
Buyer: Henry P. Kay, Chairman and CEO Seller: Robert J. Bertch
SS #: ###-##-####
----------------------------------
Seller: Mary H. Bertch
SS #: ###-##-####
<PAGE>
CLOSING STATEMENT
Buyer: Omega Cabinets, Ltd.
Federal I.D. No. 42-1423186
Address: 1205 Peters Drive, Waterloo, IA 50703
Sellers: The Robert J. Bertch Revocable Trust Dated August 18, 1995
and The Mary H. Bertch Revocable Trust Dated August 18, 1995
21096 N.E. 140th Way
Woodinville, WA 98072
Property Description: Lots Nos. 1 and 2; and the North 54 feet of the West
225 feet of Lot No. 3 and the North 90 feet of the
East 258 feet of Lot No. 3, all in Airline-Burton
Industrial Park, Waterloo, Iowa.
<TABLE>
<S> <C>
PURCHASE PRICE.................................................... $70,435.20
EARNEST MONEY PAYMENT............................................ 0.00
BALANCE.......................................................... $70,435.20
</TABLE>
<TABLE>
<CAPTION>
DEDUCTION:
- ----------
<C> <S> <C>
1. Tax Proration:
March 1999 taxes.................. $1,344.00
1/2 of September 1999 taxes....... 672.00
2. Revenue stamps......................... 112.00
3. Abstracting............................ 193.00
4. Recording fees for four affidavits..... 24.00
</TABLE>
<TABLE>
<S> <C>
TOTAL DEDUCTIONS................................................. $ 2,345.00
BALANCE DUE SELLERS.............................................. $68,090.20
</TABLE>
<TABLE>
<CAPTION>
CHECKS ISSUED BY BUYER:
- -----------------------
<C> <S> <C>
1. Black Hawk County Recorder, revenue stamps 112.00
2. Recording fees for four affidavits 24.00
3. Black Hawk County Treasurer, March 1999 taxes 1,344.00
</TABLE>
<PAGE>
4. Black Hawk County Abstract Co., abstracting 193.00
5. Robert J. Bertch and Mary H. Bertch 68,090.20
6. Black Hawk County Recorder, fee to record deeds POC
7. Redfern Law Firm, legal fees POC
OMEGA CABINETS, LTD. THE ROBERT J. BERTCH REVOCABLE
TRUST DATED AUGUST 18, 1995
By: /s/ Henry P. Key By: /s/ Robert J. Bertch,
------------------------ -----------------------------
Henry P. Key, Chairman and CEO Robert J. Bertch, Trustee
Date: 9/30/98 Date: 9/22/98
THE MARY H. BERTCH REVOCABLE
TRUST DATED AUGUST 18, 1995
By /s/ Mary H. Bertch
----------------------------
Mary H. Bertch, Trustee
Date: 9/22/98
<PAGE>
OMEGA CABINETS, LTD. EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Predecessor The Company
------------------ -------------------------------------------------------------------------
Year ended
Period from Period from ------------------------------------------------------
January 1, 1994 June 17, 1994 to December 30, December 28, December 27, Janauary 2,
to June 16, 1994 December 31, 1994 1995 1996 1997 1999
------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes
and extraordinary item $2,095,952 $3,057,877 $ 3,439,656 $11,856,024 $ 3,460,653 10,383,026
Fixed charges:
Interest expense 22,321 4,123,344 9,700,914 10,441,182 16,311,997 15,074,327
Estimated portion of rental
expense attributable to
interest costs (25%) 135,750 161,500 333,750 421,500 402,750 402,750
------------------- ------------------------------------------------------------------------
Total fixed charges 158,071 4,284,844 10,034,664 10,862,682 16,714,747 15,459,077
------------------- ------------------------------------------------------------------------
Earnings before income taxes and
fixed charges $2,254,023 $7,342,721 $13,474,320 $22,718,706 $20,175,400 $26,297,103
=================== ========================================================================
Ratio of earnings to fixed
charges 14.3 1.7 1.3 2.1 1.2
</TABLE>
<PAGE>
Exhibit 21.1
Subsidiaries
The following is a list of the Corporation's consolidated subsidiaries as of
March 1, 1999. The Corporation owns, directly or indirectly, 100% of the voting
securities of each subsidiary, unless noted otherwise.
Panther Transport, Inc., an Iowa corporation
Omega Kitchen Craft Holdings Corp., a Delaware corporation
Omega Kitchen Craft U.S. Corp., a Delaware corporation
Bulrad Illinois, Inc., an Illinois corporation
Kitchen Craft of Canada Ltd., a Canadian corporation (1)
Kitchen Craft Cabinetry Ltd., a British Columbia corporation
(1) Kitchen Craft of Canada, Ltd. owns 100% of Class A Common Stock. Kitchen
Craft of Canada Ltd. does not own any of the Class B Common Stock.
-45-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS PROVIDED BY ERNST & YOUNG LLP AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> DEC-28-1997
<PERIOD-END> JAN-02-1999
<CASH> 650,703
<SECURITIES> 0
<RECEIVABLES> 15,277,890
<ALLOWANCES> 1,489,000
<INVENTORY> 11,764,729
<CURRENT-ASSETS> 27,842,116
<PP&E> 36,439,585
<DEPRECIATION> 7,602,297
<TOTAL-ASSETS> 114,207,763
<CURRENT-LIABILITIES> 22,616,762
<BONDS> 130,750,000
0
0
<COMMON> 10
<OTHER-SE> (40,309,009)
<TOTAL-LIABILITY-AND-EQUITY> 114,207,763
<SALES> 169,220,139
<TOTAL-REVENUES> 169,220,139
<CGS> 121,766,772
<TOTAL-COSTS> 121,766,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,074,327
<INCOME-PRETAX> 10,838,026
<INCOME-TAX> 4,180,000
<INCOME-CONTINUING> 6,658,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,658,026
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
