<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MARCH 5, 1999
SUMMA INDUSTRIES
(Exact name of registrant as specified in its charter)
DELAWARE 1-7755 95-1240978
(State or other jurisdiction of (Commission (I.R.S. employer
incorporation or organization) file number) identification number)
21250 HAWTHORNE BOULEVARD, SUITE 500, TORRANCE, CALIFORNIA 90503
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (310) 792-7024
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 5, 1999, Plastron Industries, Inc., a newly formed
Delaware corporation and wholly-owned subsidiary of the
Registrant ("Buyer"), consummated its purchase of substantially
all of the assets of Plastron Industries L.P., a Delaware limited
partnership ("Plastron"), pursuant to the terms of that certain
Asset Purchase Agreement dated February 17, 1999 (the "Purchase
Agreement") among Buyer, the Registrant, Plastron and the general
partner of Plastron, Plastron Management, Inc., an Illinois
corporation ("PMI").
The aggregate purchase price paid for Plastron consisted of (i)
$20.0 million in cash, (ii) a four-year warrant exercisable to
purchase up to 200,000 shares of the Registrant's common stock at
$11.75 per share, and (iii) the assumption of certain
liabilities, principally trade payables and accrued obligations
of approximately $1.0 million (net of the estimated effect of a
one time purchase price adjustment to be calculated comparing
Plastron working capital at closing to $1.85 million). The
aggregate purchase price was determined through negotiations
between the Registrant and PMI.
The Registrant also agreed to grant to certain management
employees of Plastron (i) the right to purchase, within thirty
days following consummation of the acquisition (and subject to
the prior filing of the Plastron audited financial statements
required by Item 7 of this current report), up to a maximum of
200,000 restricted shares of the Registrant's common stock at a
recent market price, and (ii) an equal number of non-statutory
stock options to acquire the Registrant's common stock at the
same recent market price, with such options to vest based on the
percentage obtained by dividing the net income of Buyer after
closing by $3.0 million, or fully in nine years. Additionally,
12,000 similarly priced non-statutory stock options will be
granted to consultants of Plastron.
Plastron is a leading manufacturer of precision thermoplastic
parts for wound electronic components such as transformers,
relays and coils, known in the industry as coil forms or
"bobbins." Plastron's assets consist primarily of real property,
plant and equipment, molds, trade accounts receivable and
inventory. All of the acquired assets, which are located in
Bensenville, Illinois, will be used in the on-going operations of
Buyer in a manner consistent with their prior use.
The funds used for the cash portion of the purchase price were
borrowed from the Registrant's primary lender, Comerica
Bank-California, a California banking corporation ("Lender"),
pursuant to an Amended and Restated Loan Agreement dated March 5,
1999 (the "Loan Agreement"). Lender agreed to act as the agent
under the Loan Agreement for the various financial institutions
that may become parties thereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The audited financial statements of Plastron required by
Item 7 are filed herewith as Exhibit 99.1 to this current
report.
<PAGE> 3
(b) Pro Forma Financial Information.
It is currently impracticable to file the required pro
forma financial information in this current report. The
required pro forma financial information will be filed
under cover of the registrant's next Form 10-Q or Form
8-K/A as soon as practicable, but in no event later than
sixty days after the date by which this current report
must be filed.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
2.1 Asset Purchase Agreement dated February 17,
1999 among Buyer, Plastron, the Registrant
and PMI relating to the purchase of
substantially all of the assets of Plastron
by Buyer.
4.1 Warrant dated March 5, 1999 issued by the
Registrant to Plastron providing for the
issuance from time to time of up to 200,000
shares of the Registrant's common stock at
an exercise price of $11.75 per share,
including registration rights.
10.1 Amended and Restated Loan Agreement dated
March 5, 1999 among the Registrant and
Lender.
10.2 Plastron Industries Acquisition Stock Option
Plan providing for the issuance of options
to purchase up to 200,000 shares of the
Registrant's common stock.
23.1 Consent of Friedman Eisenstein Raemer and
Schwartz, LLP to the use of their report in
this current report.
99.1 Financial Statements of Plastron as of
December 31, 1998 and 1997 together with the
manually signed report of independent public
accountants dated January 20, 1999 issued by
Friedman Eisenstein Raemer & Schwartz, LLP
covering such financial statements of
Plastron.
</TABLE>
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUMMA INDUSTRIES,
a Delaware corporation
Date: March 15, 1999 By: /s/ James R. Swartwout
-------------------------------
James R. Swartwout
President
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2.1 Asset Purchase Agreement dated February 17, 1999 among
Buyer, Plastron, the Registrant and PMI relating to the
purchase of substantially all of the assets of Plastron by
Buyer.*
4.1 Warrant dated March 5, 1999 issued by the Registrant to
Plastron providing for the issuance from time to time of
up to 200,000 shares of the Registrant's common stock at
an exercise price of $11.75 per share, including
registration rights. *
10.1 Amended and Restated Loan Agreement dated March 5, 1999
among the Registrant and Lender.*
10.2 Plastron Industries Acquisition Stock Option Plan
providing for the issuance of options to purchase up to
200,000 shares of the Registrant's common stock.
23.1 Consent of Friedman Eisenstein Raemer and Schwartz, LLP to
the use of their report in this current report.
99.1 Financial Statements of Plastron as of December 31, 1998
and 1997 together with the manually signed report of
independent public accountants dated January 20, 1999
issued by Friedman Eisenstein Raemer & Schwartz, LLP
covering such financial statements of Plastron.
</TABLE>
- -------------
* Exhibits 2.1, 4.1 and 10.1 contain listings of the schedules and/or exhibits
to the exhibit document. The registrant agrees to furnish supplementally a copy
of any such omitted schedule or exhibit to the Securities and Exchange
Commission upon request.
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered
into as of February 17, 1999 by and among Plastron Industries, Inc., a Delaware
corporation ("Buyer"), Plastron Industries, L.P., a Delaware limited partnership
("Seller"), Summa Industries, a Delaware corporation and the parent of Buyer
("Parent"), and Plastron Management, Inc., an Illinois corporation and the
general partner of Seller ("PMI").
RECITALS
WHEREAS, Seller is engaged in the business of manufacturing precision
thermoplastic parts for wound electronic components such as transformers, relays
and coils, often referred to as "bobbins," and conducting related molding and
insertion operations at its facilities in Bensenville, Illinois (collectively,
the "Business");
WHEREAS, Seller owns all of the Transferred Assets (as defined in
Section 1.1), which Transferred Assets are used or useful in the conduct of the
Business; and
WHEREAS, Seller, with the assistance of PMI, desires to sell and assign
to Buyer, and Buyer desires to purchase and assume from Seller, the Transferred
Assets and the Assumed Obligations (as defined in Section 1.2) on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth herein and for other good and valuable consideration,
the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
SALE AND TRANSFER OF ASSETS
1.1 Transferred Assets. Subject to the terms and conditions set forth
herein, at the Closing (as defined in Section 2.5), Seller shall sell, convey,
transfer, assign and deliver to Buyer, and Buyer shall purchase, assume and
acquire from Seller, all of the assets, properties and rights of Seller of every
kind, character and description used or useful in the conduct of the Business,
whether tangible or intangible and wherever located, as of the Closing Date (as
defined in Section 2.5) (collectively referred to herein as the "Transferred
Assets"), including, without limitation, the following Transferred Assets (of
which each item with a fair market or net book value in excess of $100 under
subsections (a) through (c) below is described in detail in the "Transferred
Assets Schedule" attached hereto as Schedule 1.1):
(a) All real property, buildings, structures, fixtures and leasehold and
other improvements;
(b) All machinery, equipment, vehicles, tooling, molds, cranes, tables,
spare parts and tools;
(c) All office supplies and equipment, computers, maintenance supplies
and other similar items;
<PAGE> 2
(d) All inventories;
(e) All accounts and notes receivable;
(f) All prepaid assets other than prepaid insurance;
(g) All of Seller's right, title and interest in and to those contracts
and agreements (including proprietary agreements with suppliers) set forth on
Schedule 1.1(g), and all right, title and interest in and to purchase or sales
orders, quotes or commitments related to the Transferred Assets or the Business,
whether written or oral;
(h) Copies of all of Seller's books, records, accounts, correspondence,
production records, employment, payroll, personnel and workers' compensation
records, environmental control records and any other documents relating to the
Transferred Assets or the Business;
(i) All of Seller's rights under any and all express or implied
warranties from Seller's suppliers with respect to the Transferred Assets, to
the extent such warranties are transferable by Seller;
(j) All of Seller's right, title and interest in and to patents,
trademarks, service marks, trade names and all variants thereof, copyrights,
inventions, customer lists, trade secrets (including processes and software
programs), registrations and applications therefor and works in progress, and
past, present and future causes of action and remedies therefor, including those
set forth on Schedule 3.11;
(k) All of Seller's right, title and interest in computer programs to
the extent assignable, and other intangibles owned or used by Seller relating to
the Transferred Assets or the Business and all of the related goodwill;
(l) All claims as to which Seller is a judgment creditor; and
(m) To the extent assignable, all of Seller's licenses, permits and
governmental authorizations relating to the Transferred Assets or the Business.
1.2 Retained Assets. Notwithstanding the terms of Section 1.1, the
following assets (collectively, the "Retained Assets") shall be retained by
Seller and or its affiliates, and shall not be sold, transferred or assigned to
Buyer:
(a) All cash and cash equivalents of Seller received prior to the
Closing Date, including the bank accounts of Seller which constitute an asset of
the Business;
(b) All minutes books and other ownership records of Seller;
(c) Such licenses, permits or other certificates of authority which, by
their terms, are not assignable;
(d) All insurance policies of Seller obtained in connection with the
Business and all rights of Seller under and arising out of such insurance
policies, including right to receive dividends and refunds of prepaid insurance;
provided that, Seller shall deliver copies of all such policies to Buyer and
shall use best
<PAGE> 3
efforts to assist Buyer in obtaining reimbursement under such policies following
the Closing for claims that may be covered thereunder;
(e) Rights to receive refunds with respect to any and all taxes paid by
Seller in connection with the Business, including interest thereon;
(f) Rights to receive payment from the promissory note from Ms. Alice
Buechele;
(g) Any rights under that certain Asset Purchase Agreement dated
September 15, 1997, by and between Plastron Corp., an Illinois corporation,
Seller, Phyllis G. Linning and Laura A. Linning and all documents executed in
connection therewith; provided that, at Buyer's request, Seller will use
reasonable efforts to enforce the representations and warranties and
noncompetition agreements contained therein against the other parties thereto;
and
(h) Any rights of Seller under this Agreement and any related agreement.
1.3 Customer Assets. Notwithstanding the terms of Section 1.1, Seller
shall sell, convey, assign and transfer only such rights as it may have at the
Closing, if any, to those molds, toolings and inserts used in the Business which
are owned by customers of Seller ("Customer Assets").
1.4 Assumed Obligations. Effective as of the Closing Date, Buyer and
Parent shall assume and shall thereafter pay, discharge or perform in the
ordinary course the following (collectively, the "Assumed Obligations"):
(a) Those trade payables and accrued obligations incurred by Seller in
the ordinary course of business on or before the Closing Date and, unless not
known, set forth on the Assumed Obligations Schedule attached hereto as Schedule
1.4;
(b) Seller's obligations arising under those contracts and agreements
included in the Transferred Assets as set forth on Schedule 1.1(g) and under
those purchase or sales orders, quotes or commitments which constitute the
Transferred Assets or the Business, whether written or oral;
(c) Liabilities and obligations of the Business with respect to any
claims, grievances, lawsuits, arbitrations or other legal proceedings for
product liability occurrences on or after the Closing Date;
(d) Liabilities and obligations of the Business with respect to any
claims, grievances, lawsuits, arbitrations or other legal proceedings for claims
for product warranty made on or after the Closing Date, regardless of when such
products were manufactured or sold, and for liability for recalls on or after
the Closing Date; and
(e) Those additional obligations, if any, listed on Schedule 1.4. Other
than the Assumed Obligations, Buyer shall not assume or be obligated to pay,
discharge or perform any liability or obligation of Seller, whether direct or
indirect, known or unknown, absolute or contingent, and all such liabilities and
obligations shall remain with Seller.
1.5 No Other Debts, Obligations or Liabilities Assumed. Buyer and Parent
do not assume and shall not be liable for, and Seller and PMI shall indemnify
Buyer and Parent pursuant to Article IX
<PAGE> 4
against, any debts, obligations or liabilities of Seller or PMI of any nature
whatsoever other than the Assumed Obligations (the "Retained Obligations").
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 Purchase Price. In exchange and as consideration for the Transferred
Assets and in full payment of the purchase price therefor, Parent shall cause
Buyer to pay, and Buyer shall pay, in the manner provided in Section 2.3, an
aggregate purchase price of Twenty Million Dollars ($20,000,000.00), subject to
adjustment pursuant to the terms of Section 2.4 below and the exercise of
Buyer's and Parent's indemnification rights set forth in Article IX (the
"Purchase Price").
2.2 Allocation of Purchase Price. The parties shall allocate the
Purchase Price for tax purposes amongst the Transferred Assets as set forth on
Schedule 2.2. The parties shall file their respective tax returns in accordance
with such allocation and shall not take any position or action inconsistent with
such allocation.
2.3 Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(a) At the Closing, Parent shall cause Buyer to pay, and Buyer shall pay
to Seller in cash, by wire transfer of immediately available funds, the
aggregate amount of Nineteen Million Dollars ($19,000,000.00); and
(b) At the Closing, Parent shall execute and deliver to Seller a
four-year warrant exercisable for the purchase from time to time of 200,000
shares of the Common Stock, $.001 par value, of Parent at an exercise price of
$11.75 per share, containing one demand registration right on Form S-3,
transferable in its entirety, and containing such other terms and conditions as
are mutually acceptable to the parties (the "Warrant").
(c) At the Closing, Parent shall cause Buyer to deliver, and Buyer shall
deliver to American National Bank and Trust Company of Chicago ("Escrow Agent")
by wire transfer of immediately available funds, the aggregate amount of One
Million Dollars ($1,000,000.00) (the "Escrow Funds"). The Escrow Funds shall be
held in escrow pursuant to the terms and conditions of an escrow agreement in
the form attached hereto as Exhibit A (the "Escrow Agreement").
2.4 Working Capital Adjustment.
(a) The Purchase Price shall be subject to a one-time adjustment (the
"Adjustment") to reflect the amount by which Seller's Working Capital (as
defined in subsection (c) below) at Closing is greater or less than One Million
Eight Hundred and Fifty Thousand Dollars ($1,850,000.00) ("Minimum Working
Capital"). If Working Capital at Closing is greater than Minimum Working
Capital, the Purchase Price shall be increased by the amount of such excess by
deposit of the excess amount into the Escrow Fund by Buyer, and if Working
Capital is less than Minimum Working Capital at Closing, the Purchase Price
shall be reduced by the amount of such shortfall by removal of the shortfall
amount from the Escrow Fund by Buyer.
(b) Buyer shall initially calculate the Adjustment and, within ninety
(90) days of the Closing Date, deliver to the Seller (collectively, the
"Adjustment Notice"): (i) a written report setting forth the amount of the
Adjustment, the Working Capital and the components thereof in reasonable detail
and (ii) copies of the work papers, schedules and other documents prepared by
Buyers and its accountants in
<PAGE> 5
connection with its determination of the Working Capital and the Adjustment.
From and after the date of delivery of the Adjustment Notice, Buyer shall give
Seller and its accountants such assistance and access to the books and records
of Buyer as Seller and its accountants shall reasonably request during normal
business hours in order to enable them to evaluate Buyer's determination of the
Working Capital and the Adjustment.
(c) Within thirty (30) days following the delivery of the Adjustment
Notice, Seller shall deliver to Buyer a notice of objection (an "Objection
Notice") or a notice of acceptance (an "Acceptance Notice") with respect to the
amount of the Working Capital and the Adjustment set forth in the Adjustment
Notice. If an Acceptance Notice is delivered to Buyer or if no Objection Notice
is delivered to Buyer within such thirty (30) day period, the Adjustment as set
forth in the Adjustment Notice shall be final and binding on the parties. Any
Objection Notice shall specify in reasonable detail the components of the
Working Capital disputed and shall describe in reasonable detail the basis for
the objection and all information in the possession of Seller which forms the
basis thereof, as well as the amount in dispute. If an Objection Notice is
given, the parties shall attempt to reach a resolution of the dispute during the
twenty (20) day period following delivery of the Objection Notice. If the
parties are unable to reach agreement within such period, any unresolved
disputed items shall be promptly referred to a mutually acceptable accounting
firm (the "Unrelated Accounting Firm"). The Unrelated Accounting Firm shall be
directed to render a written report on the unresolved disputed issues with
respect to the Working Capital and the Adjustment as promptly as practicable and
to resolve only those issues of dispute set forth in the Objection Notice. If
unresolved disputed issues are submitted to the Unrelated Accounting Firm, Buyer
and Seller will each furnish to the Unrelated Accounting Firm such work papers,
schedules and other documents relating to the unresolved disputed issues as the
Unrelated Accounting Firm may request. The resolution of the dispute by the
Unrelated Accounting Firm shall be final and binding on the parties. The fees
and expenses of the Unrelated Accounting Firm shall be borne by Buyer and Seller
based on the inverse proportion of the respective percentages of the dollar
value of unresolved disputed issues determined in favor of Seller and Buyer.
(d) "Working Capital" shall mean, as of 12:01 a.m. on the Closing Date,
the difference between those Transferred Assets which are recorded as current
assets in accordance with generally accepted accounting principles ("GAAP") and
consistent with Seller's past practices (offset by reserves in accordance with
GAAP and consistent with Seller's past practices but not less than those
recorded on the Balance Sheet (as defined below)) and those Assumed Obligations
which are recorded as current liabilities in accordance with GAAP and consistent
with Seller's past practices.
2.5 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place on March 1, 1999 or as soon
thereafter as possible upon satisfaction of the conditions set forth in Article
VII (the "Closing Date"), at the offices of Katten Muchin & Zavis, 525 West
Monroe Street, Chicago, Illinois, or at such other date, time and place as may
be mutually agreed upon in writing by the parties. All proceedings to take place
at the Closing shall take place simultaneously, and no delivery shall be
considered to have been made until all such proceedings have been completed. The
Closing shall be deemed to have taken place at12:01 a.m. CST on the Closing
Date. At the Closing:
(a) Parent shall cause Buyer to pay, and Buyer shall pay to Seller the
portion of the Purchase Price set forth in Section 2.3(a) and (b);
(b) Parent shall cause Buyer to deliver, and Buyer shall deliver to the
Escrow Agent the portion of the Purchase Price set forth in Section 2.3(c); and
<PAGE> 6
(c) Seller shall execute and deliver to Buyer a General Instrument of
Conveyance, Transfer and Assignment in the form attached hereto as Exhibit B and
all such other instruments and documents of conveyance and assignment as are
requested by Buyer to vest in Buyer title to the Transferred Assets. Buyer and
Parent shall execute and deliver to Seller an Assumption Agreement in the form
attached hereto as Exhibit C, and Seller, Buyer, Parent and PMI shall execute
and deliver officers' certificates regarding the representations, warranties and
covenants contained herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND PMI
Seller and PMI hereby jointly and severally represent and warrant to
Buyer and Parent as follows:
3.1 Organization and Qualification - Seller. Seller is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware, is duly qualified to do business as a foreign entity
and is in good standing in each jurisdiction in which the character of its
properties or the nature of its business makes such qualification necessary.
Seller has the requisite partnership power and authority to own, use or lease
its properties and to carry on its business as it is now being conducted and as
it is now proposed to be conducted Seller's partnership agreement, as amended to
date, is in full force and effect. Seller is not in default in any material
respect in the performance, observation or fulfillment of any provision of its
partnership agreement.
3.2 Organization and Qualification - PMI. PMI is the general partner of
Seller and is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois, is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of its properties or the nature of its business makes
such qualification necessary. PMI has the requisite corporate power and
authority to own, use or lease its properties and to carry on its business as it
is now being conducted and as it is now proposed to be conducted. PMI is not in
default in any material respect in the performance, observation or fulfillment
of any provision of its articles of incorporation or bylaws.
3.3 Ownership. Other than as relates to the Business, Seller does not
own any assets or conduct any operations.
3.4 Authority Relative to this Agreement. Each of Seller and PMI has all
requisite power and authority to execute and deliver this Agreement and all
related agreements and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and all related agreements and the
consummation of the transactions contemplated hereby on the part of Seller and
PMI has been duly and validly authorized and no other proceedings on the part of
Seller or PMI are necessary, as a matter of law or otherwise, to authorize this
Agreement, the related agreements or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Seller and PMI and, assuming this Agreement constitutes a valid and binding
obligation of Buyer, this Agreement constitutes a valid and binding agreement of
Seller and PMI, enforceable against each of them in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights or by general principles of equity. The
undersigned representative of PMI has been specifically authorized to execute
this Agreement and all related agreements and to consummate the
<PAGE> 7
transactions contemplated hereby on behalf of Seller by a requisite vote of the
partners of Seller, if necessary.
3.5 Consents and Approvals; No Violation. Except as set forth on
Schedule 3.5, the execution and delivery of this Agreement and any related
agreements by Seller and PMI, the consummation of the transactions contemplated
hereby and/or the performance by Seller and PMI of their obligations hereunder
will not:
(a) conflict with any provision of the partnership agreement, articles
of incorporation, bylaws or other organizational documents of Seller or PMI;
(b) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority;
(c) conflict with, result in the breach of or constitute a default (or
give rise to any right of termination, cancellation or acceleration or
guaranteed payments) under any of the terms, conditions or provisions of any
material note, lease, mortgage, license, agreement or other instrument or
obligation to which Seller and/or PMI is a party or by which Seller and/or PMI
or any of their assets may be bound, including the Business, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained in writing;
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation; or
(e) result in the creation of any lien, charge or encumbrance upon any
of the Transferred Assets.
3.6 Financial Statements. The audited balance sheet of Seller as of
December 31, 1998 (the "Balance Sheet") and the related audited statements of
income and cash flows for the twelve-month period then ended (collectively, the
"Financial Statements") are attached hereto as Schedule 3.6. The Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis throughout the period indicated, and present fairly in all material
respects the financial position of Seller as of the end of such fiscal year and
the results of operations and cash flows for such year. From and after the date
hereof until the Closing, PMI shall cause Seller to deliver to Buyer, within
fifteen (15) days after each month end, monthly unaudited balance sheets and
income statements which, at the time they are delivered to Buyer, will present
fairly in all material respects the assets and liabilities and results of
operations of Seller as of their respective dates.
3.7 Absence of Certain Changes. Except as set forth on Schedule 3.7,
since December 31, 1998, (i) Seller has conducted its business only in, and
since such date, has not engaged in any transaction other than according to, the
ordinary and usual course of such business, and, (ii) there has not been (a) any
event, circumstance, condition, development or occurrence causing, resulting in
or having a material adverse effect on the financial condition, business,
prospects, properties or results of operations of either Seller, the Business or
the Transferred Assets (a "Material Adverse Change"); (b) any material change by
Seller in accounting principles, practices or methods; (c) any labor dispute or
difficulty which is reasonably likely to result in any Material Adverse Change,
and to the Knowledge of Seller, no such dispute or difficulty is now threatened;
(d) any asset material to the Business sold or disposed of (except inventory
sold in the ordinary course of business), or any material asset mortgaged,
pledged or subjected to any lien, charge or other encumbrance; (e) any increase
in excess of $10,000, individually or in the
<PAGE> 8
aggregate, in the compensation payable or which could become payable by Seller
to employees, distributors, dealers or sales representatives of the Business;
(f) any amendment by Seller of any employee benefit plan; (g) any indebtedness
incurred by Seller with respect to the Business, except for indebtedness that
will be repaid in full by Seller prior to the Closing; (h) any loan made or
agreed to be made by Seller with respect to the Business, nor has Seller become
liable or agreed to become liable as a guarantor with respect to any such loan;
or (i) any waiver by Seller of any right or rights of material value related to
the Business.
3.8 Absence of Undisclosed Liabilities. Seller and the Business has and
will have no indebtedness, obligations or liabilities, whether accrued,
absolute, contingent or otherwise and whether due or to become due, known or
unknown, as of date of the Balance Sheet and as of the Closing Date, which are
not reflected or reserved for in the Balance Sheet or set forth on Schedule 3.8.
3.9 Title to Assets. Each Transferred Asset of the type set forth in
Section 1.1(a) to 1.1(f) with a fair market or net book value in excess of $100
is set forth and described in detail on Schedule 1.1. Seller has and at Closing
will have good and marketable title to all Transferred Assets. The Transferred
Assets constitute all of the assets and interests in assets that are owned or
used in the conduct of the Business as currently being conducted, other than
leased or licensed assets set forth on Schedule 3.9, the Retained Assets and the
Customer Assets. All of the Transferred Assets will be conveyed to Buyer free
and clear of restrictions on or conditions to transfer or assignment, and free
and clear of mortgages, liens, leases, security interests, pledges, charges,
encumbrances, equities, claims, easements, rights of way, covenants, conditions
or restrictions or any other adverse claims or rights whatsoever (collectively,
"Liens"), other than (i) those items set forth on Schedule 3.9, (ii) liens for
property taxes not yet due and payable, (iii) rights of customers with respect
to work-in-process under orders or contracts entered into in the ordinary course
of business, and (iv) immaterial imperfections of title, easements,
restrictions, rights of way and encumbrances (collectively, "Permitted Liens").
Seller has the absolute and unrestricted right, power, authority and capacity to
transfer the Transferred Assets to Buyer and, upon the Closing, Buyer will
acquire from Seller legal and beneficial ownership of, good and valid title to,
the Transferred Assets, free from any Lien other than Permitted Liens. At the
Closing, except as set forth on Schedule 3.9, none of the Transferred Assets
will be subject to any leasing arrangement. Except for partnership interests in
Seller, no partner, agent, owner or employee of Seller, nor any spouse, child,
sibling or other relative of any of these persons, owns or has any interest,
directly or indirectly, in any of the Transferred Assets.
3.10 Real Property. Set forth in Schedule 3.10 is a complete and
accurate description of each parcel of real property owned by and/or occupied by
Seller, including any easement, covenants, rights of way or similar restrictions
(collectively the "Real Property"), and, except as set forth in Schedule 3.10,
Seller does not lease, sublease, own nor occupy any other real property nor is
any other real property used in or related to the Business. Except as indicated
in Schedule 3.10:
(a) Seller has, and at the Closing Date will have, good and marketable
fee simple absolute title in and to all Real Property owned by it, free and
clear of all title defects, mortgages, pledges, security interests, easements,
conditional sales agreements, liens, restrictions or encumbrances whatsoever
other than Permitted Liens;
(b) Seller does not lease any Real Property, nor is any leased Real
Property used in the Business;
(c) Each of the buildings and all fixtures and improvements located on
the Real Property are in good operating condition, ordinary wear and tear
excepted;
<PAGE> 9
(d) Seller has not received any notice, nor is it aware, that any of the
buildings, structures or other improvements erected on the Real Property, or the
present use thereof, (i) do not conform in all respects with all applicable
zoning and building laws (or does not constitute a legal nonconforming use),
ordinances, regulations or other laws and applicable deed restrictions, or (ii)
encroach on property of others;
(e) Seller has not received any written or oral notice of any pending
(i) change of such zoning and building laws, ordinances, regulations or other
laws affecting any of such properties, or (ii) condemnation of any such
properties; and
(f) Seller has not received any notice from any municipal body or other
public authority requiring work to be done or improvements to be made upon any
of the Real Property and has no Knowledge of the enactment or adoption of any
ordinance or resolution by any such body or authority authorizing work or
improvements for which any of the Real Property may be assessed.
3.11 Intellectual Property.
(a) Except as set forth on Schedule 3.11, Seller does not have any
right, title or interest in any Intellectual Property (as defined below) and no
such Intellectual Property is necessary for or used in the Business as now
conducted. With respect to registered patents and trademarks, Schedule 3.11
contains a list of all jurisdictions in which such patents and trademarks are
registered or applied for and all registration and application numbers.
(b) "Intellectual Property" includes United States and foreign
inventions, invention disclosures, patents, inventors' certificates, utility
models, trademarks, service marks, trade names, copyrights, mask work
registrations, trade secrets (including processes and software programs),
registrations and applications therefor and works in progress, and past, present
and future causes of action and remedies therefor, customer lists and
proprietary arrangements with vendors of Seller.
(c) Except as disclosed on Schedule 3.11, Seller owns or has the
unrestricted right to use, free and clear of any rights of others and without
payment to any other party, the Intellectual Property listed on such Schedule
3.11, and the consummation of the transactions contemplated hereby will not
alter or impair any such items nor the right of the Business to use such items.
(d) Except as disclosed on Schedule 3.11, Seller has not received any
communications alleging that Seller has violated any other person's Intellectual
Property rights or has engaged in unfair competition against such person. Except
as disclosed on Schedule 3.11, to the Knowledge of Seller, Seller does not now
infringe or misappropriate any third party's Intellectual Property rights and
does not have any liability for any past infringement or misappropriation.
Except as disclosed on Schedule 3.11, no dispute or disagreement involving
Seller exists or is, to the Knowledge of Seller, threatened with regard to any
third party's Intellectual Property rights, including any allegation of
Intellectual Property infringement or misappropriation or of any breach or
default of an Intellectual Property license or similar agreement.
(e) To Seller's Knowledge, (i) no third party is now infringing or
misappropriating any Intellectual Property rights of Seller or the Business, and
(ii) there has not been any past such infringement or misappropriation.
3.12 Accounts Receivable. The accounts receivable reflected on the
Balance Sheet constituted all accounts receivable of the Business as of the date
thereof, other than accounts receivable fully written
<PAGE> 10
off as uncollectible as of such date in accordance with consistently applied
prior practice, except as may be reserved on the Balance Sheet. All such
accounts receivable arose from valid sales made (as opposed to consignments) or
services rendered in the ordinary course of business, and are not subject to any
return privileges, set-off or counterclaim, except as may be reserved on the
Balance Sheet. Except as disclosed on Schedule 3.12 hereto, such accounts
receivable have been collected in full since the date of the Balance Sheet or
remain valid, binding and legally enforceable obligations at their full
respective amounts (net of allowance for doubtful accounts established in
accordance with consistently applied prior practice). All accounts receivable
created after the date of the Balance Sheet up to the Closing will arise from
valid transactions in the ordinary course of business, and will be valid,
binding and legally enforceable obligations at their full respective amounts
(net of the allowance for doubtful accounts established with consistently
applied prior practice).
3.13 Inventories. Seller has good and marketable title to all of its
inventories of raw materials, work-in-process and finished goods, free and clear
of all Liens, other than Permitted Liens. Except to the extent reserved for on
the Balance Sheet, all such inventories (i) consist of items that are usable in
the ordinary course of business for an amount at least equal to the book value
thereto, and (ii) represent quantities, individually and in the aggregate, not
in excess of eighteen month's requirements for the Business as currently
conducted.
3.14 Contracts. Neither Seller nor the Business has any contract,
agreement, obligation or commitment, written or oral, expressed or implied,
which was not incurred in the ordinary course of business, or involves a
commitment or liability in excess of $10,000, or is for a term of more than one
year or whose terms do not permit cancellation without liability on 30 days'
notice or less (other than obligations which are included in accounts payable),
and has no union contracts, employee, representative or consultant contracts,
loan, credit or other financing agreements, inventory flooring arrangements,
debtor or creditor arrangements, security agreements, licenses, franchise,
manufacturing, distributorship or dealership agreements, leases, or bonus,
health or stock option plans, except for those described in Schedule 3.14 hereto
(collectively, the "Contracts"), copies of all of which have been delivered to
Buyer prior to the execution hereof. As of the date hereof, there exists no
circumstances on Seller's part and, to Seller's Knowledge, on the part of any
third party, which would affect the validity or enforceability of any such
Contracts in accordance with their respective terms. Seller has performed and
complied in all material respects with all obligations required to be performed
to date under, and is not in default (without giving effect to any required
notice or grace period) under, or in breach of, the terms, conditions or
provisions of any Contract. Except for consents to assignment required as set
forth on Schedule 3.5, the validity and enforceability of each Contract
described herein has not been and shall not in any manner be affected by the
execution and delivery of this Agreement or any related agreement or the
consummation of the transactions contemplated hereby. Neither Seller nor the
Business has any customer sales contract which in the ordinary course would
require future expenditures (including internal costs and overhead) in excess of
reasonably anticipated receipts.
3.15 Employee and Labor Matters.
(a) Employee. Except as set forth in Schedule 3.15 hereto, no partner,
stockholder, director, officer or employee of Seller or PMI is presently a party
to any transaction involving the Business, including without limitation any
contract, loan or other agreement or arrangements providing for the furnishing
of services by, the rental of real or personal property from or to, or otherwise
requiring loans or payments to, any such partner, stockholder, director, officer
or employee, or to any member of the family of any of the foregoing, or to
Seller's and PMI's Knowledge, to any corporation, partnership, trust or other
entity in which any partner, stockholder, director, officer or employee or any
member of the family of any of them has a substantial interest or is a partner,
officer, director, trustee, or employee. There is set forth in Schedule 3.15 a
list showing (i) the name, title, date and amount of last compensation
<PAGE> 11
increase, and aggregate compensation, including amounts paid or accrued pursuant
to any bonus, pension, profit sharing, commission, deferred compensation or
other plans or arrangements in effect as of the date of this Agreement, of each
officer or employee of the Business whose salary and other compensation, in the
aggregate, received or accrued is at an annual rate (or aggregated for the most
recently completed fiscal year) in excess of $40,000, as well as any written or
oral employment and/or severance agreements relating to any such persons; (ii) a
description of any and all bonus, pension, profit sharing, commission, deferred
compensation, retirement, savings, thrift, severance, performance, vacation,
holiday, medical, disability life or other welfare, retiree welfare plan or
policy or other plans or arrangements in effect for any employees of the
Business as of the date of this Agreement, except as may be set forth in
Schedule 3.16 (ERISA Plans); (iii) a description of any noncompetition or
similar agreements to which Seller or the Business or any general partner,
officer or employee of either is a party; (iv) all powers of attorney from
Seller or the Business to any person or entity; and (v) the name of each person
or entity authorized to borrow money or incur or guarantee indebtedness on
behalf of Seller or the Business. Seller has delivered to Buyer copies of all
written personnel policies, including without limitation vacation, severance,
bonus, profit sharing and commission policies, applicable to any employees of
the Business. To Seller's Knowledge, all current employees of Seller are legally
entitled to work in the United States, and Seller has retained all required
documentation in its records related thereto. Except as set forth on Schedule
3.15, neither the execution and delivery of this Agreement by Seller or PMI, nor
the consummation by either of any of the transactions contemplated hereby, or
compliance by Seller and PMI with any of the provisions hereof, shall create any
obligation or liability on the part of the Business under any bonus, profit
sharing, deferred compensation or other plan or arrangement in effect as of the
date of this Agreement and the Closing Date.
(b) Labor. Except as set forth on Schedule 3.15, none of the facilities
or operations of Seller or the Business has been the subject of any strike, work
stoppage, boycott, union organizational effort, unfair labor practice charge or
employment discrimination charge; and, to the Knowledge of Seller and PMI, no
such action is pending or threatened.
3.16 ERISA Plans.
(a) Each employee pension benefit plan, program, agreement or
arrangement maintained or contributed to by Seller or PMI and related in any
manner to the Business or the Transferred Assets ("Plan") which is subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if
any, is set forth on Schedule 3.16 and such Plan(s) conform in all material
respects to all applicable federal laws; no liability under ERISA or the
Internal Revenue Code of 1986, as amended (the "Code") has been or will be
incurred by Seller or PMI with respect to any Plan (other than for benefits
under such Plan); full payment has been made of all amounts required to have
paid as contributions to such Plan(s); the cost of providing all retirement and
post-termination benefits has been properly accrued and is reflected in the
Financial Statements in accordance with GAAP, including without limitation,
Statements of Financial Accounting Standards 87, 106 and 112; there is not in
the aggregate any accumulated funding deficiency with respect to such Plan(s);
and the current value of accrued benefits of each such Plan(s) does not exceed
the current value of such Plan's' assets.
(b) Seller has provided Buyer with copies of the following documents
relating to Plans, or any other plan terminated by Seller during its existence,
which are subject to ERISA: (i) copies of the plan documents and all amendments
relating thereto; (ii) the most recent Form 5500 filed with respect to such
plans, including all schedules and attachments relating thereto; (iii) where
applicable, the most recent determination letters received with respect thereto
from the Internal Revenue Service; (iv) the most
<PAGE> 12
recent financial statements and actuarial reports, where applicable, prepared
with respect to such plans; and (v) copies of all correspondence with the
Internal Revenue Service, Pension Benefit Guaranty Corporation, Department of
Labor, or any other governmental agency regarding any pending dispute or any
pending or threatened audit or investigation relating to any such plan.
3.17 Permits. Seller holds all permits, licenses, franchises,
certificates and authorizations that are required by any governmental agency to
permit it to conduct the Business as now conducted, and all such permits,
licenses, franchises, certificates and authorizations are valid and in full
force and effect. To Seller's Knowledge, no suspension, cancellation or
termination of any of such permits, licenses, franchises, certificates and
authorizations is threatened or imminent.
3.18 Taxes. Except as set forth on Schedule 3.18:
(a) Seller, PMI and PMI's stockholders ("Filers") have timely filed all
returns, declarations, reports, or information returns or statements relating to
Taxes (as defined below) with respect to the Business or the Transferred Assets,
including any schedule or attachment thereto and including any amendment thereof
("Tax Returns") that are required to be filed under federal, state, local or
foreign law. All such Tax Returns were complete in all material respects. All
Taxes owed by Filers with respect to the Business (whether or not shown on any
of said Tax Returns) have been paid for all periods for which Tax Returns have
been filed. Neither the Business, Seller nor PMI is currently the beneficiary of
any extension of time within which to file any Tax Return. To the Knowledge of
Seller and PMI, no outstanding claim has been made by any authority in a
jurisdiction where Filers do not file Tax Returns that Seller, the Business or
the Transferred Assets may be subject to taxation by that jurisdiction.
(b) Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party.
(c) There is no dispute or claim concerning any Tax liability relating
in any manner to the Business either (i) claimed or raised by any authority or
(ii) as to which Seller or PMI has Knowledge based upon personal contact or
correspondence with any agent of such authority. Seller has provided to Buyer
all federal, state, local and foreign Tax Returns filed with respect to Seller
or the Business for taxable periods ended on or after December 31, 1997, and has
disclosed to Buyer those of such Tax Returns, if any, that have been audited,
and those of such Tax Returns, if any, that currently are the subject of audit.
Seller has delivered to Buyer correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed against or agreed to
by Seller with respect to Seller or the Business since December 31, 1997.
(d) Seller has not waived in writing any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency pertaining to it, which waiver or extension is still in
effect.
(e) For purposes of this Agreement, "Tax" or "Taxes" means any federal,
state, county, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on
<PAGE> 13
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
3.19 Litigation. Except as set forth on Schedule 3.19, there is no
claim, action or proceeding pending or, to Seller's Knowledge, threatened
against or relating to Seller, PMI, the Business or any of the Transferred
Assets before any federal, state, municipal or other governmental department,
commission, court, board, bureau, agency, instrumentality or other person acting
in an adjudicative capacity, domestic or foreign. To the Knowledge of Seller and
PMI, there is no basis for any claim, action or proceeding against or relating
to Seller, PMI, the Business or the Transferred Assets. Neither Seller, nor, to
the Knowledge of Seller or PMI, any employee of Seller, has been permanently or
temporarily enjoined by any order, judgment or decree of any court or any other
governmental or regulatory authority from engaging in or continuing any conduct
or practice in connection with the Business or the Transferred Assets nor, to
the Knowledge of Seller or PMI, is any employee of Seller or PMI under
investigation by any governmental or regulatory authority. There is not in
existence any order, judgment or decree of any court or other tribunal or other
agency enjoining or requiring Seller or PMI to take any action of any kind with
respect to the Business or the Transferred Assets. Except as set forth in
Schedule 3.19, to their Knowledge, neither Seller, PMI nor the Business have,
since September 20, 1997, been threatened with any action, suit, proceedings or
claim (including actions, suits, proceedings or claims where its liabilities may
be adequately covered by insurance) for personal injuries allegedly attributable
to products sold or services performed by the Business asserting a particular
defect or hazardous property in any of products of the Business, services or
business practices or methods, nor has Seller, PMI or the Business been a party
to or threatened with proceedings brought by or before any federal or state
agency; and Seller and PMI have no Knowledge of any defect or hazardous
property, claimed or actual, in any such product, service, business practice or
method, except as reserved for in the Balance Sheet. Neither Seller, PMI nor the
Business is subject to any voluntary or involuntary proceeding under the United
States Bankruptcy Code and neither has made an assignment for the benefit of
creditors.
3.20 Compliance with Applicable Laws. Seller holds, and has at all times
held, all licenses, permits and authorizations then necessary for the lawful
conduct of the Business, as now conducted and all such licenses, permits and
authorizations are valid and sufficient for all business now conducted by
Seller. Seller has complied with, and is in material compliance with, all
applicable laws, orders, rules and regulations promulgated by any federal,
state, municipal or other governmental authority relating to the operation and
conduct of the Business and its properties, and, since September 20, 1997, there
have not been and are not any material violations of any such law, order, rule
or regulation, existing or, to Seller's Knowledge, threatened. Except as set
forth on Schedule 3.20, Seller and PMI have not received any notice from any
authority or person that the Business has been or is being, conducted in
violation of any applicable zoning regulation or order, or other law, order,
regulation or requirement relating to the operation of its business or to its
properties.
3.21 Environmental Matters.
(a) Except as set forth on Schedule 3.21 hereto:
(i) Seller and the Business have complied with all applicable
Environmental Laws;
<PAGE> 14
(ii) The Property (including soils, groundwater, surface water,
buildings or other structures) is not contaminated with any Hazardous Substances
that may subject Seller, Buyer, the Business or the Transferred Assets to
liability under any Environmental Law;
(iii) All properties formerly owned or operated by the Seller are
not contaminated with Hazardous Substances that may subject Seller, Buyer, the
Business or the Transferred Assets to liability under any Environmental Law;
(iv) Neither Seller nor the Business are subject to liability
under any Environmental Law for any Hazardous Substance disposal or
contamination on any third party property;
(v) Neither Seller nor the Business have caused or contributed to
any release or threat of release of any Hazardous Substance that may subject
Seller, Buyer, the Business or the Transferred Assets to liability under any
Environmental Law;
(vi) Seller has not received any notice, demand, letter, claim or
request for information alleging that Seller or the Business may be in violation
of, or liable under, any Environmental Law;
(vii) Neither Seller nor the Business are subject to any orders,
decrees, injunctions or other arrangements with any governmental entity, nor
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances;
(viii) There are no circumstances or conditions involving Seller
or the Business that could reasonably be expected to result in any claims,
liability, investigations, costs or restrictions on the ownership, use or
transfer of any of Property pursuant to any Environmental Law; and
(ix) The Property has not and does not contain any underground
storage tanks, asbestos-containing material (other than materials incidentally
used in Seller's buildings which, at Closing, are not exposed), lead-based
products (other than materials incidentally used in Seller's buildings which, at
Closing, are not exposed), halogenated solvents or polychlorinated biphenyls.
(b) "Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, or treaty; all judicial administrative,
and regulatory orders, judgments, decrees, permits, and authorizations; and
common law relating to: (i) the protection of human health, the environment or
natural resources, (ii) the investigation, remediation or restoration of the
environment or natural resources, (iii) the handling, use, storage, treatment,
disposal, release or threatened release of any Hazardous Substance; or (iv)
noise, odor, pollution, contamination, land use, or any injury or threat of
injury to persons or property related thereto.
(c) "Hazardous Substance" means any substance, material or waste that
is: (i) listed, classified or regulated in any concentration pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials; or (iii) any other substance, material or waste which may
be the subject of regulatory action by any governmental entity pursuant to any
Environmental Law.
(d) "Property" means any real property and improvements owned, leased,
used, operated or occupied by Seller or the Business.
<PAGE> 15
3.22 Relationships with Customers and Suppliers. Except as set forth in
Schedule 3.22, no present customer or substantial supplier to the Business has
indicated an intention to terminate or adversely alter its existing business
relationship therewith, and Seller and PMI have no reason to believe that any of
the present customers of or substantial suppliers to the Business intends to do
so.
3.23 Warranties; Product Returns. Except as described in Schedule 3.23
hereto, Seller does not offer any warranties for its products and services.
Seller's warranty reserve reflected in the allowance for doubtful accounts in
the Financial Statements is and will be adequate to cover all warranty claims
pending as of the date hereof and pending as of the Closing Date. Since
September 20, 1997, none of the products manufactured by the Business have been
subject to recall.
3.24 Insurance. Seller maintains insurance with reputable insurance
companies on such of its equipment, tools, machinery, inventory and properties
as are usually insured by companies similarly situated in the same geographic
location and to the extent customarily insured, and maintains products and
personal liability insurance, and such other insurance against hazards, risks
and liability to persons and property as is customary for companies similarly
situated in the same geographic location. Schedule 3.24 sets forth a true and
correct list and a general description of all insurance policies of any nature
whatsoever maintained by Seller pertaining to the Business, including all
policies of life, group medical and/or dental insurance. Such policies will be
in full force and effect through the Closing Date and, except as otherwise set
forth on Schedule 3.24, such policies, or other policies covering the same
risks, have been in full force and effect, without gaps, continuously for the
past five (5) years. Copies of all such policies were made available to Buyer
for its inspection. Seller is not in default under any of such policies or
binders and has not failed to give any notice or to present any material claim
under any such policy or binder in a due and timely fashion.
3.25 Bank Accounts. All bank and savings accounts, and other accounts at
similar financial institutions, of Seller or relating to the Business are listed
in Schedule 3.25 hereto.
3.26 Broker's Commission or Finder's Fees. Except for Goldsmith, Agio,
Helms and Company, no person or entity has acted for Seller and/or PMI in
connection with the transactions provided for in this Agreement in a way which
would entitle such person to, and no person or entity is entitled to, any
broker's commissions or finder's fees (or other similar fees or commissions) in
connection with this Agreement. Seller shall be solely responsible for payment
of all such commissions and fees.
3.27 Third Party Benefits. Neither PMI, Madison Capital Partners, nor
any other related third party has provided, directly or indirectly, any benefit,
service, good or product to the Business other than as has been fully and fairly
allocated to Seller and expensed by Seller at fair value in the cost of sales or
selling, general and administrative sections of Seller's income statements.
3.28 Definition of Knowledge. As used in this Agreement, "Knowledge"
means, with respect to an entity, such knowledge as would be obtained after
reasonable inquiry by the officers or partners of that entity and, with respect
to an individual, such knowledge as would be obtained by that individual after
reasonable inquiry.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
<PAGE> 16
Buyer and Parent hereby jointly and severally represent and warrant to
Seller and PMI as follows:
4.1 Organization. Buyer and Parent are corporations duly organized,
validly existing and in good standing in the State of Delaware. Buyer and Parent
have the requisite corporate power to own, use or lease their respective
properties and to carry on their business as such are now being conducted.
4.2 Authority Relative to this Agreement. Subject only to approval and
ratification by Parent's board of directors, Buyer and Parent have all requisite
corporate power and authority to execute and deliver this Agreement and any
related agreements and to consummate the transactions contemplated hereby.
Subject only to approval and ratification by Parent's board of directors, the
execution and delivery of this Agreement, any related agreements and the
consummation of the transactions contemplated hereby on the part of Buyer and
Parent have been duly and validly authorized by Buyer and Parent and no other
corporate proceedings on the part of Buyer or Parent are necessary, as a matter
of law or otherwise, to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Buyer and Parent and, assuming this Agreement constitutes a
valid and binding obligation of Seller and PMI, this Agreement constitutes a
valid and binding agreement of Buyer and Parent, enforceable against Buyer and
Parent in accordance with its terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights or by general
principles of equity.
4.3 Consent and Approvals; No Violation. The execution and delivery of
this Agreement by Buyer and Parent, the consummation of the transactions
contemplated hereby and the performance by each of Buyer and Parent of its
obligations hereunder, will not:
(a) conflict with any provision of the certificate of incorporation or
bylaws of Buyer or Parent;
(b) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority other than the
post-Closing filing by Parent on Form S-8 with the Securities and Exchange
Commission (the "Commission");
(c) conflict with, result in the breach of or constitute a default (or
give rise to any right of termination, cancellation or acceleration or
guaranteed payments) under any of the terms, conditions or provisions of any
material note, lease, mortgage, license, agreement or other instrument or
obligation to which Buyer or Parent is a party or by which Buyer or Parent or
any of their assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained in writing; or
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to Buyer or
Parent.
4.4 Broker's Commission or Finder's Fees. Except for Crown Capital, no
person or entity has acted for Buyer and/or Parent in connection with the
transactions provided for in this Agreement in a way which would entitle such
person to, and no person or entity is entitled to, any broker's commissions or
finder's fees (or other similar fees or commissions) in connection with this
Agreement or the transactions contemplated hereby. Buyer and Parent shall be
solely responsible for payment of all such commissions and fees.
<PAGE> 17
ARTICLE V
COVENANTS OF SELLER AND PMI
During the period from the date of this Agreement until the Closing Date
or the earlier termination of this Agreement, Seller and PMI each agree (except
as expressly contemplated by this Agreement or to the extent that Buyer shall
otherwise consent in writing) as follows:
5.1 Access to Information.
(a) Seller shall (i) give Buyer and its authorized representatives
reasonable access upon reasonable notice during normal business hours in such a
manner as not unduly to disrupt normal business activities to the Transferred
Assets and to all plants, offices, warehouses and other facilities of the
Business and to all contracts, internal reports, data processing files and
records, federal, state, local and foreign tax returns and records, commitments,
books, records and affairs of Seller related to the Business, whether located on
the premises of the Business, the office facilities of Seller or at another
location, (ii) permit Buyer to make such inspections and inquiries as it may
require, and (iii) cause its officers to furnish Buyer such financial,
operating, technical and product data and other information with respect to the
Business and Transferred Assets as Buyer from time to time may reasonably
request, including without limitation financial statements and schedules;
provided, however, that no investigation pursuant to this Section 5.1 shall
affect or be deemed to modify any representation or warranty made by Seller or
PMI herein and, provided further, that neither Buyer nor any of its
representatives may contact in any manner any customer, supplier or employee
(other than officers) of Seller or the Business on or before the Closing, other
than Products Unlimited and that certain customer survey conducted by
representatives of Buyer with the assistance of officers of the Business.
(b) Seller shall give prompt notice to Buyer of any material breach of
any of its covenants hereunder or the occurrence of any event that is reasonably
likely to cause any of its representations and warranties hereunder to become
incomplete or untrue in any material respect.
5.2 Ordinary Course. Seller shall (a) carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and use all reasonable efforts consistent with past
practice and policies to preserve its present business organizations, keep
available the services of its present officers and key employees (other than
employees terminated for cause) and preserve its relationships with customers,
suppliers, lessors, lessees and others having business dealings with it, (b)
maintain its books and records in accordance with existing practices, (c) not
pay distributions of any type other than cash distributions to its partners for
taxes, (d) except in the ordinary course, not hire additional employees nor
become obligated for additional rental payments, (e) except in the ordinary
course (excluding management employees), not modify the compensation or benefits
paid to any employee, and (f) except in the ordinary course, not undertake
material expenditures, including, without limitation, the purchase or lease of
equipment; provided that, expenditures less than $50,000 individually and
$75,000 in the aggregate shall not be deemed material.
5.3 Exclusive Negotiations.
(a) Neither Seller nor PMI shall, directly or indirectly through any
employee, agent or representative (including without limitation investment
bankers, attorneys, accountants and consultants), or otherwise:
<PAGE> 18
(i) solicit, initiate, discuss or further the submission of
proposals or offers from, or enter into any agreement with, any firm,
corporation, partnership, association, group (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) or other person or entity,
individually or collectively (including without limitation any managers,
employees or independent contractors of Seller or any of its affiliates), other
than Buyer (a "Third Party"), relating to any acquisition or purchase of all or
a material portion of the Transferred Assets of, or any equity interest in,
Seller (or the Business) or any merger, consolidation or business combination
with Seller;
(ii) participate in any discussions or negotiations regarding, or
furnish to any Third Party any confidential information with respect thereto; or
(iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any Third
Party to do or seek to do any of the foregoing.
(b) Seller and/or PMI shall promptly notify Buyer in writing if any such
proposal or offer, or any inquiry or contact with any Third Party with respect
thereto, is made.
(c) Seller shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Third Party conducted
prior to the date of this Agreement with respect to any of the foregoing.
(d) The terms set forth in this Section 5.3 shall remain in effect from
the date of this Agreement until such time, if ever, as terminated in writing by
Seller by delivery to Buyer of a termination notice referencing this Section.
5.4 No Dispositions. Except for the sale of inventory in the ordinary
course of business and other than as may be required by existing contracts,
Seller shall not sell, lease or otherwise dispose of any Transferred Assets and
shall promptly notify Buyer in writing of any dispositions of material
non-inventory items.
5.5 Indebtedness. Seller shall not incur, become subject to, or agree to
incur or become subject to any obligation or liability (absolute or contingent),
except (a) current liabilities incurred, and obligations under existing
contracts, in the ordinary course of business consistent with prior practice,
and (b) revolving loan advances in the ordinary course of business consistent
with past practice.
5.6 Benefit Plans. Seller shall not:
(a) pay, agree to pay or make any accrual or arrangement for payment of
any pension, retirement allowance or other employee benefit pursuant to any
existing plan, agreement or arrangement to any employee except in the ordinary
course of business and consistent with past practice or as permitted by this
Agreement;
(b) commit itself to adopt or pay, grant, issue or accrue salary or
benefits pursuant to any additional pension, profit-sharing, bonus, extra
compensation, incentive, deferred compensation, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or any
employment or consulting agreement with or for the benefit of any employee,
agent or consultant, whether past or present; or
(c) amend in any material respect any such existing plan, agreement or
arrangement.
<PAGE> 19
5.7 Maintenance of Non-Cash Working Capital. Consistent in all respects
with past practices, Seller shall (a) timely pay when due all accounts payable
and other expenses, and (b) collect all accounts receivable and convert or use
all other non-cash assets in the ordinary course.
5.8 Cash Management. Seller and PMI agree that all cash, whether in
currency, check or wire form, and all other property received by Seller or PMI
on or after the Closing Date and related in any manner to the Business or the
Transferred Assets shall be for the account of Buyer, and Seller and/or PMI
shall promptly deliver all such cash to Buyer with a written accounting thereof.
If requested, Seller and PMI shall provide reasonable assistance to Buyer in
identifying and notifying certain customers of changes in bank accounts for the
Business.
5.9 Change of Names. Both Seller and PMI shall take all necessary
actions and make all necessary filings to modify their respective names to
exclude any and all references to "Plastron" effective as of the Closing Date.
In addition, both Seller and PMI shall cease use of any items referencing
"Plastron" in any manner as of the Closing, including without limitation,
stationary and brochures.
5.10 Tax and Real Estate Matters. All Tax Returns which relate to any
Taxes with respect to the Business or the Transferred Assets for periods prior
to the Closing Date shall be prepared and filed by Seller on a timely basis, and
Seller shall be responsible for the payment of all Taxes related to the Business
or the Transferred Assets attributable to periods prior to the Closing. Except
as set forth in Section 6.4, Buyer shall pay all sales, use and transfer taxes,
if any, payable to the State of Illinois, any subdivision thereof or to any
other governmental entity in connection with the transactions contemplated by
this Agreement and the Closing; including any real estate stamp tax or other
real estate tax imposed on the transfer of title. If requested by Buyer, Seller
shall furnish a completed real estate transfer declaration signed by Seller in
the form required by the Real Estate Transfer Tax Act of the State of Illinois
and shall furnish any other required documents. Seller shall pay any costs and
expenses incurred in connection with Seller obtaining title policies, conducting
searches and surveys (if required for issuance of title policies) and all
related issues on each item of real estate in the Transferred Assets other than
environmental assessments.
5.11 Insurance. Seller and/or PMI shall take all necessary actions to
maintain in force all of its existing insurance policies (or replacements
therefor), subject only to variations in amounts required by the ordinary
operation of the Business.
ARTICLE VI
MUTUAL COVENANTS
6.1 Confidentiality. Between the date hereof and the Closing Date, the
parties hereto agree that no party shall, without the prior written consent of
the others as to substance, existence and timing, disclose publicly or to any
third party (except Seller's limited partners on a no-names basis and such
party's professional advisors) the existence of this Agreement or the terms and
conditions hereof, or any prior correspondence or any subsequent negotiations
between the parties, including any confidential information obtained thereby,
except to the extent required by law. The parties will cooperate with each other
to coordinate any and all public statements and releases with respect to the
transactions contemplated hereby. From the date hereof until the Closing,
neither Seller nor PMI nor any of their representatives shall purchase, directly
or indirectly, in the public marketplace or otherwise, any of Summa's
securities. Following the Closing, Seller and PMI shall keep confidential and
shall not disclose
<PAGE> 20
to any third party all information not then in the public domain relating in any
manner to the Business. Buyer and Parent further agree that, until the Closing
or in the event of termination pursuant to Section 8.1 for a period of five
years thereafter, any confidential information concerning the Business will be
used solely for the purpose of evaluating a possible transaction between the
parties hereto, and such confidential information will not be used in the
operation of Buyer's, Parent's or any of their affiliates businesses or in any
other respect.
6.2 Satisfaction of Conditions. Each party will use all reasonable
efforts to cause all conditions to its obligations under this Agreement to be
timely satisfied and to perform and fulfill all covenants and obligations on its
part to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be effected substantially in
accordance with its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in securing requisite approvals.
6.3 Further Assurances. Each party shall execute and deliver, both
before and after the Closing, such further certificates, agreements and other
documents and take such other actions as may be necessary or appropriate to
consummate or implement the transactions contemplated hereby, including without
limitation the transfer of all Transferred Assets to Buyer, or to evidence such
events or matters.
6.4 Bulk Sales Compliance. Subject to the indemnities set forth in this
Agreement, the parties agree to waive compliance with all applicable bulk
transfer laws. Seller and PMI shall indemnify, defend and hold harmless Buyer
from and against any and all Losses (as defined in Section 9.1(c)) arising or
resulting from, or connected with, this waiver or the failure or alleged failure
of any party hereto to comply, in connection with the transactions contemplated
hereby, with the bulk transfer laws and requirements of any jurisdiction.
Nothing in this Section 6.4 shall operate or be construed to estop or prevent
any party hereto from asserting as a bar or defense to any action or proceeding
brought under any bulk sales law that such law does not apply to the transfer
contemplated under this Agreement. If required, Seller shall deliver to Buyer
any bulk sale stop orders, shall escrow any funds required thereby, and shall
pay such escrowed amounts to the appropriate governmental entity.
6.5 Certain Defaults. Seller and PMI, on the one hand, and Buyer and
Parent, will give prompt notice to each other of:
(a) any notice of default received by such party subsequent to the date
of this Agreement and prior to the Closing Date under any material instrument or
material agreement to which any such party is a party or by which it is bound,
which default in the case of Seller or PMI, would, if not remedied, result in a
Material Adverse Change or which, in the case of any such party, would render
incomplete or untrue any representation made herein; and
(b) any suit, action or proceeding instituted or, to the knowledge of
Seller, PMI, Buyer or Parent, threatened against or affecting any such party
subsequent to the date of this Agreement and prior to the Closing Date which
would render incorrect any representation made herein.
6.6 Brokers or Finders. Neither Seller, PMI, Buyer or Parent shall enter
into any agreement or arrangement not existing as of the date hereof with any
agent, broker, investment banker or other firm or person pursuant to which such
person shall be entitled to any broker or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by this
Agreement.
<PAGE> 21
6.7 No Equitable Conversion. Prior to the Closing Date, neither the
execution of this Agreement nor the performance of any provision contained
herein shall cause either Seller and PMI, on the one hand, or Buyer and Parent,
on the other hand, to be or become liable for or in respect of the operations or
business of the other, for the cost of any labor or materials furnished to or
purchased by the other, for compliance with any laws, requirements or
regulations of, or taxes, assessments or other charges now or hereafter due to,
any governmental authority, or for any other charges or expenses whatsoever
pertaining to the conduct of the business or the ownership, title, possession,
use or occupancy of the property of the other.
6.8 Product Liability Insurance. For a period of seven (7) years
following the Closing, or such shorter period as Buyer or any affiliate of Buyer
or Parent shall own the Transferred Assets, Buyer shall purchase and maintain
products liability insurance from such carriers and with such limits of
liability and other terms as are reasonably comparable to the insurance
coverages heretofore maintained by Seller. At Seller's sole cost and expense, if
any, Seller shall be named as an additional insured on the foregoing insurance
coverages.
6.9 Certain Employee Issues.
(a) On the Closing Date, Buyer shall offer at will employment to all
employees of Seller as of the Closing (the "Affected Employees") on such terms
and conditions as Buyer shall determine; provided that, in the aggregate, such
terms and conditions shall be comparable to those now in effect with respect to
the employment of such employees by Seller. All employees of Seller shall
receive credit for all service with Seller, to the same extent as credited by
Seller as of the Closing, under employee benefit plans, programs and policies
and fringe benefits of Buyer under which they become participants, other than
any option or equity appreciation plan, for the purpose of eligibility and
vesting, but not benefit accrual; provided that, Buyer shall have no obligation
to continue any such plans, programs, policies or benefits following the Closing
Date.
(b) Buyer shall waive all limitations as to preexisting conditions ,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Affected Employees under any welfare benefits
plans that such employees may be eligible to participate in after the Closing
Date, other than limitations or waiting periods already in effect.
(c) Nothing in this Section shall be deemed to require the employment
of any Affected Employee or the continuation of any benefits for any particular
time after the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
7.1 Conditions to the Obligations of Buyer and Seller. The respective
obligations of Buyer, Parent, Seller and PMI set forth in this Agreement shall
be subject to the satisfaction on or prior to the Closing Date of the following
conditions, unless waived by each such party in writing:
(a) Legal Action. No temporary restraining order, preliminary injunction
or permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any
federal, state or foreign court or other governmental or
<PAGE> 22
regulatory authority and remain in effect, and no litigation seeking the
issuance of such an order or injunction, or seeking substantial damages against
Buyer or Seller if the transactions contemplated by this Agreement are
consummated, shall be pending which, in the reasonable good faith judgment of
the party against whom such damages or injunction is sought, have a reasonable
probability of resulting in such order, injunction or substantial damages. In
the event any such order or injunction shall have been issued, each party agrees
to use its reasonable efforts to have any such injunction lifted.
(b) Statutes. No federal, state, local or foreign statute, rule or
regulation shall have been enacted which would make the consummation of the
transactions contemplated by this Agreement illegal.
7.2 Further Conditions to the Obligations of Buyer and Parent. The
obligations of Buyer and Parent set forth in this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, unless
waived by Buyer in writing:
(a) Representations and Warranties. The representations and warranties
of Seller and PMI set forth in Article III shall be true and correct as of the
date of this Agreement and, except as set forth on schedules to the Seller
Officers' Certificate (as defined below), as of the Closing Date as though made
at and as of the Closing Date, except as otherwise contemplated by this
Agreement, and Buyer shall have received a certificate dated the Closing Date
signed by an authorized officer of Seller and PMI to such effect ("Seller
Officers' Certificate"). If the schedules to the Seller Officers' Certificate
reflect a Material Adverse Change from the schedules attached hereto, Buyer and
Parent shall have no obligation to consummate the transactions contemplated by
this Agreement.
(b) Performance of Obligations of Other Parties. Seller and PMI shall
have satisfied all of the conditions set forth in this Section 7.2 and performed
all obligations required to be performed by them under this Agreement prior to
the Closing Date and Buyer shall have received a certificate signed by an
authorized officer of Seller and PMI to such effect.
(c) Opinion of Counsel to Seller. Buyer shall have received an opinion
dated as of the Closing Date of counsel to Seller containing the opinions set
forth in Exhibit D attached hereto.
(d) No Litigation. Since the date hereof, there shall not have been
instituted and be continuing or threatened against Seller or PMI, any claims,
actions or proceedings relating in any manner to the Business or the Transferred
Assets which, if adversely determined, could, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Change.
(e) No Adverse Change. No Material Adverse Change shall have occurred
since the date of this Agreement.
(f) Third-Party Approvals. Any and all material consents required from
third parties relating to licenses, leases and other agreements and instruments
that are part of the Transferred Assets shall have been obtained.
(g) Noncompetition and Nonsolicitation Agreement. Each officer of Seller
shall have entered into a noncompetition and nonsolicitation agreement with
Buyer substantially in the form attached hereto as Exhibit E-1, and Messrs.
Larry Gies and Scott Murray shall have entered into similar agreements in the
form attached hereto as Exhibit E-2.
<PAGE> 23
(h) Debt; Guarantees. There shall be no agreements or instruments
evidencing loans to or interest bearing indebtedness incurred by Seller or PMI
or related in any manner to the Business or Transferred Assets, and Seller and
PMI, on or prior to the Closing, shall have paid in full all interest bearing
indebtedness and loans of any type, including current portions thereof. All
guarantees by Seller or PMI of any type of obligation shall have been
terminated.
(i) Termination of Encumbrances. All liens and encumbrances on the
Transferred Assets shall have been terminated, and Seller shall have received
and delivered to Buyer duly executed UCC termination statements with respect to
any and all UCC financing statements covering such assets and property.
(j) Approval by Summa Board. The Board of Directors of Summa shall have
approved consummation of the transactions contemplated hereby in their sole and
absolute discretion by February 24, 1999.
(k) Receipt of Transfer Documents. Buyer shall have received the
executed General Instrument of Conveyance, Transfer and Assignment in the form
attached hereto as Exhibit A and all other documents required by Buyer to
transfer title of the Transferred Assets to Buyer.
7.3 Further Conditions to the Obligations of Seller and PMI. The
obligations of Seller and PMI set forth in this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, unless
waived by Seller in writing:
(a) Representations and Warranties. The representations and warranties
of Buyer and Parent set forth in Article IV shall be true and correct in all
material respects as of the date of this Agreement and, except as set forth on
schedules to the Buyer Officers' Certificate (as defined below), as of the
Closing Date as though made at and as of the Closing Date, except as otherwise
contemplated by this Agreement, and Seller shall have received a certificate
dated the Closing Date signed by an authorized officer of Buyer to such effect
("Buyer Officers' Certificate"). If the schedules to the Buyer Officers'
Certificate reflect an adverse change or changes from the representations made
and schedules delivered as of the execution of this Agreement, Seller and PMI
shall have no obligation to consummate the transactions contemplated by this
Agreement.
(b) Performance of Obligations of Other Parties. Buyer and Parent shall
have satisfied all of the conditions set forth in this Section 7.3 and performed
in all material respects all obligations required to be performed by them under
this Agreement prior to or on the Closing Date, and Seller shall have received a
certificate signed by an authorized officer of Buyer and Parent to such effect.
(c) Receipt of Assumption Agreement. Seller shall have received the
executed Assumption Agreement in the form attached hereto as Exhibit C.
(d) Receipt of Consideration. Seller shall have received the portion of
the Purchase Price as set forth in Section 2.3(a), and the Escrow Agent shall
have received the portion of the Purchase Price set forth in Section 2.3(b).
(e) Opinion of Counsel to Buyer and Parent. Seller shall have received
an opinion dated as of the Closing Date of counsel to Buyer and Parent
containing the opinions set forth in Exhibit F attached hereto.
<PAGE> 24
(f) Warrant. Parent shall have executed and delivered to Seller the
Warrant.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) By Mutual Consent. By the mutual written consent of Buyer and
Seller;
(b) By Buyer or Seller. By either Buyer or Seller:
(i) if the transactions contemplated by this Agreement shall not
have been consummated on or before March 15, 1999; provided that the failure of
the transactions to be consummated by such date is not caused by any breach of
this Agreement by the party seeking such termination;
(ii) if a court of competent jurisdiction or other governmental
or regulatory authority shall have issued an order, decree or ruling or taken
any other action, in each case permanently restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this Agreement;
or
(iii) if any statute, rule or regulation is enacted, promulgated
or deemed applicable to the transactions contemplated by this Agreement by any
competent governmental or regulatory authority which makes the consummation of
the transactions illegal.
(c) By Buyer. By Buyer, if a material default under or a material breach
of this Agreement by Seller and/or PMI shall have occurred and be continuing ten
(10) days after receipt of written notice thereof from Buyer.
(d) By Seller. By Seller, if a material default under or a material
breach of this Agreement by Buyer shall have occurred and be continuing ten (10)
days after receipt of written notice thereof from Seller.
Any action taken to terminate this Agreement pursuant to this Section
8.1 shall become effective when written notice of such termination is delivered
by the terminating party to the other party in accordance with the provisions of
Section 10.1 below.
8.2 Effect of Termination. In the event of termination of this Agreement
by either Buyer or Seller in accordance with Section 8.1 above, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of the terminating party or its respective partners, officers, directors or
employees, except that (a) Section 6.1 relating to the obligations to keep
confidential certain information and data, (b) Section 10.3 relating to certain
expenses, (c) Section 10.8 relating to attorneys' fees and expenses, (d)
Sections 3.26 and 4.4 relating to finder's fees and broker's fees, (e) Section
10.9 relating to jurisdiction and forum selection, and (f) this Article VIII
shall survive any termination and that nothing set forth herein shall relieve a
party hereto from liability for its willful breach of this Agreement. Without
limitation, if all of the conditions to a party's obligations set forth in
Article VII have been satisfied or waived by March 15, 1999, the failure of such
party to perform its obligations on or before such date shall be deemed to be a
willful breach of this Agreement by such party.
<PAGE> 25
8.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to or on the Closing Date, to
the extent legally allowed, any party hereto (a) may extend the time for the
performance of any of the obligations owed to such party by the other parties
hereto, (b) may waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, or (c) may waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party and shall be effective only
to the extent set forth in such instrument. No extension or waiver of any single
condition, covenant, agreement, representation, warranty, breach, default or
other matter hereunder shall be deemed an extension or waiver of such or any
other condition, covenant, agreement, representation, warranty, breach, default
or other matter theretofore or thereafter occurring. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law. The failure of any
party to insist upon a strict performance of any of the terms or provisions of
this Agreement, or to exercise any option, right or remedy herein contained,
shall not be construed as a waiver or as a relinquishment for the future of such
term, provision, option, right or remedy, but the same shall continue and remain
in full force and effect.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification.
(a) Indemnification by Seller and PMI. Subject to any limitations set
forth in Sections 9.6 through 9.8, Seller and PMI shall jointly and severally
indemnify and hold harmless Buyer, its affiliates (including without limitation
parent and sister corporations), and their respective directors, officers,
employees, agents and assigns from and against any and all "Losses" (as defined
below) incurred by, imposed on, borne by or asserted against any of such
indemnified parties in any way relating to, arising out of or resulting from:
(i) The breach of any of the representations or warranties made
by Seller and/or PMI in this Agreement or in any agreement delivered in
connection herewith or pursuant hereto (each, a "Related Agreement");
(ii) The breach or the failure of performance by Seller and/or
PMI of any of the covenants, promises or agreements that either is to perform
under this Agreement or any Related Agreement; and
(iii) The failure by Seller to discharge or perform the Retained
Obligations.
(b) Indemnification by Buyer and Parent. Subject to any limitations set
forth in Sections 9.6 through 9.8, Buyer and Parent shall indemnify and hold
harmless Seller and PMI and their respective affiliates (including without
limitation general and limited partners), and their respective directors,
officers, employees, agents and assigns from and against any and all "Losses"
(as defined below) incurred
<PAGE> 26
by, imposed on, borne by or asserted against any of such indemnified parties in
any way relating to, arising out of or resulting from:
(i) The breach of any of the representations or warranties made
by Buyer and/or Parent in this Agreement or in any Related Agreement;
(ii) The breach or the failure of performance by Buyer and/or
Parent of any of the covenants, promises or agreements that either is to perform
under this Agreement or any Related Agreement;
(iii) The failure by Buyer or Parent to discharge or perform the
Assumed Obligations; and
(iv) Buyer's operation of the Business and Transferred Assets
after the Closing Date.
(c) Definition of Losses. For purposes of this Agreement, "Losses" shall
mean any and all liabilities, obligations, losses, damages, claims,
deficiencies, penalties, taxes, levies, actions, judgments, settlements, suits,
reasonable costs, reasonable legal fees, reasonable accountants' fees,
reasonable experts' fees, reasonable disbursements and expenses.
9.2 Third Party Claims, Notice and Opportunity to Settle.
(a) Within thirty (30) days after the receipt by the party entitled to
indemnity hereunder (the "Indemnified Party") of any claim or demand (including
but not limited to, notice of any action, suit or proceeding) by any third party
against an Indemnified Party which gives rise to a right to indemnification for
a Loss hereunder (a "Third Party Claim"), the affected Indemnified Party shall
give each party who may be obligated to provide indemnity hereunder (the
"Indemnifying Party") written notice of such claim or demand; provided, however,
that the failure to give such notice shall not relieve the Indemnifying Party of
its obligations hereunder except and only to the extent that such failure is
materially prejudicial to the Indemnifying Party.
(b) The Indemnifying Party shall (without prejudice to the right of any
Indemnified Party to participate at its own expense through counsel of its own
choosing) defend against such claim or demand at its expense and through counsel
of its own choosing (the choice of such counsel to be subject to the consent of
the affected Indemnified Parties, which consent shall not be unreasonably
withheld) and shall give written notice confirming its assumption of the defense
within ten (10) days of the receipt of the notice referred to in Section 9.2(a)
above. If the Indemnifying Party fails to assume the defense of such claim or
demand, the affected Indemnified Parties shall have the right to assume control
of such defense at the expense of the Indemnifying Party. The Indemnified
Parties shall cooperate fully in the defense of such claim or demand, at the
Indemnifying Party's expense, and shall make available to the Indemnifying Party
or its counsel all pertinent information under their control relating thereto.
The Indemnifying Party agrees to cooperate with the Indemnified Parties in order
to enable their counsel to participate in the defense and to deliver to the
Indemnified Parties copies of all pleadings and other information within the
Indemnifying Party's knowledge or possession (other than privileged information)
reasonably requested by the Indemnified Parties that is relevant to the defense
of any such claim or demand.
(c) The Indemnifying Party shall have the right to elect to settle all
such claims or demands, for monetary damages only (within the aggregate limits
set forth in Section 9.6) and including an
<PAGE> 27
unconditional release, subject to the consent of the affected Indemnified
Parties, which consent shall not be unreasonably withheld.
(d) The Indemnified Parties shall have the right to assume control of
the defense of any claim or demand from the Indemnifying Party at any time and
to elect to settle such claim or demand; provided, however, that in such case
the Indemnifying Party shall have no indemnification obligations with respect to
such claim, demand or settlement except for the costs and expenses of such
Indemnifying Party incurred prior to the assumption of the defense of the claim
or demand by the Indemnified Parties.
9.3 Claims Against Escrow Funds. In the event of any claim pursuant to
Section 9.1(a), the Indemnified Party shall first recoup all of its Losses to
which it is entitled under this Agreement (including, but not limited to, any
amount owed to Buyer and/or Parent arising from Article IX) from the Escrow
Funds then existing prior to recouping Losses directly from Seller and/or PMI.
9.4 Non-Third Party Claims. In the event any Indemnified Party should
have a claim against any Indemnifying Party hereunder which does not involve a
Third Party Claim, the Indemnified Party shall transmit to the Indemnifying
Party a written notice (the "Indemnity Notice") describing in reasonable detail
the nature of the claim, an estimate of the amount of damages attributable to
such claim, and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within thirty (30) days from the Indemnifying Party's receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim and the reasons
therefor, the claim specified by the Indemnified Party in the Indemnity Notice
shall be deemed admitted in full and a liability of the Indemnifying Party
hereunder; and the Indemnified Party shall recoup all or any part of its Losses
as provided in Section 9.3.
9.5 Payments. Payments of all amounts owed by an Indemnifying Party
pursuant to this Article IX relating to a Third Party Claim shall be made within
fifteen (15) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the final adjudication of such Third Party Claim or (iii) the final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Subject to Section 9.3, payments of all amounts owed by an
Indemnifying Party pursuant to Section 9.4 shall be made within fifteen (15)
days after the later of (i) the expiration of the 30-day Indemnity Notice period
or (ii) the agreement or final adjudication of the Indemnifying Party's
liability to the Indemnified Party under this Agreement. The Indemnified Party
shall reimburse the Indemnifying Party for recoveries, if any, received by the
Indemnified Party from insurance entities under any insurance policies
applicable to the Loss, net of all costs and expenses incurred by the
Indemnified Party. The Indemnified Party shall submit all claims for
reimbursement under all applicable insurance policies, if any, and shall use
reasonable efforts to prosecute such claim.
9.6 Classification of Claims.
(a) Tier I Claims. Claims for indemnity made under the following
Sections of this Agreement and under Related Agreements relating to the
following sections of this Agreement shall be "Tier I Claims": 3.10(c)
(Buildings); 3.14 (Contracts); 3.12 (Accounts Receivable); 3.13 (Inventory);
3.23 (Warranties; Product Returns); and 3.25 (Bank Accounts).
(b) Tier II Claims. Claims for indemnity made under any Section of this
Agreement not referenced in this Section 9.6 or the following Sections of this
Agreement and under Related Agreements relating to the following sections of
this Agreement shall be "Tier II Claims": 3.5 (Consents and
<PAGE> 28
Approvals; No Violation); 3.6 (Financial Statements); 3.7 (Absence of Certain
Changes); 3.8 (Absence of Undisclosed Liabilities); 3.10(b) and (d)-(f) (Real
Property); 3.11 (Intellectual Property); 3.15 (Employee and Labor Matters); 3.16
(ERISA Plans); 3.17 (Permits); 3.18 (Taxes); 3.19 (Litigation); 3.20 (Compliance
with Applicable Laws); 3.21 (Environmental Matters); 3.22 (Relationships with
Customers and Suppliers); and 3.24 (Insurance).
(c) Tier III Claims. Claims for indemnity made under the following
Sections of this Agreement shall be "Tier III Claims": 3.1 (Organization and
Qualification - Seller); 3.2 (Organization and Qualification -PMI); 3.3
(Ownership); 3.4 (Authority Relative to this Agreement); 3.9 (Title to Assets);
3.10(a) (Real Property - Title); and 3.26 (Broker's Commission or Finder's
Fees).
(d) Tier IV Claims. Claims for fraud, claims for breach of contract
(solely for failure to consummate the transactions contemplated hereby within
the time periods set forth herein and after all conditions to closing in Article
VII above have been satisfied or waived), and claims made under Sections 6.1
(Confidentiality); 9.1(a)(iii); 9.1(b)(iii) and 9.1(b)(iv) brought against any
party hereto shall be "Tier IV Claims."
(e) Tier V Claims. Claims of any nature brought against Buyer or Parent
under this Article IX, other than Tier IV Claims, shall be "Tier V Claims."
9.7 Limitations on Indemnification. The aggregate liability of the
Indemnifying Parties for Losses shall be as follows:
(a) Tier I and II Claims. The Indemnified Party shall have no right to
recover based upon a Tier I or Tier II Claims for indemnification unless and
until the aggregate Losses attributable to Claims under the subject Tier exceed
$25,000 (each, a "Floor"); and recovery of all amounts in excess of the Floors
shall be subject only to a maximum aggregate recovery from the Indemnifying
Parties for Tier I and II Claims of $2,000,000.
(b) Tier III and IV Claims. The Indemnified Party shall have the right
to recover based upon Tier III or Tier IV Claims for indemnification; provided
that, recovery from the Indemnifying Parties for Tier I, II and III Claims
collectively shall be limited to the Purchase Price. There shall be no limit on
recovery for Tier IV Claims.
(c) Tier V Claims. The Indemnified Party shall have no right to recover
based upon Tier V Claims for indemnification unless and until the aggregate
Losses on a cumulative basis attributable to all such Claims exceed the "Floor";
provided that, if such aggregate liability exceeds the Floor, the Indemnified
Party shall be entitled to full recovery of all amounts subject only to a
maximum recovery from the Indemnifying Parties for Tier V Claims of $500,000.
9.8 Survival. Regardless of the investigations, if any, made by any
party prior to the Closing, the representations and warranties and covenants
contained herein are made as of the date hereof and as of the Closing Date and
shall survive the Closing for the following periods: (a) six (6) months for Tier
I Claims; (b) twelve (12) months for Tier II and Tier V Claims; and (c)
indefinitely for Tier III and IV Claims; provided that, a representation or
warranty related to any claim asserted pursuant to Article IX within the
applicable time period set forth in this Section shall survive as to such claim
until resolved.
<PAGE> 29
9.9 Adjustment to Purchase Price. Any indemnification received under
this Article IX shall be, to the extent permitted by law, an adjustment to the
Purchase Price.
9.10 Sole and Exclusive Remedy. After the Closing, the rights set forth
in this Article IX shall be each party's sole and exclusive remedy against the
other parties hereto for any claim or dispute relating to the subject matter of
this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile transmission
(with written or facsimile confirmation of receipt), or on the first day
following delivery by a reputable overnight commercial delivery service
(delivery, postage or freight charges prepaid), or on the third day following
deposit in the United States mail (if sent by registered or certified mail,
return receipt requested, delivery, postage or freight charges prepaid),
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Buyer or Parent: With copy to:
Plastron Industries, Inc. Summa Industries
c/o Summa Industries One Park Plaza, Sixth Floor
21250 Hawthorne Blvd., Suite 500 Irvine, CA 92614
Torrance, CA 90503 Fax: (949) 852-7316
Fax: (310) 792-7024 Attn: Trygve M. Thoresen
Attn: James R. Swartwout
If to Seller or PMI: With copy to:
Plastron Industries, L.P. Katten Muchin & Zavis
c/o Plastron Management, Inc. 525 West Monroe Street
150 N. Wacker Dr., Suite 2360 Chicago, IL 60661
Chicago, IL 60606 Fax: (312) 902-1061
Fax: (312) 236-4367 Attn: David Shevitz, Esq.
Attn: Larry Gies and Scott Murray and Brian Richards, Esq.
10.2 Interpretation. When a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference shall be to an Article,
Section, Exhibit or Schedule to this Agreement unless otherwise indicated. The
words "include," "includes" and "including" when used herein shall be deemed in
each case to be followed by the words "without limitation." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
10.3 Expenses. Whether or not the transactions contemplated hereby are
consummated, and except as otherwise provided in this Agreement, all fees, costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees, costs or
expenses.
<PAGE> 30
10.4 Integration. This Agreement and the Exhibits, Schedules, documents,
instruments and other agreements among the parties hereto that are referred to
herein constitute the entire agreement among the parties with respect to the
subject matter set forth herein or therein and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof or thereof, including, without limitation, any term sheets
or letters of intent.
10.5 Assignment. No party hereto shall assign or transfer or permit the
assignment or transfer of this Agreement without the prior written consent of
the other parties; provided, however, that Buyer may assign any of its rights
and obligations hereunder to any entity that, directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under common
control with Buyer. No such assignment by Buyer will relieve Buyer of any of its
obligations or duties under this Agreement.
10.6 Severability. Any portion or provision of the Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the extent permitted by law,
rendering that or any other portion or provision of the Agreement invalid,
illegal or unenforceable in any other jurisdiction.
10.7 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware, without regard
to its rules of conflicts of law.
10.8 Attorneys' Fees. If any party to this Agreement shall bring any
action, suit, counterclaim or appeal for any relief against any other party,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "Action"), the prevailing party shall be entitled to
recover as part of any such Action its reasonable attorneys' fees and costs,
including any fees and costs incurred in bringing and prosecuting such Action
and/or enforcing any order, judgment, ruling or award granted as part of such
Action. "Prevailing party" within the meaning of this section includes, without
limitation, a party who agrees to dismiss an Action upon the other party's
payment of all or a portion of the sums allegedly due or performance of the
covenants allegedly breached, or who obtains substantially the relief sought by
it.
10.9 Consent to Jurisdiction: Forum Selection. The parties agree that
all actions or proceedings arising in connection with this Agreement (other than
the arbitration contemplated under Section 2.4(b)) shall be tried and litigated
exclusively in the Federal courts located in the County of Los Angeles, State of
California. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than those specified in this section. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this section, and stipulates that the
Federal courts located in the County of Los Angeles, State of California shall
have in personam jurisdiction and venue over each of them for the purpose of
litigating any dispute, controversy or proceeding arising out of or related to
this Agreement. Each party hereby authorizes and accepts service of process
sufficient for personal jurisdiction in any action against it as contemplated by
this section by registered or certified mail, return receipt requested, postage
prepaid, to its address for the giving of notices as set forth in this
Agreement, or in the manner set forth in Section 10.1 of this Agreement for the
giving of notice. Any final judgment rendered against a party in any action
<PAGE> 31
or proceeding shall be conclusive as to the subject of such final judgment and
may be enforced in other jurisdictions in any manner provided by law.
10.10 No Third-Party Beneficiaries. Except as provided in Article IX as
to Indemnified Parties, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied shall
give or be construed to give to any person or entity, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
10.11 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER: SELLER:
PLASTRON INDUSTRIES, INC., PLASTRON INDUSTRIES, L.P.,
a Delaware corporation a Delaware limited partnership
By: PLASTRON MANAGEMENT, INC.,
By: /s/ James R. Swartwout an Illinois corporation, its
------------------------------ General Partner
James R. Swartwout, President
By: /s/ Larry Gies
--------------------------------
Larry Gies, President
PARENT:
PMI:
SUMMA INDUSTRIES,
a Delaware corporation
PLASTRON MANAGEMENT, INC.,
an Illinois corporation
By: /s/ James R. Swartwout
------------------------------
James R. Swartwout, President
By: /s/ Larry Gies
--------------------------------
Larry Gies, President
<PAGE> 33
SCHEDULES
1.1 Transferred Assets
1.1(g) Assumed Contracts
1.4 Assumed Obligations
2.2 Allocation of Purchase Price
3.5 Consents and Approvals; No Violation
3.6 Financial Statements
3.7 Absence of Certain Changes
3.8 Absence of Undisclosed Liabilities
3.9 Leased and Licensed Transferred Assets
3.10 Real Property
3.11 Intellectual Property
3.12 Accounts Receivable
3.14 Contracts
3.15 Employment and Labor Matters
3.16 ERISA Plans
3.18 Taxes
3.19 Litigation
3.20 Compliance With Applicable Laws
3.21 Environmental Matters
3.22 Customers and Suppliers
3.23 Warranties; Product Returns
3.24 Insurance
3.25 Bank Accounts
EXHIBITS
A. Form of Escrow Agreement
B. General Instrument of Conveyance, Transfer and Assignment
C. Assumption Agreement
D. Form of Opinion of Counsel to Seller
E-1. Form of Noncompetition and Nonsolicitation Agreement, Management
E-2. Form of Noncompetition and Nonsolicitation Agreement, Messrs. Gies and
Murray
F. Form of Opinion of Counsel to Buyer
<PAGE> 1
EXHIBIT 4.1
WARRANT TO PURCHASE 200,000 SHARES
OF THE
COMMON STOCK
OF
SUMMA INDUSTRIES
MARCH 5, 1999
VOID AFTER MARCH 5, 2003
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE WARRANT
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT
AND, IN ANY CASE, SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
This certifies that, for good and valuable consideration received as of
the date hereof (the "Warrant Issue Date"), Plastron Industries, L.P., a
Delaware limited partnership, or its permitted assignee (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from Summa
Industries, a Delaware corporation (the "Company"), from time to time up to two
hundred thousand (200,000) shares of the Common Stock, par value $.001 per
share, of the Company, as constituted on the Warrant Issue Date, upon surrender
of this Warrant at the principal office of the Company referred to below, with
the Notice of Exercise attached hereto as Exhibit A duly executed, and upon
payment of the Exercise Price as set forth below. The number, character and
Exercise Price of such shares of Common Stock are subject to adjustment as
provided below. The term "Warrant" as used herein shall include this Warrant
issued for the Common Stock of the Company and any warrant or warrants delivered
in substitution or exchange therefor as provided herein. The shares of Common
Stock purchasable upon the exercise of this Warrant are hereinafter referred to
as the "Warrant Shares".
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at 6:00 p.m., Torrance,
California time, on March 5, 2003 (the "Term"), and shall thereafter be void.
2. Exercise Price. The exercise price at which this Warrant may be
exercised shall be eleven dollars and seventy-five cents ($11.75) per share of
Common Stock, as adjusted from time to time pursuant to the terms of Section 11
hereof (the "Exercise Price").
3. Exercise of Warrant.
a. The purchase rights represented by this Warrant are exercisable by
the Holder in whole or in part, in increments of not less than twenty-five (25)
percent of the original number of Warrant Shares (or such lesser number of
shares which may then constitute the maximum number purchasable by the Holder;
such number being subject to adjustment as provided in Section 11 below), at any
time, or from time to time, during the Term by the surrender of this Warrant and
the Notice of Exercise attached hereto as Exhibit A duly completed and executed
on behalf of the Holder, at the office of the Company (or such
<PAGE> 2
other office or agency of the Company as it may designate by notice in writing
to the Holder at the address of the Holder set forth below), upon payment in
cash, by wire transfer or by certified check acceptable to the Company, of the
Exercise Price of the Warrant Shares to be purchased. Notwithstanding the
foregoing, subject to the conditions set forth herein, at any time after the
Company files a report with the Securities and Exchange Commission in which the
Company's funded debt to equity ratio is 1.3 or less, the Holder may, from time
to time thereafter, exchange this Warrant, in whole or in part, in increments of
not less than twenty-five (25) percent of the original number of Warrant Shares
(or such lesser number of shares which may then constitute the maximum number
purchasable by the Holder; such number being subject to adjustment as provided
in Section 11 below) (the "Warrant Exchange"), into the number of Warrant Shares
determined in accordance with this subparagraph, by surrendering this Warrant at
the principal office of the Company, accompanied by a non-revocable written
notice of exchange setting forth the number of Warrant Shares to be exchanged
and the name, address and taxpayer identification number of the Holder (the
"Exchange Notice"). The Warrant Exchange shall take place at 5:01 p.m.,
Torrance, California time on the date the Exchange Notice and Warrant are
received by the Company. In connection with the Warrant Exchange, the Company
shall issue to the Holder, without payment by the Holder of the Exercise Price
in cash, the number of Warrant Shares (rounded to the nearest whole number)
equal to (i) the number of Warrant Shares specified by the Holder in the
Exchange Notice (the "Total Number") less (ii) the number of Warrant Shares
equal to the quotient obtained by dividing (A) the product of the Total Number
and the existing Exercise Price by (B) the average of the high and low trading
price for the Common Stock for the ten trading days on which the Common Stock
trades ending on the last trading date prior to the date of receipt of the
Exchange Notice (the "Market Value").
b. This Warrant shall be deemed to have been exercised at 5:01 p.m.,
Torrance, California time on the date of its surrender for exercise as provided
above, and the Holder shall be treated for all purposes as the holder of record
of the Warrant Shares as of such time. As promptly as practicable after exercise
and in any event within seven (7) days thereafter, the Company, at its expense,
shall issue and deliver to the Holder a certificate for the number of Warrant
Shares issuable upon such exercise. In the event that this Warrant is exercised
in part, the Company at its expense will execute and deliver to the Holder a new
warrant of like tenor exercisable for the remaining number of Warrant Shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional shares to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Market Value
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement satisfactory in form and substance to the Company or, in the
case of mutilation, on surrender and cancellation of this Warrant, the Company
shall execute and deliver to the Holder, in lieu of this Warrant, a new warrant
of like tenor exercisable for the remaining number of Warrant Shares for which
this Warrant may then be exercised.
6. Rights of Holder. The Holder shall not be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company that may at any time be issuable on the exercise hereof for any purpose,
nor shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a stockholder of the Company or any right to vote
<PAGE> 3
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value, or change of stock to no par value, consolidation,
merger, conveyance, or otherwise) or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant shall
have been exercised as provided herein.
7. Transfer of Warrant; Holder Representations.
a. Transferability and Non-negotiability of Warrant. This Warrant may
not be transferred or assigned in any manner without compliance with all
applicable federal and state securities laws by the transferor and the
transferee, including without limitation the Securities Act of 1933, as amended
(the "Act") and the rules and regulations promulgated thereunder; provided that,
title may only be transferred or assigned in full and only to a person or entity
(i) who is not in direct competition with the Company and its subsidiaries and
(ii) who has not filed nor is then required to file a Schedule 13D relating to
ownership of securities of the Company (the "Permitted Transferee").
b. Exchange of Warrant Upon a Transfer. On surrender of this Warrant to
the Company with the Assignment of Warrant form attached hereto as Exhibit B
duly executed and with funds sufficient to pay any transfer taxes, the Company
shall, without charge, execute and deliver a Warrant in the name of the assignee
named in such Assignment and this Warrant shall promptly be canceled.
c. Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that (A) this Warrant and the Warrant Shares are being acquired
solely for the Holder's own account for investment and not with a view toward
resale or distribution of any part thereof, and not as a nominee for any other
party, and that the Holder will not offer, sell or otherwise dispose of this
Warrant or any Warrant Shares except under circumstances that will not result in
a violation of the Act or any state securities laws; (B) the Holder is aware
that the Warrant is not registered under the Act or any state securities or blue
sky laws and, as a result, substantial restrictions exist with respect to the
transferability of the Warrant and the Warrant Shares; (C) the Holder is an
"accredited investor" as defined by Rule 501(a) of Regulation D of the
Securities and Exchange Commission (the "Commission") and can afford to sustain
a total loss on its investment; and (D) the Holder has been afforded the
opportunity to ask questions of, and receive satisfactory answers from, the
Company and its officers and directors, concerning the terms and conditions of
the Warrant and the operations and financial condition of the Company. Upon
exercise of this Warrant, the Holder shall, if requested by the Company, confirm
in writing, in a form satisfactory to the Company, that the Warrant Shares so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale; provided, however, that no such writing shall be
required if (I) the Warrant Shares have been and are registered under the Act in
accordance with Section 12 hereof, or (II) upon such exercise, the Holder shall
be entitled to sell the Warrant Shares pursuant to Rule 144 adopted by the
Commission under the Act, as amended from time to time, or any successor
provision thereto ("Rule 144").
(ii) The Holder of this Warrant, by acceptance hereof,
acknowledges that it has received copies of the Company's Annual Report on Form
10-K for the fiscal year ended August 31, 1998, and all other registration
statements, reports and proxy statements filed by the Company with the
Commission on or after August 31, 1998, but excluding Registration Statements on
Form S-8 (the "SEC Documents").
<PAGE> 4
(iii) This Warrant and the Warrant Shares shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legends required by state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT AND, IN ANY CASE, SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN
THAT CERTAIN COMMON STOCK WARRANT DATED AS OF MARCH 5, 1999.
In the event that (I) a registration statement covering the Warrant
Shares is effective under the Act, (II) the Company shall receive an opinion of
reputable counsel that such legend is not, or is no longer, required, or (III)
all or any portion of the Warrant Shares are eligible for resale pursuant to the
exemption afforded by Rule 144, upon request from the Holder, the Company shall,
or shall instruct its transfer agent to, remove such legend from the
certificate(s) evidencing such Warrant Shares or issue new certificate(s)
representing such Warrant Shares without such legend in lieu thereof. All fees
and expenses in effecting the legend removal and issuance of new certificates
(other than those of counsel to the Holder) shall be borne by the Company.
8. Reservation of Stock. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares then issuable as such amount may be adjusted pursuant to
Section 11 hereof and, subject to stockholder approval if required by applicable
law, will from time to time take all steps necessary to amend its Certificate of
Incorporation (the "Certificate") to provide sufficient reserves of Warrant
Shares. The Company further covenants that all Warrant Shares when issued, will
be fully paid and non-assessable, not subject to any preemptive rights and will
be free from all taxes, liens, security interests and other encumbrances in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein and other than liens
created or imposed upon the Warrant Shares through no action of the Company).
The Company agrees that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares.
9. Notices of Adjustment. Whenever the Exercise Price or number of
Warrant Shares shall be adjusted pursuant to Section 11 hereof, the Company
shall issue a certificate signed by its Chief Financial Officer setting forth,
in reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Warrant.
10. Amendments; Waivers.
a. Any term of this Warrant may be amended only with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the
<PAGE> 5
Holder of this Warrant, each future holder of the Warrant or any replacement
warrants, and the Company.
b. No waivers of, or exceptions to, any term, condition or provision of
this Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.
11. Adjustments. The Exercise Price and the number of Warrant Shares are
subject to adjustment from time to time as follows:
a. Reclassification or Merger. In case of any reclassification, change
or other conversion of securities of the class issuable upon exercise of this
Warrant (other than as a result of a stock split, subdivision or combination as
described below), or in case of any merger of the Company with or into another
company (other than a merger with another company in which the Company is the
surviving company and which does not result in any reclassification or change to
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the stock of the Company, the Company,
or such successor or purchasing company, as the case may be, shall duly execute
and deliver to the registered Holder a new Warrant providing for the right to
receive, at a total purchase price not to exceed that payable upon the exercise
of this Warrant and in lieu of the Warrant Shares theretofore issuable upon
exercise of this Warrant, the kind and amount of securities, money and property
receivable upon such reclassification, change, merger or sale by a holder of the
number of Warrant Shares then purchasable under this Warrant. Such new Warrant
shall provide for adjustments that shall be as nearly equivalent as practicable
to the adjustments provided for in this Section 11. The provisions of this
subparagraph shall similarly apply to successive reclassifications, changes and
mergers.
b. Subdivision or Combination of Shares. If the Company at any time
while this Warrant or any portion hereof remains outstanding and unexpired shall
split, subdivide or combine the securities as to which purchase rights under
this Warrant exist, into a different number of securities of the same class, the
Exercise Price for such securities shall be proportionately decreased and the
number of Warrant Shares shall be proportionately increased, in the case of a
split or subdivision or proportionately increased and decreased, respectively,
in the case of a combination, in each case effective at the close of business on
the effective date of such split, subdivision or combination.
c. Adjustments for Dividends in Securities. If while this Warrant, or
any portion hereof, remains outstanding and unexpired the holders of Common
Stock shall have received, or, on or after the record date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, additional securities of the Company by way of
dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of Warrant Shares receivable upon exercise of
this Warrant, and without payment of any additional consideration therefor, the
amount of such additional securities of the Company that the Holder would hold
on the date of such exercise had it been the holder of record of Common Stock on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 11.
12. Registration Rights.
<PAGE> 6
a. Certain Definitions. For the purposes of this Section 12, the
following words shall have the meanings set forth below:
(i) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement on
Form S-3 or its successor form in compliance with the Act.
(ii) "Registrable Stock" means (A) any and all Warrant Shares,
and (B) any Common Stock issued or issuable with respect to the Warrant Shares
by reason of a stock dividend or stock split or in connection with a combination
of shares or issued in exchange for or in replacement of the Warrant Shares.
Each share of Registrable Stock shall cease to be Registrable Stock when
transferred to any person who is not an affiliate of the Holder pursuant to (I)
a registration statement under the Act or (II) Rule 144.
b. Demand Registration.
(i) If, at any time more than 180 days after the Warrant Issue
Date and prior to the end of the Term, the Holder proposes to dispose of
Registrable Stock, then such Holder may request the Company in writing to effect
a registration, stating the number of shares of Registrable Stock to be disposed
of and the intended method of disposition of such shares.
(ii) Upon receipt of the request of the Holder pursuant to this
Section 12(b), the Company, subject to the provisions set forth below, shall
file with the Commission a registration statement registering the shares of
Registrable Stock specified in the request of the Holder, shall respond to any
Commission comments on such registration statement and shall use its best
efforts to effect the registration under the Act of the shares of Registrable
Stock specified in the request of the Holder.
(iii) The Company shall not be required to prepare and file more
than one (1) demand registration statement herein, which actually becomes or is
declared effective, at the request of the Holder pursuant to this Section 12(b).
(iv) The Company shall not be required to prepare and file a
registration statement pursuant to this Section 12(b) which would become
effective (A) within 180 days following the effective date of a registration
statement filed by the Company with the Commission in which the Holder was
offered the right to participate covering all of the shares of Registrable
Stock, or (B) if the Holder's request for registration is received by the
Company subsequent to such time as the Company has commenced to prepare a
Company-initiated registration statement and the Company is actively employing
reasonable efforts to cause such registration statement to become effective;
provided that the Holder is offered the right to participate in such offering
and the Company agrees to register all of the shares of Registrable Stock.
c. Designation of Underwriter. If any registration hereunder is an
underwritten offering, the Company shall have the right to designate the
managing underwriter, and the Holder shall sell its shares only pursuant to such
underwriting.
d. Piggyback Registration.
<PAGE> 7
(i) If the Company at any time proposes to register any of its
securities for sale, whether or not for its own account (other than a
registration relating to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a Rule 145
transaction or a registration on any form that does not permit secondary sales),
it shall each time give written notice (the "Company's Notice") at its expense
to the Holder of Registrable Stock of its intention to do so at least 20 days
prior to filing of a registration statement with respect to such registration
with the Commission describing the intended method of distribution with respect
to such securities. If the Holder desires to dispose of any or all of its
Registrable Stock, it may request registration thereof in connection with the
Company's registration by delivery to the Company, within 10 business days of
receipt of the Company's Notice, written notice of such request (the "Piggyback
Notice") stating the number of shares of Registrable Stock to be registered for
resale by the Holder. The Company shall use best efforts to cause all such
shares to be registered under the Act, subject to the limitations set forth in
this Section.
(ii) If the registration of which the Company gives notice
pursuant to this Section 12(d) is for the purpose of permitting a disposition of
securities by the Company pursuant to a firm commitment underwritten offering,
the notice shall so state, and the Company shall have the right to limit the
aggregate size of the offering and/or the number of securities to be included
therein by security holders of the Company if requested to do so by the managing
underwriter of the offering, and only securities which are to be included in the
underwriting may be included in the registration.
(iii) Whenever the number of securities which may be registered
pursuant to this Section 12(d) is limited by the provisions hereof, the Company
shall have priority as to sales over other holders of Company securities and the
Holder agrees that it shall withdraw its securities from such registration to
the extent necessary to allow the Company to include all the securities which
the Company desires to sell for its own account to be included within such
registration. The other holders of securities participating in the offering,
including the Holder, shall share pro rata in the available portion of the
registration in question, such sharing to be based upon the number of securities
of the Company then held by each of such holders, respectively.
(iv) Notwithstanding the foregoing, in any offering other than an
underwritten offering, the Company may require the Holder to register all of its
shares of Registrable Stock in such offering (or to waive its sole demand
registration right set forth in Section 12(b) above) if the Company agrees to
cause such registration statement to cover all shares of Registrable Stock and
to become and remain effective for the remainder of the Term.
e. Registration Procedures.
(i) If and when the Company is required by the provisions of this
Section 12 to use best efforts to effect the registration of shares of
Registrable Stock, the Company shall:
(A) prepare and file with the Commission a registration statement
with respect to such shares and use best efforts to cause such registration
statement to become and remain effective until the earlier of (I) the end of the
Term or (II) the sale of the Registrable Stock as registered;
(B) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectuses used in
connection therewith as may be necessary to make and to keep such registration
statement effective and current and to comply with the provisions of the
<PAGE> 8
Act with respect to the sale or other disposition of all shares covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition from time to time of the
Holder or holders of such shares who have requested that any of their shares be
sold or otherwise disposed of in connection with the registration (the
"Prospective Sellers") until the earlier of the sale of the Registrable Stock as
registered or the end of the Term;
(C) furnish to each Prospective Seller such number of copies of
each prospectus, including preliminary prospectuses, in conformity with the
requirements of the Act, and such other documents, as the Prospective Seller may
reasonably request in order to facilitate the public sale or other disposition
of the shares owned by it;
(D) use best efforts to register or qualify the shares covered by
such registration statement under such other securities or blue sky or other
applicable laws of such jurisdictions as each Prospective Seller shall
reasonably request, maintain any such registration or qualification current
until the earlier of sale of the Registrable Stock so registered or the end of
the Term, and to take any and all other actions necessary to enable such seller
to consummate the public sale or other disposition of the shares owned by such
seller in jurisdictions where such Prospective Sellers reasonably desire to
effect such sales or other dispositions; provided that, the Company shall not be
required in connection therewith or as a election thereto to qualify to do
business or to file a general consent to service of process in any such
jurisdiction;
(E) upon written request and at the Prospective Seller's expense,
furnish to each Prospective Seller a signed counterpart, addressed to the
Prospective Sellers and their underwriters, if any, of (x) an opinion of counsel
for the Company, dated the effective date of the registration statement, and (y)
a "comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants' letter) with respect to the events subsequent to the date of
the financial statements, as are customarily covered (at the time of such
registration) in the opinions of issuers' counsel and in accountants' letters
delivered to the underwriters in connection with underwritten public offerings
of securities;
(F) cause all such shares to be listed on each securities
exchange on which similar securities issued by the Company are then listed;
(G) provide a transfer agent and registrar for all such shares
not later than the effective date of such registration statement; and
(H) make available for inspection by any Prospective Seller and
any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
attorney, accountant or agent in connection with the preparation of such
registration statement.
(ii) Each Prospective Seller of such shares shall furnish to the
Company such information as the Company may require from the Prospective Seller
for inclusion in the registration statement (and the prospectus included
therein).
<PAGE> 9
(iii) The Prospective Sellers shall not (until further notice
which the Company shall provide as soon as practicable) effect sales of the
shares covered by the registration statement after receipt of telegraphic or
written notice from the Company to suspend sales to permit the Company to
correct or update a registration statement or prospectus. The Company shall use
best efforts to promptly notify the Holder of any facts or circumstances of
which it has knowledge that would cause the registration statement or prospectus
to contain an untrue statement of a material fact or to omit to state a material
fact required to be stated therein or necessary to make the statements therein
not materially misleading in light of the circumstances then existing.
f. Expenses of Registration.
(i) All registration and filing fees, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company, and expenses
of any audits incidental to or required by a registration requested hereunder
("Registration Expenses") shall be borne by the Company; provided, however, that
each Prospective Seller shall bear underwriting discounts or brokerage fees or
commissions relating to the sale of its shares; fees and expenses of counsel for
such Prospective Seller; and any other expenses incurred by the Prospective
Seller in connection with a registration.
(ii) Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 12 if the registration request is subsequently withdrawn at the
request of the Holder (in which case the Holder shall bear all expenses), unless
the Holder delivers to the Company written notice that such withdrawn
registration shall constitute the Holder's one demand registration pursuant to
Section 12(b).
g. Indemnification.
(i) In the event of a registration of any of its securities under
the Act pursuant to this Section 12, the Company shall indemnify and hold
harmless the Holder, its affiliates, attorneys and accountants against any
losses, claims, damages or liabilities, joint or several (or actions in respect
thereof), to which the Holder may be subject under the Act, under any other
statute or at common law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (A) any untrue
statement (or alleged untrue statement) of any material fact contained in any
registration statement under which such securities were registered under the
Act, any preliminary prospectus or final prospectus contained therein, or any
summary prospectus issued in connection with any securities being registered, or
any amendment or supplement thereto, or (B) any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading ((A) and (B) are collectively
referred to hereafter as a "Violation"), and shall reimburse the Holder for any
legal or other expenses reasonably incurred by the Holder in connection with
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to the Holder, its affiliates, attorneys
and accountants in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue statement or
omission made in such registration statement, preliminary prospectus, summary
prospectus, prospectus, or amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by the Holder
for use therein; provided further that, the indemnification contained in this
Section 12(g) with respect to any preliminary prospectus shall not inure to the
benefit of the Holder and its affiliates on account of any such loss, claim,
damage, liability or expense arising from the sale of any of the shares to any
person if a copy of the prospectus, as amended and supplemented, shall not have
been delivered or sent to such person within the time required by the Act and
the
<PAGE> 10
regulations thereunder, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such preliminary
prospectus was corrected in the prospectus, as amended and supplemented,
provided that the Company has delivered the prospectus, as amended or
supplemented, to the Holder on a timely basis to permit such delivery or
sending. The indemnity contained in this Section 12(g) shall not apply to
amounts paid in settlement of any such claim, if such settlement is effected
without the consent of the Company.
(ii) In the event of any registration of any of its securities
under the Act pursuant to this Section 12, the Holder and its affiliates shall
indemnify and hold harmless the Company, its affiliates, attorneys and
accountants against any losses, claims, damages or liabilities, joint or several
(or actions in respect thereof), to which the Company, its affiliates, attorneys
and accountants may be subject under the Act, under any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any Violation, in each case
only to the extent that such Violation occurs in reliance upon written
information furnished by the Holder expressly for use in connection with such
registration, and shall reimburse the Company, underwriter or controlling person
for any legal or other expenses reasonably incurred by the Company and its
affiliates in connection with investigating or defending any such loss, claim,
damage, liability or action. The indemnity provided for herein shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company and its affiliates.
(iii) If the indemnification provided for above is unavailable to
an indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then the indemnifying party in lieu of indemnifying such
indemnified party thereunder shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party, or by the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties agree that it would not be just and
equitable if contribution pursuant to this Section 12(g)(iii) were determined by
pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in this Section
12(g)(iii). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities or actions in respect thereof
referred to in this Section 12(g)(iii) shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentations (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(iv) Promptly after receipt by an indemnified party under this
Section 12(g) of notice of the commencement of any action, such indemnified
party shall notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party shall not relieve
it from liability which it may have to any indemnified party under this Section
except to the extent that the indemnifying party has been prejudiced as a
proximate result of such failure. In case any such action shall be brought
against any indemnified party, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish,
<PAGE> 11
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded in good faith that there may
be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assert such legal defenses (in which case the indemnifying party shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties in relation to those matters). Upon the assumption by the
indemnifying party of the defense of such action, the indemnifying party shall
not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (A) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time, (B) the indemnifying party and
its counsel do not actively pursue the defense of such action, (C) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, or (D) the indemnified party has
engaged separate counsel pursuant to the proviso in the preceding sentence.
h. Rule 144 Requirements. The Company shall, (i) upon request therefor,
furnish to the Holder a written statement of compliance with the filing
requirements of the Commission set forth in Rule 144 and (ii) use best efforts
to make publicly available, and available to the holder of Registrable Stock,
such information as is necessary to enable the holder of Registrable Stock to
make sales of such stock pursuant to Rule 144 of the Commission under the Act.
i. Lock-up of Unregistered Shares. If the Holder participates in a
registration statement filed by the Company with respect to an underwritten
public offering and 80% or more of the shares of Registrable Stock are included
in such registration statement, then the Holder will not, directly or
indirectly, publicly sell or make any distribution (except pursuant to such
registration statement) of any securities of the Company without the prior
written consent of the managing underwriter for such period of time not to
exceed 180 days following the effective date of the registration statement as
may be requested by the managing underwriter. The foregoing restriction is
conditioned upon the Company and each of the selling stockholders included in
the registration statement agreeing in writing to be subject to the same
restriction.
j. Assignment of Registration Rights. The rights to cause the Company to
register Registrable Stock pursuant to this Section 12 may not be assigned
except in connection with an assignment of this Warrant to the Permitted
Transferee pursuant to Section 7(a).
k. Termination of Registration Rights. The registration rights set forth
in this Section 12 shall terminate on March 5, 2003.
13. Representations and Warranties by the Company; Certain Notices.
a. The Company hereby represents and warrants to the Holder that (i) the
Warrant has been duly authorized and executed by the Company and is a valid and
binding obligation of the Company pursuant to its terms, subject to the laws of
general application relating to bankruptcy, insolvency, creditors rights, and
the relief of debtors and the rules of law or principles at equity governing
specific performance, injunctive relief and other equitable remedies, and (ii)
the execution and delivery of the
<PAGE> 12
Warrant by the Company is not, and the issuance of the Warrant Shares in
accordance with the terms hereof will not violate the Company's Certificate of
Incorporation or Bylaws.
b. The Company shall give written notice to the Holder at least 15 days
prior to the date on which the Company (i) consummates any reclassification,
change or other conversion of securities of the class issuable upon the exercise
of this Warrant, merger of the Company with or into another entity, sale of all
or substantially all of the assets of the Company, or dissolution or liquidation
of the Company, or (ii) the date the Company takes a record for determining
rights with respect to the payment of any dividend or distribution on the
securities of the class issuable upon the exercise of this Warrant.
14. Miscellaneous.
a. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile transmission
(with written or facsimile confirmation of receipt), or on the first day
following delivery by a reputable overnight commercial delivery service
(delivery, postage or freight charges prepaid), or on the third day following
deposit in the United States mail (if sent by registered or certified mail,
return receipt requested, delivery, postage or freight charges prepaid),
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to the Company: With copy to:
Summa Industries Summa Industries
21250 Hawthorne Blvd., Suite 500 One Park Plaza, Sixth Floor
Torrance, CA 90503 Irvine, CA 92614
Fax: (310) 792-7024 Fax: (949) 852-7316
Attn: James R. Swartwout Attn: Trygve M. Thoresen
If to the Holder: With copy to:
Plastron Industries, L.P. Katten Muchin & Zavis
c/o Plastron Management, Inc. 525 West Monroe Street
150 N. Wacker Dr., Suite 2360 Chicago, IL 60661
Chicago, IL 60606 Fax: (312) 902-1061
Fax: (312) 236-4367 Attn: David Shevitz, Esq.
Attn: Larry Gies and Scott Murray and Brian Richards, Esq.
b. Expenses. Except as otherwise provided in this Warrant, all fees,
costs and expenses incurred in connection with this Warrant and the transactions
contemplated hereby shall be paid by the party incurring such fees, costs or
expenses.
c. Integration. This Warrant and the Exhibits and other agreements among
the parties hereto that are referred to herein constitute the entire agreement
among the parties with respect to the subject matter set forth herein or therein
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof or thereof.
d. Severability. Any portion or provision of this Warrant which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions
<PAGE> 13
hereof in such jurisdiction or, to the extent permitted by law, rendering that
or any other portion or provision of this Warrant invalid, illegal or
unenforceable in any other jurisdiction.
e. Governing Law. This Warrant and the rights and obligations of the
parties hereunder shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware, without regard
to its rules of conflicts of law.
f. Attorneys' Fees. Except as otherwise set forth in Section 12(g), if
any party to this Warrant shall bring any action, suit, counterclaim or appeal
for any relief against any other party, declaratory or otherwise, to enforce the
terms hereof or to declare rights hereunder (collectively, an "Action"), the
prevailing party shall be entitled to recover as part of any such Action its
reasonable attorneys' fees and costs, including any fees and costs incurred in
bringing and prosecuting such Action and/or enforcing any order, judgment,
ruling or award granted as part of such Action. "Prevailing party" within the
meaning of this section includes, without limitation, a party who agrees to
dismiss an Action upon the other party's payment of all of the sums allegedly
due or performance of the covenants allegedly breached, or who obtains
substantially the relief sought by it.
g. Consent to Jurisdiction; Forum Selection. The parties agree that all
actions or proceedings arising in connection with this Warrant shall be tried
and litigated exclusively in the Federal courts located in the County of Los
Angeles, State of California. The aforementioned choice of venue is intended by
the parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Warrant in any jurisdiction other than those specified in this section.
Each party hereby waives any right it may have to assert the doctrine of forum
non conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this section, and stipulates that the
Federal courts located in the County of Los Angeles, State of California shall
have in personam jurisdiction and venue over each of them for the purpose of
litigating any dispute, controversy or proceeding arising out of or related to
this Warrant. Each party hereby authorizes and accepts service of process
sufficient for personal jurisdiction in any action against it as contemplated by
this section by registered or certified mail, return receipt requested, postage
prepaid, to its address for the giving of notices as set forth in this Warrant,
or in the manner set forth in Section 14(a) of this Warrant for the giving of
notice. Any final judgment rendered against a party in any action or proceeding
shall be conclusive as to the subject of such final judgment and may be enforced
in other jurisdictions in any manner provided by law.
h. No Third-Party Beneficiaries. Except as provided in Section 12(g) as
to indemnified parties, this Warrant is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied shall
give or be construed to give to any person or entity, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
i. Counterparts. This Warrant may be executed in counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
j. Closing of Transfer Books. The stock transfer books of the Company
for the Common Stock shall not be closed in any manner which interferes with the
exercise of this Warrant.
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the day and year first above written.
THE COMPANY: ACCEPTED AND AGREED TO:
SUMMA INDUSTRIES, HOLDER:
a Delaware corporation
PLASTRON INDUSTRIES, L.P.,
a Delaware limited partnership
By: /s/ James R. Swartwout
-------------------------------
James R. Swartwout, President By: PLASTRON MANAGEMENT, INC.,
an Illinois corporation, its
General Partner
By: /s/ Larry Gies
--------------------------------
Larry Gies, President
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED LOAN AGREEMENT
This AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is entered
into as of March 5, 1999 by and among SUMMA INDUSTRIES, a Delaware corporation
("Borrower"), COMERICA BANK-CALIFORNIA, a California banking corporation, as
agent for the Lenders from time to time ("Agent"), and the various financial
institutions that are (or may hereafter become) parties hereto as lenders (each
a "Lender" and collectively the "Lenders").
RECITALS
A. Summa Industries, a California corporation ("Summa California"),
Agent and Lenders entered into a certain Loan Agreement dated as of October 21,
1997 ("Prior Loan Agreement").
B. Subsequently, Summa California merged with Borrower, Borrower
being the surviving entity, and Borrower assumed all obligations of Summa
California under the Prior Loan Agreement pursuant to the terms of an Assumption
Agreement dated May 26, 1998.
C. Borrower, Agent and Lenders desire to amend and restate the
Prior Loan Agreement as set forth below.
NOW, THEREFORE, Borrower, Agent and the Lenders agree that the Prior
Loan Agreement is amended and restated in its entirety as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the respective meanings provided below in this Section 1:
"ACCOUNTANTS" is defined in Section 7.1(b).
"ACCOUNT DEBTOR" means the party who is obligated on or under an
Account.
"ACCOUNT PARTY(IES) means, with respect to any Letter of Credit, the
account party or parties (one of which must be Borrower and the others which may
be any of Borrower's Subsidiaries other than the Excluded Subsidiaries) as named
in an application to the Agent for the issuance of such Letter of Credit.
"ACCOUNTS" of any Person means all of such Person's presently existing
and hereafter arising or acquired accounts, accounts receivable, margin
accounts, futures positions, book debts, notes, drafts, acceptances, chattel
paper, and other forms of obligations now or hereafter owned or held by or
payable to such Person relating in any way to Inventory or arising from the sale
of Inventory or the rendering of services by such Person or howsoever otherwise
arising, including the right to payment of any interest or finance charges with
respect thereto, together with all merchandise represented by any of the
accounts; all such merchandise that may be reclaimed or
<PAGE> 2
repossessed or returned to such Person; all of such Person's rights as an unpaid
vendor, including stoppage in transit, reclamation, replevin, and sequestration;
all pledged assets and all letters of credit, guaranty claims, liens, and
security interests held by or granted to such Person to secure payment of any of
the foregoing; all proceeds and products of all of the foregoing; and all
proceeds of insurance with respect thereto, including the proceeds of any
applicable credit insurance or fidelity bond, whether payable in cash or in
kind; and all customer lists, ledgers, books of account, records, computer
programs, computer disks or tape files, computer printouts, computer runs, and
other computer prepared information relating to any of the foregoing.
"ACCOUNTS TRIAL BALANCE" is defined in Section 7.1(e).
"ACQUISITION" means the acquisition by Plastron Industries, Inc. of all
or substantially all of the assets of Target used in the operation of the
Target's business in Bensenville, Illinois.
"ACQUISITION AGREEMENT" means the Asset Purchase Agreement dated
February 17, 1999 among Plastron Industries, Inc., Target, Borrower and Plastron
Management, Inc.
"ADVANCE" means a borrowing of the Revolving Loan requested by Borrower
and made by Lenders under Section 2.l.
"AFFILIATE" means as to any Person (a) any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, (b) any Person who is a director, officer, partner or principal (i)
of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above, or (c) any individual who is a relative of any
Person described in clause (a) or clause (b) above. For purposes of this
definition, "control" of a Person shall mean the power, direct or indirect, (i)
to vote or direct the voting of 10% or more of the securities having ordinary
voting power for the election of directors of such Person, or (ii) to direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise. For the purposes of this Agreement, neither Agent nor any
Lender shall be deemed to be an Affiliate of Borrower or any of its
Subsidiaries.
"AGENT" is defined in the preamble.
"APPLICABLE BASE RATE MARGIN" means
(a) from the date hereof until the Pricing Matrix
Commencement Date, (i) with respect to the Revolving Loan, three eighths of one
percent (.375%) and (ii) with respect to the Term Loans, five eighths of one
percent (.625%) and
(b) on the Pricing Matrix Commencement Date and thereafter,
the applicable percentage for each Loan set forth below beneath such Loan based
upon Borrower's ratio of Senior Debt to EBITDA for the most recent Officer's
Certificate of Borrower furnished pursuant to Section 7.1(c):
<PAGE> 3
<TABLE>
<CAPTION>
APPLICABLE BASE RATE MARGIN
---------------------------------------------
Senior Debt/EBITDA Term and Term
Ratio Revolving Loan Loan A Loan B
------------------ -------------- ------ ------
<S> <C> <C> <C>
< 2.0 0% .250% .250%
>/= 2.0 and < 2.5 .125% .375% .375%
>/= 2.5 .375% .625% .625%
</TABLE>
"APPLICABLE LIBOR MARGIN" means:
(a) from the date hereof until the Pricing Matrix
Commencement Date, (i) with respect to the Revolving Loan, two and three eighths
percent (2.375%) and (iii) with respect to the Term Loans, two and five eighths
percent (2.625%) and
(b) on the Pricing Matrix Commencement Date and thereafter,
with respect to any Loan, the applicable percentage set forth below beneath such
Loan based upon Borrower's ratio of Senior Debt to EBITDA for the most recently
ended period of four consecutive fiscal quarters as set forth in the most recent
Officer's Certificate of Borrower furnished pursuant to Section 7.1(c):
<TABLE>
<CAPTION>
APPLICABLE LIBOR MARGIN
---------------------------
Senior Debt/ Term and Term
EBITDA Ratio Revolving Loan Loan A Loan B
------------------ -------------- ------ ------
<S> <C> <C> <C>
< 1.5 1.625% 1.875% 1.875%
>/= 1.5 and < 2.0 1.875% 2.125% 2.125%
>/= 2.0 and < 2.5 2.125% 2.375% 2.375%
>/= 2.5 2.375% 2.625% 2.625%
</TABLE>
"70% OF THE APPRAISED VALUE OF THE ILLINOIS SITE" means an amount equal
to 70% of the appraised value of the Illinois Site as determined by Agent's
in-house appraiser based upon a current MAI appraisal prepared by an appraiser
and in form satisfactory to Bank; provided, however, that until such appraisal
is received and reviewed by Bank, "70% OF THE APPRAISED VALUE OF THE ILLINOIS
SITE" means $1,900,000.
"ASSIGNMENT AGREEMENT" has the meaning set forth in Section 10.2.
"AVAILABLE AMOUNT" means as of any date the lesser of (i) the Borrowing
Base as of such date and (ii) the Revolving Commitment Limit as of such date.
"BASE RATE" means as of any date a variable rate of interest per annum
which is announced from time to time by Agent as the "prime rate," "reference
rate," "base rate," or other
<PAGE> 4
similar rate. The Base Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer by Agent.
"BORROWING BASE" means as of any date of determination an amount equal
to the sum of:
(x) 85% of the aggregate face amount (less maximum
discounts, credits and allowances granted to Account Debtors in
connection therewith) then outstanding under existing Eligible Accounts,
plus
(y) 45% of the aggregate value of Borrower's then existing
Eligible Inventory valued at the lower of cost (determined on a
first-in-first-out basis) or Fair Market Value, but in no event not to
exceed $5,000,000,
provided, that the foregoing percentages may be reduced at the sole discretion
of the Required Lenders if upon audit and examination of the Accounts and
Inventory of Borrower and its Subsidiaries, the Required Lenders reasonably
determine that the quality and/or character of such Collateral has deteriorated.
"BORROWING BASE CERTIFICATE" has the meaning specified in Section
7.1(e).
"BORROWING REQUEST" is defined in Section 2.4.
"BUSINESS DAY" means any day on which commercial banks are not
authorized or required to close in Los Angeles, California and, if such day
relates to a borrowing of, a payment or prepayment of principal of or interest
on, or a Conversion of or into, or an Interest Period for, a Loan bearing
interest with reference to LIBOR or a notice by Borrower with respect to any
such Loan, a day which is also a day on which dealings in Dollar deposits are
carried out on the London interbank market.
"CAPITAL EXPENDITURES" means the expenditures of any Person which should
be capitalized on the balance sheet of such Person in accordance with GAAP (but
only that portion of Capitalized Lease Obligations paid in cash during the
relevant period) and which are made in connection with the purchase,
construction or improvement of items properly classified on such balance sheet
as Property, plant, equipment or other fixed assets or intangibles, provided
that Capital Expenditures shall not include the portion of any such expenditures
paid for with (a) the Net Cash Proceeds of any property insurance or
condemnation award, (b) the Net Cash Proceeds of a sale of Property permitted
hereunder to the extent used within 30 days after such sale to purchase like or
similar Property, or (c) the Net Cash Proceeds of any purchase money
Indebtedness or Capitalized Leases permitted hereunder for the purpose of
financing such expenditures (provided that payments of principal amounts in
respect of such purchase money Indebtedness or Capitalized Leases shall
nevertheless constitute Capital Expenditures hereunder).
"CAPITALIZED LEASE" means any lease of Property which in accordance with
GAAP should be capitalized on the balance sheet of any Person or for which the
amount of the asset and liability thereunder as if so capitalized should be
disclosed in a note to such balance sheet.
<PAGE> 5
"CAPITALIZED LEASE OBLIGATION" means the amount of the liability of any
Person which in accordance with GAAP should be capitalized or disclosed on the
balance sheet of such Person in respect of a Capitalized Lease.
"CHATTEL PAPER" shall have the meaning provided in the Security
Agreement.
"CLOSING DATE" means the date of the initial disbursement of Loans
hereunder, which (subject to satisfaction of the applicable conditions set forth
herein) shall be on March 5, 1999, or such other date as shall be mutually
acceptable to Borrower, Lenders and Agent and at such place as the parties may
agree.
"CODE" means the Internal Revenue Code of 1986, as from time to time
amended.
"COLLATERAL" means any and all collateral from time to time securing the
Obligations, including without limitation all "Collateral" under and as defined
in any Security Agreement, any Trademark Security Agreement, any Patent Security
Agreement, any Pledge Agreement, the Collateral Assignment and any Mortgage.
"COLLATERAL ASSIGNMENT" mean the Assignment as Collateral Security
executed by Plastron Industries, Inc., a Delaware corporation, in favor of Agent
for the benefit of the Lenders, substantially in the form of Exhibit I, as may
be amended, restated, supplemented or replaced from time to time.
"COLLATERAL DOCUMENTS" mean the Security Agreements, the Trademark
Security Agreements, the Patent Security Agreements, the Pledge Agreements, the
Collateral Assignment and the Mortgages.
"COMMITMENT" means the aggregate commitment of the Lenders to make
Advances of the Revolving Loan to Borrower.
"CONSOLIDATED CURRENT ASSETS" means all assets of Borrower and its
Subsidiaries on a consolidated basis which, in accordance with GAAP, are
properly classified as current assets, including of cash and cash equivalents.
"CONSOLIDATED CURRENT LIABILITIES" means all liabilities of Borrower and
its Subsidiaries on a consolidated basis maturing on demand or within one year
from the date as of which such liabilities are to be determined, and such other
liabilities (including, without limitation, accrued taxes) as may properly be
classified as current liabilities in accordance with GAAP, and including, in any
event, the outstanding principal balance of the Revolving Loan.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including, without limitation, that portion of any Capitalized Lease
Obligations attributable to interest expense in conformity with GAAP and
amortization of capitalized interest) paid or accrued with respect to all
outstanding Indebtedness of Borrower and its Subsidiaries, excluding all
commissions, discounts and other fees and charges owed with respect to letter of
credit and
<PAGE> 6
bankers acceptance financing, prepayment charges, agency fees, administrative
fees, commitment fees, capitalized transaction costs allocated to interest
expense, payments received under such interest rate hedging, cap or similar
agreement or arrangement, all as determined for Borrower and its Subsidiaries on
a consolidated basis for such period in accordance with GAAP.
"CONSOLIDATED NET INCOME (LOSS)" means, for any period, the net income
(or loss) of Borrower and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period, determined in accordance with GAAP
(but in any event without deduction of dividends paid or payable in respect of
any equity interest of Borrower); provided that in determining Consolidated Net
Income (Loss) there shall be excluded (i) the income (or loss) of any Person
(other than a Subsidiary of Borrower) in which any Person other than Borrower or
any of its Subsidiaries has a joint interest or partnership interest, except to
the extent of the amount of dividends or other distributions actually paid to
Borrower or any of its Subsidiaries by such Person during such period, (ii) the
income (or loss) of any Person accrued prior to the date it becomes a Subsidiary
of Borrower or is merged into or consolidated with Borrower or any of its
Subsidiaries or that Person's assets are acquired by Borrower or any of its
Subsidiaries, (iii) the proceeds of any life insurance policy, (iv) gains and
losses from the sale, exchange, transfer or other disposition of Property or
assets not in the ordinary course of business of Borrower and its Subsidiaries,
and related tax effects in accordance with GAAP, (v) any other extraordinary or
non-recurring gains and losses of Borrower or its Subsidiaries, and related tax
effects in accordance with GAAP, and (vi) the income of any Subsidiary of
Borrower to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or of any agreement, instrument, judgment,
decree, Order, statute, rule or governmental regulation applicable to that
Subsidiary.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 3.1 hereof of a LIBOR Loan from one Interest
Period to the next Interest Period.
"CONTRACTS" of any Person means all contracts, undertakings, or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which such Person may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 3.1 hereof of (a) a LIBOR Loan into a Floating Rate Loan, or
(b) a Floating Rate Loan into a LIBOR Loan.
"DEFAULT" means any event or condition which, with due notice or lapse
of time or both, would become an Event of Default.
"DEPOSIT ACCOUNT" of Borrower or any of its Subsidiaries means a
controlled cash collateral account of such Person maintained at Comerica
Bank-California.
"DOCUMENT" shall have the meaning provided in the Security Agreement.
<PAGE> 7
"EBITDA" means, for any period, Consolidated Net Income (Loss) for such
period plus all amounts deducted in determining such Consolidated Net Income
(Loss) on account of Consolidated Interest Expense, taxes based on or measured
by income, depreciation expense, amortization expense and other non-cash items
(including, without limitation, adjustments related to the write-up in the book
value of any assets arising out of the Transactions, to the extent such
adjustments are made pursuant to APB Nos. 16 and 17 and are deducted in
determining Consolidated Net Income (Loss) for such period, but exclusive of
extraordinary and non-recurring items), all as determined for Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"ELIGIBLE ACCOUNT" means each account receivable of Borrower or any of
its Subsidiaries:
(a) that arises out of the sale by Borrower or such
Subsidiary of inventory in the ordinary course of its business
to an Account Debtor located within the United States of America
(provided that in any event (i) accounts receivable of up to
$500,000 at any one time outstanding owed by Ammeraal Conveyor
Belting, B.V. shall be permitted to be Eligible Accounts to the
extent that such accounts receivable would otherwise qualify as
Eligible Accounts pursuant to the other requirements of this
definition) (ii) accounts receivable of up to $150,000 at any
one time outstanding owed by Phillips, B.V. shall be permitted
to be Eligible Accounts to the extent that such accounts
receivable would otherwise qualify as Eligible Accounts pursuant
to the other requirements of this definition; and (iii) accounts
receivable of up to $150,000 at any one time outstanding owed by
Siemans, GmbH shall be permitted to be Eligible Accounts to the
extent that such accounts receivable would otherwise qualify as
Eligible Accounts pursuant to the other requirements of this
definition);
(b) that is the valid, binding and legally enforceable
obligation of the Account Debtor obligated thereon and such
Account Debtor is not (i) an Affiliate of Borrower or of any
Subsidiary of Borrower, (ii) a director, officer or employee of
Borrower or of any Subsidiary or Affiliate of Borrower, (iii)
the United States of America or any department, agency or
instrumentality thereof (or any state or municipality), (iv) a
debtor under any proceeding under the United States Bankruptcy
Code or any other comparable bankruptcy or insolvency law
applicable under the law of any other country or political
subdivision thereof, or (v) an assignor for the benefit of
creditors;
(c) that is assignable and not evidenced by an instrument or
chattel paper unless the same has been endorsed and delivered to
Agent;
(d) that is subject to a perfected, first priority Lien in
favor of Agent, for the benefit of the Lenders and is free and
clear of any other Lien other than Permitted Liens;
<PAGE> 8
(e) that is net of any credit or allowance given by Borrower
or such Subsidiary to such Account Debtor;
(f) for which Borrower or such Subsidiary is not and will
not become liable to the Account Debtor for goods sold or
services rendered by such Account Debtor to Borrower or such
Subsidiary;
(g) that is not subject to any asserted offset, counterclaim
or other defense with respect thereto, provided, however, that
this clause (f) shall not cause an account to fail to be an
Eligible Account to the extent of the portion thereof, if any,
that is not subject to any asserted offset, counterclaim or
other defense;
(h) that is not unpaid more than 90 days after earlier of
(x) the date of the applicable invoice and (y) the date of
shipment;
(i) that is not owed by an Account Debtor who is obligated
on accounts owed to Borrower and its Subsidiaries more than 25%
of the aggregate unpaid balance of which have been past due for
longer than either of the relevant periods specified in clause
(h) above unless the Required Lenders have approved expressly in
writing the continued eligibility thereof;
(j) to the extent that it would not cause the total Eligible
Accounts owing from any one Account Debtor or its Affiliates to
exceed 20% of all Eligible Accounts owed to Borrower or any of
its Subsidiaries; and
(k) that does not arise from a sale to an Account Debtor on
a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or return
basis.
An account receivable which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Account.
"ELIGIBLE INVENTORY" means all finished goods and raw materials
inventory produced or procured pursuant to valid, binding and existing purchase
orders therefore and as to which Borrower or any of its Subsidiaries has title,
provided that such inventory:
(a) is subject to a perfected, first priority Lien in favor
of Agent, for the benefit of the Lenders, and is free and clear
of any other Lien other than Permitted Liens;
(b) is located at (1) one of the locations set forth on
Schedule 6.10 or (2) such other locations within the United
States of America as are permitted pursuant to this Agreement;
(c) is not so identified to a contract to sell that it
constitutes an Account;
<PAGE> 9
(d) has not been acquired by Borrower or such Subsidiary on
consignment and has not been placed out on consignment by
Borrower or such Subsidiary; and
(e) is not obsolete or slow moving Inventory (including,
without limitation, Inventory of a type which has not had
substantial sales during the past twelve months or, in the case
of any product introduced within the past twelve months, since
its date of introduction), and is of good and merchantable
quality free from any defects which might adversely affect the
market value thereof.
Inventory which is at any time Eligible Inventory, but which subsequently fails
to meet any of the foregoing requirements, shall forthwith cease to be Eligible
Inventory.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Emergency Planning and Community Right to Know Act, the Safe Drinking Water Act,
the Hazardous Materials Transportation Act, the Clean Air Act, the Clean Water
Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Noise Control
Act, Occupational Safety and Health Act, the Toxic Substances Control Act, any
so-called "Superfund" or "Superlien" law, any regulation promulgated under any
of the foregoing or any other Federal, state, or local statute, law, ordinance,
code, rule, regulation, order, decree, common law or other requirement of any
Governmental Body regulating, relating to or imposing liability or standards of
conduct concerning the environment, health and safety, siting, wetlands, coastal
zone management, air emissions, discharges to surface or ground water,
discharges to any sewer or septic system, noise emissions, solid waste disposal
or any Hazardous Material, or the generation, use, transportation or other
management of Hazardous Materials, all as now or at any time hereafter may be in
effect.
"ENVIRONMENTAL MATTER" means any claim, investigation, notice letter,
information request, litigation, administrative proceeding, cleanup or
remediation order, whether pending or, to the knowledge of Borrower, threatened,
or judgment or Order, relating to any Hazardous Materials, the release thereof,
or any Environmental Law.
"EQUIPMENT" shall have the meaning provided in the Security Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
from time to time amended.
"ERISA AFFILIATE" means any corporation or other Person which is a
member of the same controlled group (within the meaning of Section 414(b) of the
Code) of corporations or other Persons as Borrower or any of its Subsidiaries,
or which is under common control (within the meaning of Section 414(c) of the
Code) with Borrower or any of its Subsidiaries, or any corporation or other
Person which is a member of an affiliated service group (within the meaning of
Section 414(m) of the Code) with Borrower or any of its Subsidiaries, or any
corporation or other Person which is required to be aggregated with Borrower or
any of its Subsidiaries pursuant to Section 414(o) of the Code or the
regulations promulgated thereunder, to the extent effective.
<PAGE> 10
"EVENT OF DEFAULT" is defined in Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute then in effect, and a reference to a particular
section thereof shall include a reference to the comparable section, if any, of
any such similar Federal statute.
"EXCLUDED SUBSIDIARY" means (a) Summa Industries, Inc., a Barbados
corporation (the "FISC"), (b) Fullerton Holdings, Inc., a California
corporation, and (c) any other Person that may from time to time be designated
as an Excluded Subsidiary with the consent of the Required Lenders; provided any
Excluded Subsidiary (other than the FISC, so long as the FISC owns no material
Property and conducts no material business operations) shall cease to be an
Excluded Subsidiary upon generating gross revenues of $250,000 or more in any
fiscal year, whereupon Borrower shall pledge its interest in such Subsidiary to
Agent for the benefit of the Lenders pursuant to the Pledge Agreement and shall
cause such Subsidiary to execute and deliver the Security Agreement and the
Subsidiary Guarantee.
"EXCLUSIVE LIENS" means Liens encumbering Property of Borrower or any of
its Subsidiaries pursuant to documentation that prohibits the incurrence of any
other Liens on such Property, identified as such on Schedule 6.8(a) and
acceptable to Agent and the Lenders.
"FAIR MARKET VALUE" means the amount a willing buyer would pay to a
willing seller for the assets in question, neither party being under compulsion
to act and both having reasonable knowledge of all relevant facts.
"FLOATING RATE" is defined in Section 3.1.
"FLOATING RATE LOAN" is defined in Section 3.1.
"FUNDED DEBT" of any Person means all items described in clauses (i),
(iii), (iv) and (vi) of the definition of "Indebtedness" set forth herein, and
all Guarantees of such Person in respect of any of such items.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time, applied on a consistent basis
both as to classification of items and amounts.
"GENERAL INTANGIBLES" shall have the meaning provided in the Security
Agreement.
"GOVERNMENTAL BODY" means any Federal, state, county, city, town,
village, municipal or other governmental department, commission, board, bureau,
agency, authority or instrumentality, domestic or foreign.
"GUARANTEE" means any guarantee or other contingent liability (other
than any endorsement for collection or deposit in the ordinary course of
business), direct or indirect, with respect to any obligations of another
Person, through an agreement or otherwise, including, without limitation, (a)
any other endorsement or discount with recourse or undertaking
<PAGE> 11
substantially equivalent to or having economic effect similar to a guarantee in
respect of any such obligations and (b) any agreement (i) to purchase, or to
advance or supply funds for the payment or purchase of, any such obligations,
(ii) to purchase, sell or lease Property, products, materials or supplies, or
transportation or services, in respect of enabling such other Person to pay any
such obligation or to assure the owner thereof against loss regardless of the
delivery or nondelivery of the Property, products, materials or supplies or
transportation or services or (iii) to make any loan, advance or capital
contribution to or other investment in, or to otherwise provide funds to or for,
such other Person in respect of enabling such Person to satisfy any obligation
(including any liability for a dividend, stock liquidation payment or expense)
or to assure a minimum equity, working capital or other balance sheet condition
in respect of any such obligation. The amount of any Guarantee shall be equal to
the outstanding amount of the obligations directly or indirectly guaranteed.
"HAZARDOUS MATERIAL" and "HAZARDOUS MATERIALS" mean, and shall be deemed
to refer to:
(1) any "hazardous substance" as defined in, or for purposes
of, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C.A. Sections 9601 & 9602, or any other
so-called "superfund" or "supERLIEN" law and any judicial
interpretation of any of the foregoing;
(2) any "regulated substance" as defined pursuant to 40
C.F.R. Part 280;
(3) any "pollutant or contaminant" as defined in 42
U.S.C.A. Section 9601(33);
(4) any "hazardous waste" as defined in, or for purposes of,
the Resource Conservation and Recovery Act;
(5) any "hazardous chemical" as defined in 29 C.F.R. Part
1910;
(6) any "hazardous material" as defined in, or for purposes
of, the Hazardous Materials Transportation Act; and
(7) any other substance, regardless of physical form, or
form of energy or pathogenic agent that is subject to any other
past, present or future law or requirement of any Governmental
Body regulating, relating to, or imposing obligations,
liability, or standards of conduct concerning the protection of
human health, plant life, animal life, natural resources,
Property or the reasonable enjoyment of life or Property from
the presence in the environment of any solid, liquid, gas, odor,
pathogen or form of energy, from whatever source.
Without limiting the generality of the foregoing, the term "Hazardous
Material" thus includes, but is not limited to, any material, waste or substance
that contains petroleum or any fraction thereof, asbestos, or polychlorinated
biphenyls, or that is flammable, explosive or radioactive.
<PAGE> 12
"ILLINOIS SITE" means the real property located at 350, 405 and 429 S.
Evergreen, Bensenville, Illinois.
"INDEBTEDNESS" means with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) any obligation
incurred for all or any part of the purchase price of Property or services,
other than accounts payable and accrued expenses included in current liabilities
and incurred in respect of Property or services purchased in the ordinary course
of business, (iii) indebtedness or obligations evidenced by bonds, debentures,
notes or similar written instruments, (iv) the face amount of all letters of
credit issued for the account of such Person and all drafts drawn thereunder,
(v) any obligation (whether or not such Person has assumed or become liable for
the payment of such obligation) secured by a Lien on any Property of such
Person, (vi) Capitalized Lease Obligations of such Person, (vii) all
indebtedness, contingent or otherwise, with respect to any interest rate
agreement, including without limitation any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect Borrower or its Subsidiaries
against fluctuations in interest rates, (viii) any indebtedness, contingent or
otherwise, under any foreign exchange contract, currency swap agreement or other
similar agreement or arrangement designed to protect Borrower or any of its
Subsidiaries against fluctuations in currency values, and (ix) all Guarantees of
such Person.
"INSTRUMENT" of any Person means any "instrument" of such Person, as
such term is defined in Section 9105(l) (i) of the UCC, and shall include,
without limitation, any draft, check, certificate of deposit, note, bill of
exchange, security (including equity securities) or any other writing owned or
held by such person 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.
"INTEREST PERIOD" means, with respect to any portion of the outstanding
principal of the Loans bearing interest from time to time with reference to
LIBOR, the period commencing on and including the date such principal is
advanced or is Converted from the Floating Rate to LIBOR, or the last day of the
immediately preceding Interest Period for such principal (if previously bearing
interest with reference to LIBOR), and ending on but excluding the 30th, 60th,
90th or 120th day thereafter; provided that if any Interest Period would end on
a day that is not a Business Day, such Interest Period shall be extended to the
next day that is a Business Day (unless extending such Interest Period to the
next Business Day would cause the Interest Period to end in a different calendar
month, in which case the last day of such Interest Period shall be the
immediately preceding Business Day). With respect to Advances bearing interest
at the LIBOR Rate, in no event shall an Interest Period extend beyond the
Revolving Maturity Date; and if any Interest Period would otherwise commence
before and end after the Revolving Maturity Date, then the LIBOR shall not be
available hereunder for such period. No Interest Period with respect to any
portion of either Term Loan required to be paid on any principal installment
date shall end past such principal installment date.
"INVENTORY" of any Person means any "inventory" of such Person, as such
term is defined in Section 9109 (4) of the UCC, and shall include, without
limitation, any and all goods owned or
<PAGE> 13
held by or for the account of such Person, 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, packaging, delivery or shipping
of any of the foregoing, supplies, and all property the sale, lease or other
disposition of which has given rise to Accounts and which has been returned to
such Person or repossessed by such Person or stopped in transit, all
substitutions and replacements therefore and all additions and accessions
thereto; and all customer lists, ledgers, books of account, records, computer
programs, computer disks or tape files, computer printouts, computer runs, and
other computer prepared information relating to any of the foregoing.
"INVESTMENT" means with respect to any Person, any investment of such
Person so classified under GAAP, and, whether or not so classified, includes (a)
any loan or advance made by such Person to any other Person, (b) any Guarantee,
and (c) any ownership or similar interest in any other Person; and the amount of
any Investment shall be the original principal or capital amount thereof less
all cash returns of principal or equity thereof (and without adjustment by
reason of the financial condition of such other Person).
"ISSUING BANK" means Comerica Bank-California in its capacity as issuer
of one or more Letters of Credit hereunder, or its successor designated by the
Borrower and the Required Lenders.
"ISSUING OFFICE" means Issuing Bank's office located at 301 East Ocean
Blvd., Long Beach, California 90802 or such other office as Issuing Bank shall
designate as its Issuing Office.
"LETTER(S) OF CREDIT" means any commercial letters of credit issued by
Issuing Bank under this Agreement at the request of and for the account of
Borrower pursuant to Section 2.8.
"LETTER OF CREDIT AGREEMENT" means in respect of each Letter of Credit,
the application and related documentation satisfactory to the Issuing Bank of
Borrower requesting Issuing Bank to issue such Letter of Credit, as amended from
time to time.
"LETTER OF CREDIT DOCUMENTS" is defined in Section 2.8.
"LETTER OF CREDIT FEES" means the fees payable to Agent for the account
of the Lenders in connection with Letters of Credit pursuant to Section 2.8
"LETTER OF CREDIT MAXIMUM AMOUNT" means One Million Dollars
($1,000,000).
"LETTER OF CREDIT OBLIGATIONS" means as of any date of determination,
the sum of (a) the aggregate undrawn amount of all Letters of Credit then
outstanding, (b) the aggregate face amount of all Letters of Credit requested
but not yet issued as of such date and (c) the aggregate amount of Reimbursement
Obligations which have not been reimbursed by Borrower as of such date.
<PAGE> 14
"LETTER OF CREDIT PAYMENT" means any amount paid or required to be paid
by the Issuing Bank in its capacity hereunder as issuer of a Letter of Credit as
a result of a draft or other remand for payment under any Letter of Credit.
"LIBOR" means, with respect to any portion of the outstanding Loans for
any Interest Period therefore, the offered rate per annum for deposits of
Dollars for a period equal to such Interest Period that appears on Telerate Page
3750 as of 11:00 A.M. (London, England time) two Business Days prior to the
commencement of such Interest Period. If no such offered rate exists, the rate
in respect of such Interest Period will be the rate of interest per annum, as
determined by Agent (rounded upwards, if necessary, to the nearest 1/16 of 1%)
at which deposits of Dollars in immediately available and freely transferable
funds are offered at 11:00 A.M. (London, England time) two Business Days prior
to the commencement of such Interest Period by major financial institutions
reasonably satisfactory to Agent in the London interbank market for a period
equal to such Interest Period and for an amount equal or comparable to such
portion of the principal amount of the Loans.
"LIBOR RATE" is defined in Section 3.1.
"LIBOR LOAN" is defined in Section 3.1.
"LIEN" means any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, title retention agreement or lessor's interest under a
Capitalized Lease or analogous instrument.
"LOAN" means each of the Revolving Loan, Term Loan A and Term Loan B, or
any portion thereof, and "Loans" means all of such loans collectively.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Subsidiary
Guarantees, the Security Agreements, the Trademark Security Agreements, the
Patent Security Agreements, the Pledge Agreements, the Collateral Assignment,
the Mortgages and all other documents, instruments and agreements (including
financing statements and certificates executed and delivered from time to time
in connection with or pursuant to this Agreement), as may be amended, restated,
supplemented or replaced from time to time.
"MATERIAL ADVERSE EFFECT" means any change or changes or effect or
effects that individually or in the aggregate are or are likely to be materially
adverse to (i) the assets, business, operations, income, prospects or condition
(financial or otherwise) of Borrower and its Subsidiaries taken as a whole, (ii)
the Transactions, (iii) the ability of Borrower and its Subsidiaries to perform
its respective obligations under this Agreement, the Notes, and the other Loan
Documents to which they may be parties or (iv) the validity or enforceability of
any of the Loan Documents in any manner that would impair the practical
realization by Agent or the Lenders of their respective rights, benefits or
remedies under any thereof.
"MAXIMUM AVAILABILITY" shall mean as of any date of determination an
amount equal to the then applicable Revolving Commitment Limit minus the sum (i)
the principal amount of all
<PAGE> 15
outstanding Advances on such date plus (ii) the aggregate amount of Letter of
Credit Obligations outstanding on such date.
"MORTGAGE" means a Mortgage substantially in the form of Exhibit F-1 or
a Deed of Trust substantially in the form of Exhibit F-2 pursuant to which a
Site shall be pledged to Agent, for the benefit of the Lenders, as collateral
for the Obligations, as may be amended, restated, supplemented or replaced from
time to time.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
3(37) or Section 4001 (a)(3) of ERISA or Section 414(f) of the Code contributed
to by Borrower or any of its ERISA Affiliates and which is subject to Title IV
of ERISA.
"NET CASH PROCEEDS" means, with respect to (a) an incurrence by Borrower
or any of its Subsidiaries of any Indebtedness, (b) the issuance and sale by
Borrower or any of its Subsidiaries of any of its equity interests or (c) any
sale, lease, transfer or other voluntary or involuntary disposition of any
Property of Borrower or any of its Subsidiaries (other than sales of Inventory
in the ordinary course of business, but including, without limitation, a sale or
disposition of any capital stock of any Subsidiary, and any receipt of fire,
property, casualty or similar insurance proceeds or condemnation awards in
respect of such Property), the aggregate amount of cash consideration received
by Borrower or any of its Subsidiaries in connection with such transaction after
deduction of (i) all fees, costs and expenses directly incurred by Borrower or
such Subsidiary in connection therewith, including, without limitation,
underwriting discount, brokerage or selling commissions, if any, (ii) taxes paid
or payable in connection with such transaction, (iii) in the case of any sale,
lease, transfer or disposition of Property, the amount of Indebtedness secured
by such Property required to be repaid in connection with such transaction, (iv)
in the case of any incurrence of Indebtedness for the purpose of refinancing any
existing Indebtedness, the amount of the existing Indebtedness being so
refinanced, and (v) the reasonable fees and disbursements of counsel paid by
Borrower or any of its Subsidiaries in connection therewith.
"NOTE" means the Revolving Note, Term Note A or Term Note B and "NOTES"
means all of them.
"OBLIGATIONS" means all obligations (monetary or otherwise) of Borrower
and its Subsidiaries to Agent and the Lenders arising under or in connection
with this Agreement, the Notes and each other Loan Document; provided that the
Obligations of any Subsidiary of Borrower shall be limited to the maximum amount
of such Subsidiary's liability under the Subsidiary Guarantee.
"ORDER" means any order, writ, injunction, decree, judgment, award,
determination or written direction or demand of any court, arbitrator or
Governmental Body.
"PATENT SECURITY AGREEMENT" means a Patent Security Agreement
substantially in the form of Exhibit J-1, made by Borrower or a Subsidiary of
Borrower in favor of Agent, for the benefit of the Lenders, as may be amended,
restated, supplemented or replaced from time to time.
<PAGE> 16
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor
agency or Governmental Body performing similar functions.
"PENSION PLAN" means an employee pension benefit plan, as defined in
Section 3(2) of ERISA which is subject to Section 412 of the Code, Section 302
of ERISA or Title IV of ERISA, excluding a Multiemployer Plan, maintained by or
contributed to by Borrower or any of its ERISA Affiliates.
"PERCENTAGE" means, with respect to any Lender, such Lender's percentage
share, as set forth on Schedule 1 of this Agreement, of each Loan and its risk
participation in Letters of Credit, as such Schedule may be revised from time to
time in accordance with Section 10.2.
"PERMITTED INVESTMENTS" means, (i) marketable obligations issued or
fully guaranteed by the United States of America or an instrumentality or agency
thereof maturing within 180 days after acquisition thereof, (ii) open market
commercial paper, maturing within 180 days after acquisition thereof, which has
the highest credit rating of either Standard & Poor's Corporation or Moody's
Investors Service, Inc., issued by a Person (other than Borrower or any of its
Subsidiaries or Affiliates) organized under the laws of any State of the United
States of America or of the District of Columbia, and (iii) certificates of
deposit or bankers acceptances or other obligations maturing within 180 days
after acquisition thereof issued by a domestic commercial bank which is a member
of the Federal Reserve System and has capital and surplus and undivided profits
in excess of $500,000,000.
"PERMITTED LIENS" is defined in Section 7.8.
"PERSON" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"PLEDGE AGREEMENT" means a pledge agreement substantially in the form of
Exhibit G, pursuant to which Borrower or a Subsidiary pledges to Agent, for the
benefit of the Lenders, all of such Person's ownership interests in each of its
Subsidiaries (other than Excluded Subsidiaries), as amended by Amendment,
Joinder and Reaffirmation of Certain Loan Documents in the form of Exhibit P,
and as may be further amended, restated, supplemented or replaced from time to
time.
"PRICING MATRIX COMMENCEMENT DATE" means the date on which the financial
statements for Borrower's fiscal year ending August 31, 1999 are received by
Agent under Section 7.1(b).
"PRIOR LOAN AGREEMENT" has the meaning set forth in the Recitals.
"PROPERTY" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal, or mixed,
tangible or intangible.
"REAL ESTATE RESERVE" initially means 70% of the Appraised Value of the
Illinois Site. Upon satisfaction of both of the following conditions, the Real
Estate Reserve shall mean $0:
<PAGE> 17
(i) Delivery to Agent of each of the items described
on Schedule 1A in form satisfactory to Bank; and
(ii) Receipt by Agent of an environmental assessment
report of the Illinois Site in form satisfactory to Bank
prepared by environmental consultants satisfactory to Agent
showing no environmental condition unacceptable to Required
Lenders in the exercise of their sole discretion.
"REQUIRED LENDERS" means, as of any date of determination (a) so long as
the Revolving Commitment Limit is outstanding hereunder, Lenders holding not
less than 66-2/3% of the aggregate principal amount of (i) the Revolving
Commitment Limit, plus (ii) the Obligations then outstanding under Term Loan A,
plus (iii) the Obligations then outstanding under Term Loan B and (b) if the
Revolving Commitment Limit has been terminated, the Lenders holding not less
than 66-2/3% of the aggregate principal amount of the Obligations then
outstanding hereunder; provided, however, that for purposes of determining
Required Lenders hereunder, Obligations outstanding under any Letter of Credit
shall be allocated among the Lenders based on their respective Percentages of
the Commitment.
"RESTRICTED PAYMENT" means, with respect to any Person,
(a) the declaration or payment of any dividend or other distribution
on, or the incurrence of any liability to make any other payment in respect of,
capital stock or other equity interest of such Person (other than one payable
solely in the same class of capital stock of such Person),
(b) any payment or distribution on account of the purchase,
redemption, defeasance (including in-substance or legal defeasance) or other
retirement of any capital stock of such Person, or of any warrant, option or
other right to acquire such capital stock, or any other payment or distribution
made in respect thereof, and
(c) any payment or distribution by such Person on account of the
principal of or prepayment charge, if any, or interest or other amounts, with
respect to any Indebtedness of Borrower or any of its Subsidiaries which is
subordinated and subject in right of payment to the prior payment of the
Obligations.
The amount of any Restricted Payment made in the form of Property shall
be deemed to be the Fair Market Value of such Property as of the date of such
payment.
"REVOLVING COMMITMENT LIMIT" is defined in Section 2.1.
"REVOLVING LOAN" is defined in Section 2.1.
"REVOLVING MATURITY DATE" means the earlier of (i) December 31, 2001 and
(ii) the date on which the Commitment is terminated pursuant to Section 8.2.
<PAGE> 18
"REVOLVING NOTE" is defined in Section 2.1.
"SEC" means the United States Securities and Exchange Commission and any
other agency or Governmental Body that may hereafter succeed to the functions
thereof.
"SECURITIES ACT" means as of any date the Securities Act of 1933, as
amended, or any similar Federal statute then in effect, and a reference to a
particular section thereof shall include a reference to the comparable section,
if any, of any such similar Federal statute.
"SECURITY AGREEMENT" means, collectively, the security agreement(s)
executed and delivered by Borrower and each of its Subsidiaries (other than
Excluded Subsidiaries) in favor of Agent, for the benefit of the Lenders,
substantially in the form of Exhibit C, as amended by Amendment, Joinder and
Reaffirmation of Certain Loan Documents in the form of Exhibit P, as may be
further amended, restated, supplemented or replaced from time to time.
"SENIOR DEBT" means all outstanding Funded Debt of Borrower and its
Subsidiaries, less the principal amount of any such Funded Debt which is
expressly subordinated to the payment of the Obligations pursuant to written
subordination agreements satisfactory to Agent.
"SITE" means (a) 10163 U.S. 31 North, Charlevoix, Michigan, (b) One Gum
Branch Road, Dickson, Tennessee, (c) 350, 405 and 429 S. Evergreen, Bensenville,
Illinois and (d) each other parcel of real property or hereafter acquired by
Borrower or any Subsidiary or hereafter required to be made subject to a
Mortgage pursuant to Section 7.20.
"SOLVENT" means, when used with respect to any Person, that (A) the fair
value of the property of such Person is greater than the total amount of
liabilities (including, without limitation, contingent liabilities) of such
Person, (B) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liabilities of
such Person on its debts as they become absolute and matured, (C) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (D) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital. For such purposes, any
contingent liability (including, without limitation, pending litigation,
Guarantees, pension plan liabilities and claims for federal, state, local and
foreign taxes, if any) is valued at the amount that, in light of all the facts
and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"SUBSIDIARY" means as to any Person (a) a corporation of which
outstanding shares of stock having ordinary voting power (other than stock
having such power only by reason of the happening of a contingency) to elect a
majority of the Board of Directors of such corporation are at the time owned,
directly or indirectly through one or more intermediaries, or both, by such
Person and (b) any partnership, association, joint venture or other business
entity the controlling interest of which is at the time owned, directly or
indirectly through one or more intermediaries, or both, by such Person.
<PAGE> 19
"SUBSIDIARY GUARANTEE" means the guaranty executed and delivered by the
Subsidiaries of Borrower (other than Excluded Subsidiaries) in favor of Agent,
for the benefit of the Lenders, substantially in the form of Exhibit H, as may
be amended, restated, supplemented or replaced from time to time.
"TARGET" means Plastron Industries, L.P., a Delaware limited
partnership.
"TERM LOAN A" is defined in Section 2.2.
"TERM LOAN B" is defined in Section 2.3.
"TERM LOANS" shall mean Term Loan A and Term Loan B.
"TERM NOTE A" is defined in Section 2.2.
"TERM NOTE B" is defined in Section 2.3.
"TRADEMARK SECURITY AGREEMENT" means a trademark security agreement
substantially in the form of Exhibit J-2, made by Borrower or a Subsidiary of
Borrower in favor of Agent, for the benefit of the Lenders, as may be amended,
restated, supplemented or replaced from time to time.
"TRANSACTIONS" means the Acquisition, the Loans to be made on the
Closing Date, and the other actions to be taken and documents to be delivered on
or prior to the Closing Date as contemplated by this Agreement and the other
Loan Documents.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Agent's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" means the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
2. CREDIT FACILITIES. Lenders shall provide the following credit
facilities to Borrower (the Revolving Loan, Term Loan A and Term Loan B are
sometimes referred to collectively as the "Facilities" and individually as a
"Facility"):
2.1 REVOLVING LOAN. Lenders agree to make available to Borrower, in
an amount not to exceed each such Lender's Percentage of the Revolving Loan, a
revolving line of credit (the "Revolving Loan") in the maximum principal amount
outstanding at any one time of SEVENTEEN MILLION DOLLARS ($17,000,000) (the
"Revolving Commitment Limit"), which Revolving Loan shall be evidenced by one or
more Revolving Notes, each substantially in the form of Exhibit A hereto (each,
a "Revolving Note" and collectively the "Revolving Notes"). Each Revolving Note
shall be registered in the name of a Lender and shall have a maximum
<PAGE> 20
principal amount equal to such Lender's Percentage of the Commitment. The
Revolving Loan shall mature and be payable in full on the Revolving Maturity
Date. Subject to the terms and conditions of this Agreement, including without
limitation, Section 3.7, Borrower may from time to time repay all or a portion
of the amounts outstanding under the Revolving Loan (together with accrued
interest to the date of repayment on the principal amount so repaid), which
amounts may be reborrowed (subject to the Revolving Commitment Limit and the
Available Amount) so long as the Commitment of the Lenders to make Advances
under the Revolving Loan has not been terminated. In no event shall the sum of
the aggregate outstanding Advances plus the outstanding Letter of Credit
Obligations plus the Real Estate Reserve exceed the lesser of (i) the Revolving
Commitment Limit or (ii) the Available Amount.
2.2 TERM LOAN A. Lenders have previously provided Borrower with a
term loan (the "Term Loan A") in the original principal amount of THIRTEEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($13,500,000), which Term Loan A is
evidenced by term notes payable to each of the Lenders in the form of Exhibit B
hereto (each "Term Note A") in the principal amount equal to each Lender's
Percentage of the principal indebtedness outstanding under Term Loan A on the
Closing Date. The aggregate principal amount outstanding under Term Loan A on
the Closing Date is $9,030,272.58. Term Loan A shall be deemed to have been made
under this Agreement. In no event may Borrower re-borrow any principal portion
of Term Loan A that has been repaid. Principal shall be payable as provided in
Section 3.3, and interest shall be payable concurrently with principal. At its
option, Borrower may from time to time prepay all or any portion of the
outstanding principal of Term Loan A, together with accrued interest on the
principal being so prepaid and any amount payable pursuant to Section 3.7.
Borrower shall be entitled to designate the scheduled principal payments to
which any partial voluntary prepayment under Term Loan A is to be applied; in
such event Borrower shall pay accrued interest on the outstanding principal of
Term Loan A on the payment dates when such prepaid principal payments would
otherwise have been due.
2.3 TERM LOAN B. Subject to the terms and conditions of this
Agreement, Lenders agree to provide Borrower on the date hereof, with a term
loan ("Term Loan B") in the principal amount of TWELVE MILLION DOLLARS
($12,000,000) which Term Loan B shall be evidenced by one or more Term Notes,
each substantially in the form of Exhibit B-1 hereto (each a "Term Note B" and
collectively "Term Note B") payable to each Lender in an amount equal to such
Lender's Percentage of Term Loan B. In no event may Borrower re-borrow any
principal portion of Term Loan B that has been repaid. Subject to the provisions
of Section 7.9(d), the Term Loan B proceeds shall be used by Borrower to make a
loan or capital contribution to Plastron Industries, Inc. to finance the
Acquisition. Principal shall be payable as provided in Section 3.3, and interest
shall be payable concurrently with principal. At its option, Borrower may from
time to time prepay all or any portion of the outstanding principal of Term Loan
B, together with accrued interest on the principal being so prepaid and any
amount payable pursuant to Section 3.7. Borrower shall be entitled to designate
the scheduled principal payments to which any partial voluntary prepayment under
Term Loan B is to be applied; in such event Borrower shall pay accrued interest
on the outstanding principal of Term Loan B on the payment date when such
prepaid principal amounts of others have been due.
<PAGE> 21
2.4 BORROWING PROCEDURE; FUNDING RELIANCE.
(a) Borrower may request an Advance pursuant to written
notice or pursuant to telephonic notice confirmed in writing or by facsimile
(each a "Borrowing Request"). Subject to the provisions of Section 3.1, each
Borrowing Request shall be made not later than 2:00 p.m., Pacific Time, the last
Business Day immediately preceding the proposed date of the Advance, unless the
Borrowing Request is with respect to a LIBOR Loan, in which case such Borrowing
Request shall be made not later than three (3) Business Days preceding the
proposed date of the Advance, and shall specify the date and amount of the
requested Advance, the Interest Period therefore, and whether such Advance is to
bear interest with reference to LIBOR or the Floating Rate for such Interest
Period. All Borrowing Requests and confirmations thereof in writing or by
facsimile must be signed by an officer of Borrower who has been identified in
writing to Agent as an officer authorized to make Borrowing Requests on behalf
of Borrower.
(b) Unless Agent shall have been notified by telephone,
confirmed in writing, by any Lender by 5:00 P.M., Pacific time, on the Business
Day prior to an Advance that such Lender will not make available the amount
which would constitute its Percentage of such Advance on the date specified
therefore, Agent may assume that such Lender has made such amount available to
Agent and, in reliance upon such assumption, make available to Borrower a
corresponding amount. If and to the extent that such Lender shall not have made
such amount available to Agent, such Lender and Borrower severally agree to
repay Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date Agent made such amount available to Borrower
to the date such amount is repaid to Agent, at the interest rate applicable at
the time to the portion of the Revolving Loan comprising such Advance.
2.5 LENDERS' RECORDS. With respect to each Advance and Loan, each Lender
is hereby authorized to note the date, principal amount, interest rate and
Interest Period (if any) applicable thereto and any payments made thereon on its
books and records (either manually or by electronic entry) and/or on any
schedule attached to the applicable Note, which notations shall be conclusive
evidence of the information noted, in the absence of manifest error.
Notwithstanding the foregoing, the failure by any Lender to record any such
information shall not impair the liability of Borrower to make any payment of
the Obligations when due.
2.6 FEES.
(a) As a closing fee for the Loans provided hereunder,
Borrower shall pay to Agent, for the benefit of Lenders, pro-rata in accordance
with their respective Percentages, the sum of $105,000, which sum shall be
non-refundable, at or prior to closing of the Transactions. Agent acknowledges
receipt of such sum. Agent shall make prompt payment to each Lender of its share
of such fee, based upon its respective Percentage.
(b) From the Closing Date to the Revolving Maturity Date
Borrower shall pay to the Agent for distribution to the Lenders, pro-rata in
accordance with their respective Percentages, a non-refundable commitment fee
with respect to the Revolving Loan quarterly in arrears commencing May 31, 1999
(in respect of the prior fiscal quarter or portion thereof) and
<PAGE> 22
on the first day of each fiscal quarter thereafter equal to the average daily
balance of the unused portion of the Revolving Commitment Limit times .125%
computed on a daily basis. The fee under this Section 2.6(b) shall be computed
on the basis of a year of 360 days and assessed for the actual number of days
elapsed. Upon receipt of such payment, Agent shall make prompt payment to each
Lender of its share of such fee, based upon its respective Percentage.
2.7 VOLUNTARY COMMITMENT REDUCTIONS. Upon three (3) Business Days'
prior written notice to Agent, Borrower may from time to time, on any Business
Day, effect a permanent reduction of the Revolving Commitment Limit; provided,
however, that:
(i) to the extent that the outstanding Advances plus the amount
of outstanding Letter of Credit Obligations would exceed the Available
Amount after giving effect to the requested reduction, Borrower shall,
concurrently with the reduction of the Revolving Commitment Limit, make
a prepayment of the Revolving Loan in an amount sufficient to cause
Borrower to be in compliance with the Available Amount after giving
effect to such reduction; and
(ii) each such reduction in the Revolving Commitment Limit shall
be in an aggregate minimum amount of $500,000 and an integral multiple
of $25,000.
Each reduction of the Revolving Commitment Limit shall reduce, pro-rata, the
Lenders' respective portions of the Revolving Commitment Limit.
2.8 LETTERS OF CREDIT.
(a) Letters of Credit. Subject to the terms and conditions
of this Agreement, Agent shall through the Issuing Office, at any time and from
time to time from and after the date hereof until thirty (30) days prior to the
Revolving Maturity Date, upon the written request of an Account Party(ies)
accompanied by a duly executed Letter of Credit Agreement and such other
documentation related to the requested Letter of Credit as the Agent may
require, issue Letters of Credit for the account of such Account Party(ies), in
an aggregate amount for all Letters of Credit issued hereunder at any one time
outstanding not to exceed the Letter of Credit Maximum Amount. Each Letter of
Credit shall be in a minimum face amount of One Hundred Thousand Dollars
($100,000) (or such lesser amount as may be agreed to by Issuing Bank) and each
Letter of Credit (including any renewal thereof) shall expire on the earlier to
occur of (x) one (1) year from the date of issuance and (y) not later than ten
(10) Business Days prior to the Revolving Maturity Date in effect on the date of
issuance thereof. The submission of all applications in respect of and the
issuance of each Letter of Credit hereunder shall be subject in all respects to
the Uniform Customs and Practices for Documentary Credits of the International
Chamber of Commerce, 1993 Revisions, ICC Publication No. 500 or, if applicable,
ISP 98. Each application for Letter of Credit shall have noted on the first page
thereof, or shall be deemed to have noted thereon:
<PAGE> 23
"Note: This application is entered into in accordance with that
certain Amended and Restated Loan Agreement dated as of March 5, 1999,
as amended or otherwise modified from time to time (the "Credit
Agreement") among the Lenders signatory thereto and Comerica
Bank-California, as Agent for the Banks, and Summa Industries and in the
event of a conflict between this application and the Credit Agreement,
the terms and conditions of the Credit Agreement shall govern."
(b) Conditions to Issuance. No Letter of Credit shall be
issued at the request and for the account of any Account Party(ies) unless, as
of the date of issuance of such Letter of Credit:
(i) the face amount of the Letter of Credit
requested plus the face amount of all other Letters of Credit
requested on such date, plus the aggregate amount of all other
Letter of Credit Obligations then outstanding does not exceed
the Letter of Credit Maximum Amount; and
(ii) the face amount of the Letter of Credit
requested plus the face amount of all other Letters of Credit
requested on such date plus the principal amount of any Advances
of the Revolving Loan being requested by Borrower on such date
does not exceed the Maximum Availability;
(iii) the obligations of the Borrower set forth in
this Agreement and the other Loan Documents are valid, binding
and enforceable obligations of the Borrower and the valid,
binding and enforceable nature of this Agreement and the other
Loan Documents has not been disputed by the Borrower;
(iv) the representations and warranties contained in
this Agreement and the other Loan Documents are true in all
material respects as if made on such date, except to the extent
(x) a representation or warranty is made as of a specific date
or (y) Borrower has notified Agent of occurrences or provided
information after the Closing Date to supplement such
representations or warranties which are no longer true and
correct in all material respects and such occurrences or
supplemental information do not constitute a Default or Event of
Default, and both immediately before and immediately after
issuance of the Letter of Credit requested, no Default or Event
of Default exists;
(v) the execution of the Letter of Credit Agreement
with respect to the Letter of Credit requested will not violate
the terms and conditions of any contract, agreement or other
borrowing of the relevant Account Party(ies);
(vi) the Account Party(ies) shall have delivered to
Agent at its Issuing Office, not less than three (3) Business
Days prior to the requested date for issuance (or such shorter
time as the Agent, in its sole discretion, may permit), the
<PAGE> 24
Letter of Credit Agreement related thereto, together with such
other documents and materials as may be required pursuant to the
terms thereof, and the terms of the proposed Letter of Credit
shall be satisfactory to Agent;
(vii) no order, judgment or decree of any court,
arbitrator or governmental authority shall purport by its terms
to enjoin or restrain Agent from issuing the Letter of Credit
requested, or any Lender from taking an assignment of its
Commitment thereof pursuant to Section 2.8(f) hereof, and no
law, rule, regulation, request or directive (whether or not
having the force of law) shall prohibit or request that Agent
refrain from issuing, or any Lender refrain from taking an
assignment of its Commitment of, the Letter of Credit requested
or letters of credit generally;
(viii) there shall have been no introduction of or
change in the interpretation of any law or regulation that would
make it unlawful or unduly burdensome for the Agent to issue or
any Lender to take an assignment of its Commitment of the
requested Letter of Credit, no suspension of or material
limitation on trading on the New York Stock Exchange or any
other national securities exchange, no declaration of a general
banking moratorium by banking authorities in the United States,
California or the respective jurisdictions in which the Lenders,
the applicable Account Party(ies) and the beneficiary of the
requested Letter of Credit are located, and no establishment of
any new restrictions on transactions involving letters of credit
or on banks materially affecting the extension of credit by
banks; and
(ix) Agent shall have received the issuance fees
required in connection with the issuance of such Letter of
Credit pursuant to Section 2.8(d) hereof.
Each Letter of Credit Agreement submitted to Agent pursuant hereto shall
constitute the certification by the Account Party(ies) of the matters set forth
in Section 2.8(b)(i) through (v) hereof. The Agent shall be entitled to rely on
such certification without any duty of inquiry.
(c) Notice. Agent shall give notice, substantially in the
form attached as Exhibit M, to each Lender of the issuance of each Letter of
Credit, not later than three (3) Business Days after issuance of each Letter of
Credit, specifying the amount thereof and the amount of such Lender's Percentage
thereof.
(d) Letter of Credit Fees. Borrower shall pay to the Agent
for distribution to the Lenders in accordance with their Percentages, letter of
credit fees as follows:
(i) A letter of credit facing fee in the amount
equal to one-eighth percentage point (0.125%) per annum on the
undrawn amount of each Letter of Credit to be retained by Agent
for its own account.
<PAGE> 25
(ii) If any change in any law or regulation or in the
interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof
shall either (i) impose, modify or cause to be deemed applicable
any reserve, special deposit, limitation or similar requirement
against letters of credit issued or participated in by, or
assets held by, or deposits in or for the account of, Agent or
any Lender or (ii) impose on Agent or any Lender any other
condition regarding this Agreement, the Letters of Credit or any
participations in such Letters of Credit, and the result of any
event referred to in clause (i) or (ii) of this subparagraph
shall be to increase the cost or expense to Agent or such Lender
of issuing or maintaining or participating in any of the Letters
of Credit (which increase in cost or expense shall be determined
by the Agent's or such Lender's reasonable allocation of the
aggregate of such cost increases and expenses resulting from
such events), then, upon written demand by the Agent or such
Lender, as the case may be, the applicable Account Party(ies)
shall, within thirty (30) days following demand for payment, pay
to Agent or such Lender, as the case may be, from time to time
as specified by the Agent or such Lender, additional amounts
which shall be sufficient to compensate the Agent or such Lender
for such increased cost and expense, together with interest on
each such amount from ten days after the date demanded until
payment in full thereof at the Floating Rate. A certificate as
to such increased cost or expense incurred by the Agent or such
Lender, as the case may be, as a result of any event mentioned
in clause (i) or (ii) of this subparagraph, submitted to the
applicable Account Party(ies), shall be conclusive evidence,
absent manifest error, as to the amount thereof.
(iii) All payments by the Borrower to the Agent or the
Lenders under this Section 2.8(d) shall be made in immediately
available funds at the Issuing Office or such other office of
the Agent as may be designated from time to time by written
notice to the Borrower by the Agent. The fees described in
clause (i) of this Section 2.8(d) shall be nonrefundable under
all circumstances, shall be payable quarterly in advance (or
such lesser period, if applicable, for Letters of Credit issued
with stated expiration dates of less than three months) upon the
issuance of each such Letter of Credit, and shall be calculated
on the basis of a 360 day year and assessed for the actual
number of days from the date of the issuance thereof to the
stated expiration thereof.
(e) Other Fees. In connection with the Letters of Credit,
and in addition to the Letter of Credit Fees, the applicable Account Party(ies)
shall pay, for the sole account of the Agent, standard documentation,
administration, payment and cancellation charges assessed by Agent or the
Issuing Office, at the times, in the amounts and on the terms set forth or to be
set forth from time to time in the standard fee schedule of the Issuing Office
in effect from time to time and delivered to the relevant Account Party(ies).
(f) Drawings and Demands for Payment Under Letters of
Credit.
<PAGE> 26
(i) The applicable Account Party(ies) agrees to pay
to the Agent, on the day on which the Agent shall honor a draft
or other demand for payment presented or made under any Letter
of Credit, an amount equal to the amount paid by the Agent in
respect of such draft or other demand under such Letter of
Credit and all expenses paid or incurred by the Agent relative
thereto. Unless the applicable Account Party(ies) shall have
made such payment to the Agent on such day, upon each such
payment by the Agent, the Agent shall be deemed to have
disbursed to the applicable Account Party(ies), and the
applicable Account Party(ies) shall be deemed to have elected to
substitute for its reimbursement obligation, with respect to
Letters of Credit an Advance bearing interest at the Floating
Rate, commencing three (3) Business Days following the date of
Agent's payment pursuant to the applicable Letter of Credit, of
one month (or, if unavailable, such other Interest Period as
selected by Agent in its sole discretion), in each case for the
account of the Lenders in an amount equal to the amount so paid
by the Agent in respect of such draft or other demand under such
Letter of Credit. Such Advance shall be deemed disbursed
notwithstanding any failure to satisfy any conditions for
disbursement of any Advance set forth in this Agreement and, to
the extent of the Advances so disbursed, the reimbursement
obligation of the applicable Account Party(ies) under this
Section 2.8(f) shall be deemed satisfied.
(ii) If the Agent shall honor a draft or other demand
for payment presented or made under any Letter of Credit, the
Agent shall provide notice thereof to the applicable Account
Party(ies) on the date such draft or demand is honored, and to
each Lender on such date unless the applicable Account
Party(ies) shall have satisfied its reimbursement obligation
under Section 2.8(f)(i) hereof by payment to the Agent on such
date. The Agent shall further use reasonable efforts to provide
notice to the applicable Account Party(ies) prior to honoring
any such draft or other demand for payment, but such notice, or
the failure to provide such notice, shall not affect the rights
or obligations of the Agent with respect to any Letter of Credit
or the rights and obligations of the parties hereto, including
without limitation the obligations of the applicable Account
Party(ies) under Section 2.8(f)(i) hereof.
(iii) Upon issuance by the Agent of each Letter of
Credit hereunder, each Lender shall automatically acquire a pro
rata participation interest in such Letter of Credit and each
related Letter of Credit Payment based on its respective
Percentage of the Revolving Loan. Each Lender, on the date a
draft or demand under any Letter of Credit is honored (or the
next succeeding Business Day if the notice required to be given
by Agent to the Banks under Section 2.8(f)(ii) hereof is not
given to the Revolving Credit Banks prior to 2:00 p.m. (Los
Angeles time) on such date of draft or demand), shall make its
Percentage of the amount paid by the Agent, and not reimbursed
by the applicable Account Party(ies) on such day, and in
immediately available funds at the principal office of the Agent
for the account of the Agent. If and to the extent such Lender
shall not
<PAGE> 27
have made such pro rata portion available to the Agent, such
Lender, the applicable Account Party(ies) agrees to pay to the
Agent forthwith on demand such amount together with interest
thereon, for each day from the date such amount was paid by the
Agent until such amount is so made available to the Agent at a
per annum rate equal to the interest rate applicable during such
period to the related Advance deemed to have been disbursed
under Section 2.8(f) in respect of the reimbursement obligation
of the applicable Account Party(ies), as set forth in Section
2.4(b) hereof. If such Lender shall pay such amount to the Agent
together with such interest, such amount so paid shall be deemed
to constitute an Advance by such Bank disbursed in respect of
the reimbursement obligation of the applicable Account
Party(ies) under Section 2.8(f) hereof for purposes of this
Agreement, effective as of the dates applicable under said
Section 2.8(f). The failure of any Lender to make its pro rata
portion of any such amount paid by the Agent available to the
Agent shall not relieve any other Lender of its obligation to
make available its pro rata portion of such amount, but no
Lender shall be responsible for failure of any other Lender to
make such pro rata portion available to the Agent.
(iv) Nothing in this Agreement shall be construed to
require or authorize any Lender to issue any Letter of Credit,
it being recognized that the Agent shall be the sole issuer of
Letters of Credit under this Agreement.
(g) Obligations Irrevocable. The obligations of the
applicable Account Party(ies) to make payments to Agent or the Lenders with
respect to Letter of Credit Obligations under this Section 2.8, shall be
unconditional and irrevocable and not subject to any qualification or exception
whatsoever, including, without limitation:
(i) Any lack of validity or enforceability of any
Letter of Credit or any documentation relating to any Letter of
Credit or to any transaction related in any way to any Letter of
Credit (the "Letter of Credit Documents");
(ii) Any amendment, modification, waiver, consent, or
any substitution, exchange or release of or failure to perfect
any interest in collateral or security, with respect to or under
any of the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or
other right which the applicable Account Party(ies)may have at
any time against any beneficiary or any transferee of any Letter
of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), the Agent or
any Lender or any other person or entity, whether in connection
with any of the Letter of Credit Documents, the transactions
contemplated herein or therein or any unrelated transactions;
<PAGE> 28
(iv) Any draft or other statement or document
presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(v) Payment by the Agent to the beneficiary under
any Letter of Credit against presentation of documents which do
not comply with the terms of such Letter of Credit, including
failure of any documents to bear any reference or adequate
reference to such Letter of Credit;
(vi) Any failure, omission, delay or lack on the part
of the Agent or any Lender or any party to any of the Letter of
Credit Documents to enforce, assert or exercise any right, power
or remedy conferred upon the Agent, any Lender or any such party
under this Agreement, any of the other Loan Documents or any of
the Letter of Credit Documents, or any other acts or omissions
on the part of the Agent, any Lender or any such party; or
(vii) Any other event or circumstance that would, in
the absence of this Section 2.8(g), result in the release or
discharge by operation of law or otherwise of the Account
Party(ies) from the performance or observance of any obligation,
covenant or agreement contained in this Section 2.8.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Account Party(ies) has or may have
against the beneficiary of any Letter of Credit shall be available hereunder to
the Account Party(ies) against the Agent or any Lender. Nothing contained in
this Section 2.8(g) shall be deemed to prevent the Account Party(ies), after
satisfaction in full of the absolute and unconditional obligations of the
Account Party(ies) hereunder, from asserting in a separate action any claim,
defense, set off or other right which they (or any of them) may have against
Agent or any Lender.
(h) Risk Under Letters of Credit.
(i) In the administration and handling of Letters of
Credit and any security therefor, or any documents or
instruments given in connection therewith, Agent shall have the
sole right to take or refrain from taking any and all actions
under or upon the Letters of Credit.
(ii) Subject to other terms and conditions of this
Agreement, Agent shall issue the Letters of Credit and shall
hold the documents related thereto in its own name and shall
make all collections thereunder and otherwise administer the
Letters of Credit in accordance with Agent's regularly
established practices and procedures and, except pursuant to
Section 9.5 hereof, Agent will have no further obligation with
respect thereto. In the administration of Letters of Credit,
Agent shall not be liable for any action taken or omitted on the
advice of counsel, accountants, appraisers or other experts
selected by Agent with due care and Agent may rely upon any
notice, communication, certificate or other statement
<PAGE> 29
from the Account Party(ies), beneficiaries of Letters of Credit,
or any other Person which Agent believes to be authentic. Agent
will, upon request, furnish the lenders with copies of Letter of
Credit Documents related thereto.
(iii) In connection with the issuance and
administration of Letters of Credit and the assignments
hereunder, Agent makes no representation and shall have no
responsibility with respect to (i) the obligations of the
Account Party(ies) or the validity, sufficiency or
enforceability of any document or instrument given in connection
therewith, or the taking of any action with respect to same,
(ii) the financial condition of, any representations made by, or
any act or omission of, the Account Party(ies) or any other
Person, or (iii) any failure or delay in exercising any rights
or powers possessed by Agent in its capacity as issuer of
Letters of Credit in the absence of its gross negligence or
willful misconduct. Each of the Lenders expressly acknowledges
that it has made and will continue to make its own evaluations
of the Account Party(ies) creditworthiness without reliance on
any representation of Agent or Agent's officers, agents and
employees.
(iv) If at any time Agent shall recover any part of
any unreimbursed amount for any draw or other demand for payment
under a Letter of Credit, or any interest thereon, Agent shall
receive same for the pro rata benefit of the Lenders in
accordance with their respective Percentage and shall promptly
deliver to each Lender its share thereof, less such Bank's pro
rata share of the costs of such recovery, including court costs
and attorney's fees. If at any time any lender shall receive
from any source whatsoever any payment on any such unreimbursed
amount or interest thereon in excess of such Bank's Percentage
of such payment, such Bank will promptly pay over such excess to
Agent, for redistribution in accordance with this Agreement.
(i) Indemnification. The Borrower and each Account Party
hereby indemnifies and agrees to hold harmless the Lenders, the Issuing Bank and
the Agent, and their respective officers, directors, employees and agents, from
and against any and all claims, damages, losses, liabilities, costs or expenses
of any kind or nature whatsoever which the Lenders, the Issuing Bank or the
Agent or any such Person may incur or which may be claimed against any of them
by reason of or in connection with any Letter of Credit, and none of the Issuing
Bank, any Lender or the Agent or any of their respective officers, directors,
employees or agents shall be liable or responsible for:
(i) the use which may be made of any Letter of
Credit or for any acts or omissions of any beneficiary in
connection therewith;
(ii) the validity, sufficiency or genuineness of
documents or of any endorsement thereon, even if such documents
should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged;
<PAGE> 30
(iii) payment by the Issuing Bank to the beneficiary
under any Letter of Credit against presentation of documents
which do not strictly comply with the terms of any Letter of
Credit (unless such payment resulted from the gross negligence
or willful misconduct of the Issuing Bank), including failure of
any documents to bear any reference or adequate reference to
such Letter of Credit;
(iv) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice,
however transmitted, in connection with any Letter of Credit; or
(v) any other event or circumstance whatsoever
arising in connection with any Letter of Credit;
provided, however, that with respect to subparagraphs (i) through (v)
hereof, neither the Borrower nor any Account Party shall be required to
indemnify the Issuing Bank, the other Lenders and the Agent and such
other persons, and the Issuing Bank shall be liable to the Borrower and
each Account Party to the extent, but only to the extent, of any direct,
as opposed to consequential or incidental, damages suffered by the
Borrower or the Account Party which were caused by the Issuing Bank's
gross negligence, willful misconduct or wrongful dishonor of any Letter
of Credit after the presentation to it by the beneficiary thereunder of
a draft or other demand for payment and other documentation strictly
complying with the terms and conditions of such Letter of Credit.
(vi) It is understood that in making any payment
under a Letter of Credit the Issuing Bank will rely on documents
presented to it under such Letter of Credit as to any and all
matters set forth therein without further investigation and
regardless of any notice or information to the contrary. It is
further acknowledged and agreed that Borrower or an Account
Party may have rights against the beneficiary or others in
connection with any Letter of Credit with respect to which the
Lenders are alleged to be liable and it shall be a condition of
the assertion of any liability of the Lenders under this Section
that the Borrower shall contemporaneously pursue all remedies in
respect of the alleged loss against such beneficiary and any
other parties obligated or liable in connection with such Letter
of Credit and any related transactions; provided however that,
to the extent that the Issuing Bank or the Lenders are finally
adjudicated to have been grossly negligent or to have acted with
willful misconduct, then the Issuing Bank or the Lenders, as the
case may be, shall reimburse the Borrower for the reasonable
costs and expenses of pursuing such remedies.
(j) Right of Reimbursement. Each Lender agrees to reimburse
the Agent on demand, pro rata in accordance with its respective Percentage of
the Commitment, for (i) the reasonable out-of-pocket costs and expenses of the
Agent to be reimbursed by the applicable Account Party(ies) pursuant to any
Letter of Credit Agreement or any Letter of Credit, to the extent not reimbursed
by the Borrower and (ii) any and all liabilities, obligations, losses, damages,
<PAGE> 31
penalties, actions, judgments, suits, costs, fees, reasonable out-of-pocket
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against Agent (in its capacity as issuer of any
Letter of Credit) in any way relating to or arising out of this Agreement, any
Letter of Credit, any documentation or any transaction relating thereto, or any
Letter of Credit Agreement, to the extent not reimbursed by the applicable
Account Party, except to the extent that such liabilities, losses, costs or
expenses were incurred by Agent as a result of Agent's gross negligence or
willful misconduct or by the Agent's wrongful dishonor of any Letter of Credit
after the presentation to it by the beneficiary thereunder of a draft or other
demand for payment and other documentation strictly complying with the terms and
conditions of such Letter of Credit.
3. PAYMENTS OF PRINCIPAL, INTEREST AND OTHER AMOUNTS.
3.1 INTEREST. Amounts outstanding under the Loans shall bear
interest based at the rate per annum equal to the sum of the Base Rate from time
to time plus the Applicable Base Rate Margin (the "Floating Rate") or, at
Borrower's election subject to the following provisions of this Section 3.1, at
the rate per annum equal to the sum of LIBOR plus the Applicable LIBOR Margin
(the "LIBOR Rate"); provided, that following the occurrence of an Event of
Default, Borrower shall have no right to elect the LIBOR Rate (but with the
consent of the Required Lenders, the LIBOR Rate shall be available to Borrower)
and all amounts outstanding under each Facility shall, at the option of Required
Lenders, bear interest at the rate per annum equal to the sum of the Floating
Rate then applicable to such Facility plus 3%. A portion of principal
outstanding hereunder bearing interest at the Floating Rate shall be referred to
as a "Floating Rate Loan"; and a portion of principal outstanding hereunder
bearing interest at the LIBOR Rate shall be referred to as a "LIBOR Loan". With
respect to any LIBOR Loan, Borrower may, at the end of the applicable Interest
Period (or, subject to Section 3.7, on any other Business Day), convert such
loan to a Floating Rate Loan. Borrower may at any time convert a Floating Rate
Loan into a LIBOR Loan. At the time any Advance is requested, if Borrower wishes
to have the LIBOR Rate apply to all or a portion of the outstanding principal of
any of the Loans, and at the end of each Interest Period with respect to each
LIBOR Loan, Borrower shall give Agent notice specifying (i) the interest rate
option selected by Borrower, (ii) the principal amount to be subject to such
interest rate, and (iii) if the LIBOR Rate is selected, the length of the
applicable Interest Period. Any such notice may be given by telephone so long
as, in the case of LIBOR Loans, (x) Agent received written confirmation of such
telephonic notice not later than three (3) Business Days after such telephonic
notice is given, and (y) such notice is given to Agent prior to 10:00 a.m.,
California time, on the first day of the requested Interest Period.
Notwithstanding the foregoing, Borrower may only request the LIBOR Rate for
amounts of principal that are at least $500,000 in the aggregate. If, upon any
request to have the LIBOR Rate apply to any portion of the Loans, Borrower does
not immediately accept the LIBOR Rate quoted by Agent, any subsequent acceptance
by Borrower shall be subject to a redetermination of the LIBOR Rate by Agent;
provided that if Borrower fails to accept any such quotation as given, then such
quoted rate shall expire and Agent shall be under no obligation to permit
Borrower to select the LIBOR Rate on such day. With respect to any portion of
the Loans for which the LIBOR Rate has not been duly selected in accordance with
the foregoing provisions of this Section 3.1, Borrower will be deemed to have
selected the Floating Rate. Subject to the provisions of Section 3.7, each
portion of the
<PAGE> 32
Loans bearing interest at the LIBOR Rate must remain outstanding for the
Interest Period selected for such portion of the Loans by Borrower.
3.2 INTEREST PAYMENTS AND COMPUTATIONS. Accrued interest on all
outstanding Loans shall be due and payable on the first Business Day of each
month. Interest on LIBOR Loans shall be computed on the basis of a 360-day year
and shall be assessed for the actual number of days elapsed from the first day
of the applicable Interest Period, but excluding the last day of such period.
Interest on each Floating Rate Loan shall be computed on the basis of a 360-day
year and shall be assessed for the actual number of days elapsed.
3.3 PRINCIPAL PAYMENTS. The outstanding principal of the Loans shall
be payable as follows:
(a) The remaining outstanding principal balance of Term Loan
A shall be payable on the first Business Day of each month
commencing April 1, 1999 in installments as follows:
from Closing Date through November 29, 2003: 56
installments of $127,186.93
from November 30, 2003 through October 31, 2004: 12
installments of $158,983.67
Term Loan A shall mature and be payable in full on October 31,
2004.
(b) The outstanding principal of the Revolving Loan shall be
payable in full on the Revolving Maturity Date.
(c) The principal of Term Loan B shall be payable in forty
eight (48) monthly installments of Two Hundred Fifty Thousand
Dollars ($250,000) each commencing on April 1, 1999 and on the
last Business Day of each month thereafter until March 1, 2003,
when Term Loan B shall mature and be payable in full.
(d) Not later than 30 days prior to each date on which
Borrower or any of its Subsidiaries is to receive any Net Cash
Proceeds (or promptly upon becoming aware that any Net Cash
Proceeds are to be received, if less than 30 days prior to the
anticipated date of receipt), Borrower shall deliver to Agent an
officer's certificate setting forth in reasonable detail a
description of the transaction or event generating such Net Cash
Proceeds, and stating the date such transaction or event is
expected to occur and the amount of the Net Cash Proceeds
expected to be received by Borrower or any of its Subsidiaries
in connection therewith. All Net Cash Proceeds received by
Borrower and its Subsidiaries in excess of $250,000 in the
aggregate in any fiscal year (or, in the case of Net Cash
Proceeds derived from the issuance or sale by Borrower of any of
its equity interests or any issuance of
<PAGE> 33
indebtedness which is subordinate to the Obligations on terms and conditions
satisfactory to Agent, 50% of such excess Net Cash Proceeds) shall be paid,
immediately upon receipt thereof, to Agent (for the benefit of the Lenders as
hereinafter provided) in immediately available funds, together with unpaid
interest accrued on such amount to the date of such payment but without
prepayment charge or premium, unless prior to the actual receipt by Borrower or
the applicable Subsidiary of such Net Cash Proceeds, Agent (at the direction of
Required Lenders) delivers a written notice to Borrower declining to accept such
Net Cash Proceeds. Notwithstanding the foregoing, in the case of any Net Cash
Proceeds consisting of insurance proceeds or condemnation awards, Borrower and
its Subsidiaries shall have the option (exercisable by written notice to Agent
delivered concurrently with the notice required by the first sentence of this
subsection (d) (A) to replace the Property in respect of which such Net Cash
Proceeds were received or to purchase other Property to be used in the ordinary
course of Borrower's or such Subsidiary's business or (B) to repair or restore
such Property or other Property used in the ordinary course of Borrower's
business; provided, that (1) to the extent that Borrower so elects to restore or
repair Property, it shall commence such repairs or restoration promptly upon the
receipt of Net Cash Proceeds and shall diligently pursue at all times thereafter
such repair or restoration, which shall be completed not more than 180 days
following the date of receipt thereof, (2) pending the application of any such
Net Cash Proceeds pursuant to clause (A) or (B) of this sentence, any amounts to
be so applied shall be retained in the Deposit Account and invested solely in
Permitted Investments, and (3) any portion of such Net Cash Proceeds that is not
to be so applied shall be paid to Agent in accordance with the second sentence
of this subsection (d). All Net Cash Proceeds paid to Agent as herein provided
shall be applied first to repay the indebtedness outstanding under Term Loan A,
ratably among the Lenders in accordance with their respective Percentages and
second to repay the indebtedness outstanding under Term Loan B, ratably among
the Lenders in accordance with their respective Percentage.
(e) (i) Not later than 30 days following the first to
occur of (A) the delivery of Borrower's audited financial
statements for the fiscal year ending August 31, 1999 pursuant
to Section 7.1(b), and (B) the date by which such audited
financial statements are required to be delivered pursuant to
Section 7.1(b), Borrower shall tender to Agent, for the ratable
benefit of the Lenders in accordance with their respective
Percentages, a prepayment in an amount equal to the greater of
(x) 50% of Excess Cash Flow or (y) $1,500,000.
(ii) On a semi-annual basis commencing with the
fiscal year ending August 31, 2000, Borrower shall tender to
Agent, for the ratable benefit of the Lenders in accordance with
their respective Percentages, a prepayment in an amount equal to
50% of Excess Cash Flow on the date which is not later than 30
days following the first to occur of (x) the delivery
<PAGE> 34
of Borrower's financial statements required under Section 7.1(a)
for the second fiscal quarter of each year commencing with the
fiscal year ending August 31, 2000 and (y) the date by which
such financial statements are required to be delivered pursuant
to Section 7.1(a) and a prepayment in an amount equal to the
greater of (A) 50% of Excess Cash Flow or (B) $2,500,000 on the
date which is not later than 30 days following the first to
occur of (x) the delivery of Borrower's audited financial
statements for such fiscal year pursuant to Section 7.1(b), and
(y) the date by which such audited financial statements are
required to be delivered pursuant to Section 7.1(b); provided,
however, that the aggregate prepayments made by Borrower under
this subparagraph (ii) shall be not less than $2,500,000 with
respect to each fiscal year commencing with the fiscal year
ending August 31, 2000.
<PAGE> 35
(iii) "Excess Cash Flow" means as of any date of
determination, the sum of Borrower's annual Consolidated
Net Income for the period commencing on the first day of
the applicable fiscal year and ending on the date of
determination plus depreciation and amortization for
such period less the current portion of long term debt
for such period (which for these purposes will include
all scheduled installments of long term debt that would
otherwise be treated as "current portions" under GAAP as
of the date of determination, regardless of whether any
such installments have been prepaid) and Capital
Expenditures incurred but not financed during such
period, all calculated excluding any accounting items in
respect of Net Cash Proceeds received during the most
recently ended fiscal year that were paid to Agent
during such period in accordance with Section 3.3(d).
(iv) Any such prepayment under this Section 3.3(e)
shall be applied first against the remaining
installments of Term Loan A on a pro-rata basis based
upon the number and amounts of such installments and
second against the remaining installments of Term Loan B
on a pro-rata basis based upon the number and amounts of
such installments.
(f) Anything herein to the contrary notwithstanding, the sum
of the aggregate outstanding principal amount of Advances of the Revolving Loan
plus the aggregate outstanding Letter of Credit Obligations shall not at any
time exceed the Available Amount as from time to time determined (in accordance
with the most recently delivered Borrowing Base Certificate), and no Advance may
be requested unless after giving effect thereto Borrower is in compliance with
foregoing requirement. In the event that the aggregate outstanding principal
amount of the Revolving Loan shall at any time and for any reason (including,
without limitation, a decrease in the amount of the Borrowing Base) exceed the
Available Amount then in effect, Borrower shall, without notice or demand, pay
not later than the Business Day after the date such excess is determined the
amount of such excess to Agent as a prepayment of the principal amount of the
Revolving Loan, together with all unpaid interest accrued on the amount of such
excess to such date but without prepayment charge or premium. Upon any
determination by Borrower that a prepayment of the Revolving Loan is required
pursuant to this Section 3.3(f), Borrower shall immediately notify Agent in
writing of such determination, specifying the amounts of principal and interest
required to be prepaid hereunder and the date on which such prepayment will
occur.
3.4 LIBOR LENDING UNLAWFUL. If any Lender shall determine (which
determination shall upon notice thereof to Borrower and Agent, be conclusive and
binding on Borrower) that the introduction of or any change in or in the
interpretation of any law makes it unlawful, or any central bank or other
Governmental Body asserts that it is unlawful, for such Lender to make, continue
or maintain any loan as, or to convert any loan into, a LIBOR Loan, the
obligations of such Lender to make, continue, maintain or convert any such loans
shall, upon such determination, forthwith be suspended until Lender shall notify
Borrower and Agent that the circumstances causing such suspension no longer
exist, and all LIBOR Loans shall automatically convert into Floating Rate Loans
at the end of the then current Interest Periods with respect thereto or sooner,
if required by such law or assertion.
3.5 DEPOSITS UNAVAILABLE. If any Lender shall have determined that
by reason of circumstances affecting such Lender's relevant market, adequate
means do not exist for ascertaining the interest rate applicable hereunder to
LIBOR Loans, then, upon notice from such Lender to Borrower, the obligations of
such Lender to make or continue any loans as, or to convert any loans into,
LIBOR Loans shall forthwith be suspended until such Lender shall notify Borrower
and Agent that the circumstances causing such suspension no longer exist.
<PAGE> 36
3.6 INCREASED LIBOR LOAN COSTS, ETC. Borrower agrees to reimburse
each Lender for any increase in the cost to such Lender (by reason of the
introduction of or any change in or in the interpretation of any law) of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any loans as, or of converting (or of its obligation to convert) any
loans into, LIBOR Loans. Each Lender shall promptly notify Borrower and Agent in
writing of the occurrence of any such event, such notice to state, in reasonable
detail, the reasons therefore and the additional amount required fully to
compensate such Lender for such increased cost or reduced amount. Such
additional amounts shall be payable by Borrower directly to such Lender within
five days of its receipt of such notice, and such notice shall, in the absence
of manifest error, be conclusive and binding on Borrower.
3.7 FUNDING LOSSES. In the event that any Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any loan
as, or to convert any portion of the principal amount of any loan into, a LIBOR
Loan) as a result of (a) any conversion or repayment or prepayment of the
principal amount of any LIBOR Loan on a date other than the scheduled last day
of the Interest Period applicable thereto, for any reason, or (b) any loans not
being made as LIBOR Loans in accordance with Borrower's request therefore; then,
upon the written notice of such Lender to Borrower and Agent, Borrower shall,
within five days of its receipt thereof, pay directly to such Lender such amount
as will (in such Lender's reasonable determination) reimburse such Lender for
such loss or expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on Borrower.
3.8 CAPITAL MAINTENANCE. In the event that after the Closing Date
the adoption of or any change in any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to any Lender or Agent, or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Lender or Agent
with any guideline, request or directive of any such authority (whether or not
having the force of law), including any risk based capital guidelines, affects
or would affect the amount of capital required or expected to be maintained by
such Lender or Agent (or any corporation controlling such Lender or Agent) and
such Lender or Agent, as the case may be, determines that the amount of such
capital is increased by or based upon the existence of such Lender's or Agent's
obligations or Advances hereunder and such increase has the effect of reducing
the rate of return on such Lender's or Agent's (or such controlling
corporation's) capital as a consequence of such obligations or Advances
hereunder to a level below that which such Lender or Agent (or such controlling
corporation) could have achieved but for such circumstances (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by such Lender or Agent to be material (collectively, "Increased Costs"), then
Agent or such Lender shall notify the Borrower, and thereafter the applicable
Borrower shall pay to such Lender or Agent, as the case may be, from time to
time, upon request by such Lender or Agent, additional amounts sufficient to
compensate such Lender or Agent (or such controlling corporation) for any
increase in the amount of capital and reduced rate of return which such Lender
or Agent reasonably determines to be allocable to the existence of such Lender's
or Agent's obligations or Advances hereunder; notwithstanding the forgoing,
however, the Borrower shall not be required to pay any increased costs under
Sections 2.8(b)(viii), 3.5 or 3.6 for any period ending prior to the date that
is 90 days prior to the making of a Lender's initial request for such additional
amounts unless the applicable change in law or other event resulting in such
increased costs is effective retroactively to a date more than 90 days prior to
the date of such request, in which case a Lender's request for such additional
amounts relating to the period more than 90 days prior to the making of the
request must be given not more than 90 days after such Lender becomes aware of
the applicable change in law or other event resulting in such increased costs. A
statement as to the amount of such
<PAGE> 37
compensation, prepared in good faith and in reasonable detail by such Lender or
Agent, as the case may be, shall be submitted by such Lender or by Agent to the
Borrower, reasonably promptly after becoming aware of any event described in
this Section 3.8 and shall be conclusive, absent manifest error in computation.
3.9 ADJUSTMENTS IN MARGIN. Adjustments to the Applicable Base Rate
Margin and Applicable LIBOR Margin, based upon the ratio of Senior Debt to
EBITDA, shall be implemented on a quarterly basis commencing on the Pricing
Matrix Commencement Date. Such adjustments shall be given prospective effect
only, effective as to all Loans and Advances outstanding hereunder, upon the
required date of delivery of the financial statements required under Sections
7.1(a) and 7.1(b) in each case establishing applicability of the appropriate
adjustment and in each case with no retroactivity or clawback. In the event
Borrower fails to timely deliver such financial statements, then from the date
of required delivery until such financial statements are delivered, the
Applicable Base Rate Margin and the LIBOR Margin shall be at the highest levels.
4. SECURITY FOR OBLIGATIONS.
4.1 SECURITY INTEREST. As collateral security for the prompt and
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Obligations, Borrower and each of its
Subsidiaries shall assign, convey, mortgage, pledge, hypothecate and transfer to
Agent, for the benefit of the Lenders, a security interest in all of the
Collateral (and all of each such Person's interest in any Site), all as more
specifically provided in the Security Agreements, the Pledge Agreements, the
Patent Security Agreements, the Trademark Security Agreements, the Collateral
Assignment and the Mortgages.
4.2 AGENT AS ATTORNEY-IN-FACT.
(a) Borrower hereby irrevocably constitutes and appoints
Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of
Borrower and in the name of Borrower or in its own name, from
time to time in Agent's discretion, for the purpose of carrying
out the terms of this Agreement, without notice to or assent by
Borrower, upon the occurrence and during the continuance of an
Event of Default:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all monies due and to
become due under any Collateral and, in the name of Borrower or
its own name or otherwise, to take possession of and endorse and
collect any checks, drafts, notes, acceptances or other
Instruments for the payment of monies due under any Collateral
and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by
Borrower for the purpose of collecting any and all such monies
due under any Collateral whenever payable;
(ii) to pay or discharge taxes or Liens levied or
placed on or threatened against the Collateral, to effect any
repairs or any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums therefore
and the costs thereof;
(iii) (A) to direct any party liable for any payment
under any of the Collateral to make payment of any and all
monies due, and to become due thereunder, directly to Agent or
as Agent shall direct; (B) to receive payment of and receipt for
any and all monies, claims and other amounts due, and to become
due at any time, in respect of or arising out of any Collateral;
(C) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse
<PAGE> 38
receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts and other Documents
constituting or relating to the Collateral; (D) to settle and
adjust any claims under all policies of insurance covering the
Collateral; (E) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and
to enforce any other right in respect of any Collateral; (F) to
defend any suit, action or proceeding brought against Borrower
with respect to any Collateral; (G) to settle, compromise or
adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as
Agent may deem appropriate; (H) to license or, to the extent
permitted by an applicable license, sublicense, whether general,
special or otherwise, and whether on an exclusive or
non-exclusive basis, any patent, copyright or trademark,
throughout the world for such term or terms, on such conditions,
and in such manner, as Agent shall in its sole discretion
determine; (I) to receive and open Borrower's mail, and to
appropriate therefrom any payment in respect of Accounts or
otherwise constituting Collateral and apply the same to the
Obligations (in furtherance of which Agent shall be entitled to
direct any party, including the U.S. Postal Service, to send
Borrower's mail to Agent) and (J) generally to sell, transfer,
pledge, make any agreement with respect or otherwise deal with
any of the Collateral as fully and completely as though Agent
were the absolute owner thereof for all purposes, and to do, at
Agent's option, at any time, or from time to time, all acts and
things which Agent reasonably deems necessary to protect,
preserve or realize upon the Collateral and Agent's Lien
therein, in order to effect the intent of this Agreement, all as
fully and effectively as Borrower might do; and
(iv) to take any and all other appropriate action and to
execute and deliver any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this
Agreement.
(b) Borrower hereby ratifies, to the extent permitted by
law, all that said attorneys shall lawfully do or cause to be
done by virtue hereof. The power of attorney granted pursuant to
this Section 4.2 is a power coupled with an interest and shall
be irrevocable until the Obligations are indefeasibly paid in
full.
(c) The powers conferred on Agent hereunder are solely to
protect Agent's interests in the Collateral and shall not impose
any duty upon Agent to exercise any such powers. Agent shall be
accountable only for amounts that it actually receives as a
result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be
responsible to Borrower for any act or failure to act, except
for its or their respective gross negligence or willful
misconduct and for failure to exercise reasonable care with
respect to any Collateral under its or their respective
possession or control.
(d) Borrower also authorizes Agent, at any time and from
time to time upon the occurrence and during the continuation of
any Event of Default, (i) to communicate in its own name with
any party to any Contract with regard to the assignment of the
right, title and interest of Borrower in and under the Contracts
hereunder and other matters relating thereto and (ii) to
execute, in connection with the sale provided for in Section
8.3, any endorsements. assignments or other instruments of
conveyance or transfer with respect to the Collateral.
4.3 PERFORMANCE OF BORROWER'S OBLIGATIONS. If Borrower fails to
perform or comply with any of its agreements contained herein and Agent, as
provided for by the terms of this Agreement, shall itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the reasonable
expenses of Agent
<PAGE> 39
incurred in connection with such performance or compliance, together with
interest thereon at the rate then in effect in respect of the Loans, shall be
payable by Borrower to Agent on demand and shall constitute Obligations secured
hereby.
5. CONDITIONS PRECEDENT.
5.1 INITIAL BORROWING. The obligation of Lenders to enter into this
Agreement, to disburse Term Loan B, and to make the initial Advance under the
Revolving Loan is subject to the fulfillment, to the satisfaction of Agent,
Lenders and their counsel, of each of the following conditions:
(a) Proceedings Satisfactory. All corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to Agent and its counsel, and Lenders and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
(b) Delivery of Notes. There shall have been delivered to
each Lender such Lender's respective Term Note A, Term Note B and Revolving
Note, each duly executed by Borrower and dated the Closing Date (except for the
Term Notes A which are dated as of October 21, 1997) , in the respective
principal amounts, having the required maturity date and as otherwise provided
herein.
(c) Opinion of Borrower's Counsel. Agent and the Lenders
shall have received from counsel acceptable to Bank for Borrower and its
Subsidiaries, legal opinions addressed to Agent and the Lenders and dated the
Closing Date substantially to the effect of the matters set forth in Exhibit D.
Agent and the Lenders shall also have received such opinions of local or special
counsel as they may reasonably request. In addition, Agent shall have received a
reliance letter from counsel to Target, authorizing Agent and the Lenders to
rely upon the opinion being rendered by such counsel in connection with the
Acquisition.
(d) Initial Borrowing a Base Certificate. At least two
Business Days prior to the Closing Date, Borrower shall have delivered to Agent
a duly completed and executed Borrowing Base Certificate and Accounts Trial
Balance as at January 31, 1999 (updated as of the Closing Date to include
Plastron Industries, Inc.) satisfactory in form and substance to Agent. In
addition, Borrower shall have delivered to Agent an opening balance sheet of
Borrower, prepared by the Accountants on a pro forma basis giving effect to the
Transactions.
(e) Representations and Warranties True, Etc.; Certificates.
The representations and warranties contained in Section 6 and elsewhere in this
Agreement and the representations and warranties contained in the other Loan
Documents shall be true in all material respects on and as of the Closing Date
with the same effect as if such representations and warranties had been made on
and as of the Closing Date, except that any such representation or warranty
which is expressly made only as of a specified date need be true only as of such
date. Borrower and its Subsidiaries shall have performed all material agreements
on their part required to be performed under this Agreement and the other Loan
Documents on or prior to the Closing Date; there shall exist on the Closing Date
no Default or Event of Default; Borrower shall have delivered to Agent an
officer's certificate, dated the Closing Date, to such effect and to the effects
specified in subsections (f), (h) and (i) below, inclusive; and Agent shall have
received such certificates or other evidence as Agent may request to establish
that the proceeds of the Loans made on the Closing Date will be applied as
contemplated by this Agreement.
(f) Acquisition Agreement. The Acquisition Agreement shall
have been duly executed and delivered by the respective parties thereto and
shall be in full force and effect. All of the material terms,
<PAGE> 40
conditions and provisions thereof shall be satisfactory to Agent, Lenders and
their counsel in all respects in form and substance and no material term,
condition or provision thereof shall have been supplemented, amended, modified
or waived without Agent's prior written consent. Agent shall have received a
copy of the Acquisition Agreement (including any and all amendments,
modifications and supplements thereto to and including the Closing Date),
certified by a duly authorized officer of Borrower as true, correct and
complete.
(g) Acquisition and Other Transactions. Concurrently with
the disbursement of Term Loan B and the initial Advance of the Revolving Loan,
the Acquisition shall have been duly consummated in accordance with the
provisions of the Acquisition Agreement, and the Acquisition shall become
effective in accordance with the provisions of the Acquisition Agreement, and
Agent and the Lenders shall have received such certificates, opinions and other
evidence with respect to the foregoing as they shall request.
(h) Absence of Material Adverse Change, Etc.. Since February
17, 1999, no change or changes or event or events shall have occurred which
Agent reasonably believes in good faith constitutes or is likely to have a
Material Adverse Effect.
(i) Consents and Approvals. All necessary consents,
approvals and authorizations of, and declarations, registrations and filings
with, Governmental Bodies and nongovernmental Persons required in order to
consummate the Acquisition, the Loans and the other Transactions shall have been
obtained or made and shall be in full force and effect. Agent shall have
received satisfactory evidence that Borrower and Target are exempt from bulk
transfer laws in connection with the Acquisition.
(j) Absence of Litigation, Orders, Etc. There shall not be
pending or, to the knowledge of Borrower and its Subsidiaries, threatened, any
action, suit, proceeding, governmental investigation or arbitration against or
affecting Borrower or any of its Subsidiaries or the respective assets or
Property of any of such Persons which seeks to enjoin or restrain any of the
Transactions or which Agent reasonably believes in good faith is likely to have
a Material Adverse Effect. No Order of any court, arbitrator or Governmental
Body shall be in effect which purports to enjoin or restrain any of the
Transactions or which Agent reasonably believes in good faith constitutes or is
likely to have a Material Adverse Effect.
(k) Security Agreements, Collateral Assignment and
Subsidiary Guarantee. Borrower and each Subsidiary (other than the Excluded
Subsidiaries) shall have executed and delivered the Security Agreement and (in
the case of such Subsidiaries) the Subsidiary Guarantee, each of Borrower and
its Subsidiaries which owns any material patent or trademark shall have executed
and delivered a Patent Security Agreement (in the case of patents) or a
Trademark Security Agreement (in the case of trademarks), and Plastron
Industries, Inc. shall have executed and delivered a Collateral Assignment.
(l) Pledge Agreement. Borrower and each Subsidiary of
Borrower that has a Subsidiary shall have executed and delivered the Pledge
Agreement.
(m) Mortgages. The Mortgages relating to the Sites described
in clause (a), (b) and (c) of the definition of "Site" shall have been duly
executed and delivered by the respective owners of such Sites.
(n) Title Insurance. Agent, for the benefit of the Lenders,
shall have received from the Title Insurance Company its ALTA 1992 form of loan
policy of title insurance with respect to each Site, acceptable in form and
substance to Agent and the counsel for the Lenders, insuring the creation under
the Mortgage in favor of Agent with respect to such Site of a valid first
priority mortgage lien against such Site, subject to such exceptions to title as
may be acceptable to Agent and the counsel for the Lenders, together with
complete, legible
<PAGE> 41
copies of all encumbrances, maps and surveys of record (each a "Title Policy").
Each Title Policy shall be dated as of the Closing Date, shall be in an amount
equal to the appraised value of the applicable Site and, to the extent permitted
under applicable laws and to the extent applicable to each type of policy, shall
(x) contain affirmative endorsements as to mechanics' liens, usury, doing
business, zoning (with express parking coverage), easements and rights-of-way,
comprehensive coverage, encroachments, rights of access and survey matters, (y)
delete the creditors' rights exclusion and the general exceptions to coverage,
and (z) contain such other endorsements reasonably requested by Agent.
(o) Environmental Audit. Not less than two (2) Business Days
prior to the Closing Date, Agent and each Lender shall have received a phase 1
environmental report for each Site, which shall be approved by Agent and the
Lenders in their sole and absolute discretion.
(p) Survey. Not less than two (2) Business Days prior to the
Closing Date, Borrower shall have delivered, or shall have caused to be
delivered, to Agent, with sufficient counterpart originals for Agent to
distribute to each Lender, an ALTA survey of each Site in a form satisfactory to
the Title Insurance Company and showing no state of facts unsatisfactory to
Agent and counsel to the Lenders, which survey shall be certified to Agent, for
the benefit of the Lenders. Each such survey shall also certify that no portion
of the applicable Site lies within a flood hazard area or contains wetlands.
(q) Deposit Account. Borrower and each of its Subsidiaries
shall have established its respective Deposit Account with Agent, and Borrower
shall have supplied Agent with evidence of the filing of the appropriate
financing statements and other documents under the provisions of the UCC or
under applicable foreign, domestic or local laws, rules or regulations in each
of the offices where such filing is necessary or appropriate, and shall have
taken all other action as may be necessary or appropriate to grant Agent valid,
enforceable, first priority perfected Liens in such Deposit Accounts. Amounts
held in the Deposit Accounts shall be invested solely in Permitted Investments.
(r) Financing Statements; Assignments. On or prior to the
Closing Date, Agent shall have received from Borrower duly executed UCC
financing statements identifying Borrower as "debtor" and Agent, for the benefit
of the Lenders, as "secured party" and containing an adequate description of all
Collateral in which a security interest may be properly perfected under the UCC,
which financing statements shall have been filed in all places deemed necessary
or desirable by Agent in order to perfect the security interests granted
pursuant to the Loan Documents. In addition, Agent shall have received such
assignments, endorsements or other interests as may be necessary to perfect
Agent's security interest in any Collateral.
(s) Constituent Documents. Agent shall have received copies
of (i) the Articles or Certificate of Incorporation of Borrower and each
Subsidiary (other than Excluded Subsidiaries), certified as of a recent date by
the Secretary of State of the State of its incorporation, and (ii) Borrower's
and each such Subsidiary's By-Laws certified as of the Closing Date by the
Secretary of Borrower or such Subsidiary.
(t) Resolutions; Incumbency. Agent shall have received
certified resolutions of the Board of Directors and shareholders of Borrower and
each Subsidiary (other than Excluded Subsidiaries) with respect to this
Agreement and the other Loan Documents, together with a certificate identifying
Borrower's and each such Subsidiary's incumbent officers and setting for
specimen signatures of such officers.
(u) Borrowing Request. With respect to an Advance of the
Revolving Loan, Agent shall have received a Borrowing Request conforming to the
requirements of Section 2.4.
<PAGE> 42
(v) Fees Payable at Closing. Borrower shall have paid
Agent's counsel for the legal fees and expenses incurred in their representation
of Agent in connection with the issuance and sale of the Notes and the other
transactions contemplated by this Agreement and paid Agent the closing fee
required under Section 2.6(a).
(w) Insurance. Agent shall have received policies or
certificates of insurance satisfactory to Agent demonstrating that Borrower has
obtained insurance as required by this Agreement.
5.2 SUBSEQUENT BORROWINGS. The obligation of Lenders to make any
Advance hereunder is further subject to the fulfillment, to the satisfaction of
Agent, the Lenders and their counsel, of each of the following conditions:
(a) Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Advance, (i) each of the representations and
warranties set forth in Section 6 shall be true and correct in all material
respects, except to the extent that they expressly relate to an earlier date,
(ii) there shall exist no Default or Event of Default, and (iii) no condition
shall exist and no event shall have occurred which has had or could have a
Material Adverse Effect.
(b) Borrowing Request. Agent shall have received a Borrowing
Request conforming to the requirements of Section 2.4. The delivery of each
Borrowing Request shall constitute a representation and warranty by Borrower
that on the date of such Advance (both immediately before and after giving
effect to such Advance) the statements made in the foregoing subsection (a) are
true and correct. In addition, in the case of a request for a Loan under the
Purpose Line, Agent shall have received all other documents and information
required pursuant to Section 2.4 in connection with the acquisition to be
financed by the requested Loan, and Agent and the Lenders shall have approved of
such acquisition and the documentation thereof in their sole discretion.
(c) Commitment Amount and Expiration Not Exceeded. The
aggregate outstanding principal amount of the Revolving Loan, after giving
effect to such Advance, plus the aggregate outstanding Letter of Credit
Obligations shall not exceed the Available Amount. No funds requested under the
Revolving Loan shall be disbursed following the Revolving Maturity Date.
(d) Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of Borrower shall be satisfactory in
form and substance to Agent, the Lenders and their counsel; Agent, the Lenders
and their counsel shall have received all information, approvals, opinions,
documents or instruments as they may reasonably request.
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby makes the
following representations and warranties to Agent and each Lender. For purposes
of these representations and warranties, it is expressly understood that (i)
except for purposes of Section 6.5, Target and its Subsidiaries shall be
considered Subsidiaries of Borrower, regardless of whether or not Target and its
Subsidiaries were actually Subsidiaries of Borrower during the time periods
covered by any such representation and warranty, and (ii) for purposes of any
reference to Borrower's "knowledge" the knowledge of any Subsidiary shall be
attributed to Borrower.
6.1 EXISTENCE AND AUTHORITY. Borrower and each of its Subsidiaries
(a) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and is duly qualified to do
business in each additional jurisdiction where the failure to so qualify would
have a Material
<PAGE> 43
Adverse Effect and (b) has all requisite power to own its Properties and to
carry on its business as now being conducted and as proposed to be conducted,
and to execute, deliver and perform its obligations under this Agreement and the
other Loan Documents to which it is a party to execute, issue, sell, deliver and
perform its obligations under the Notes (in the case of Borrower) and to engage
in the respective transactions contemplated by this Agreement and the Loan
Documents to which it is a party.
6.2 AUTHORIZATION. The execution, delivery and performance by
Borrower and each of its Subsidiaries of this Agreement, the Notes and the Loan
Documents to which it is a party, are within its powers and have been duly
authorized by all necessary corporate action by or on behalf of such Person.
6.3 BINDING EFFECT. This Agreement and the Loan Documents to which
Borrower or any of its Subsidiaries is a party are the legal, valid and binding
obligations of Borrower or such Subsidiary (as the case may be), and the Notes
when issued and delivered against payment therefore as herein provided will be
the legal, valid and binding obligations of Borrower, enforceable in accordance
with their respective terms, except, in each case, as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws relative to or affecting the enforcement of creditors' rights
generally in effect from time to time and by general principles of equity.
6.4 OWNERSHIP INTERESTS. Except as set forth on Schedule 6.4,
Borrower will not have outstanding any equity or ownership interests or other
securities convertible into or exchangeable for any of its equity or ownership
interests, nor will there be outstanding any rights to subscribe for or to
purchase, or any options or warrants for the purchase of, or any agreements
(contingent or otherwise) providing for the issuance of, or any calls,
commitments or claims of any character relating to, any of its equity or
ownership interests or any securities convertible into or exchangeable for any
of its equity or ownership interests. After giving effect to the Transactions,
Borrower will not be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any of its equity interests.
6.5 BUSINESS OPERATIONS AND OTHER INFORMATION; FINANCIAL CONDITION.
(a) Borrower has delivered to Agent and the Lenders true and
complete copies of (i) the audited consolidated balance sheets
of Borrower as of August 31, 1996, August 31, 1997 and August
31, 1998, the audited consolidated balance sheets of Target as
of December 31, 1998 and the respective related audited
statements of operations and earnings (or deficit) and cash
flows for each of the fiscal years then ended, together with the
notes thereto and the reports thereon of Arthur Andersen, LLP
(the "Audited Financial Statements"), and (ii) the unaudited
balance sheet of Borrower as of January 31, 1999, the unaudited
balance sheet of Target as of December 31, 1998 and the
respective related unaudited statements of operations and
earnings and cash flows for the portion of each such Person's
fiscal year then ended (the "Unaudited Financial Statements",
which Audited Financial Statements and Unaudited Financial
Statements are true and correct; the Audited Financial
Statements and the Unaudited Financial Statements are sometimes
hereinafter collectively referred to as the "Financial
Statements"). True and complete copies of the Financial
Statements have been delivered to Agent. The Financial
Statements have been prepared in accordance with GAAP (except as
noted thereon) consistently applied throughout the periods
involved, and present fairly, in all material respects, the
respective financial positions of Borrower and Target as at each
of the dates of the balance sheets contained therein and the
respective results of operations and cash flows of Borrower and
Target for each of the respective periods then ended, subject,
in the case of the Unaudited Financial Statements, to
non-material year-end audit adjustments and absence of the notes
required by GAAP. As of the date
<PAGE> 44
of each of the balance sheets included in the Financial
Statements neither Borrower nor Target had any Indebtedness or
liability, absolute or contingent, liquidated or unliquidated,
which, in accordance with GAAP, would be reflected on such
Financial Statements, except Indebtedness and liabilities
reflected or reserved against on such respective balance sheets
or described in the notes thereto.
(b) Except as contemplated herein or in the Loan Documents,
or as disclosed in Schedule 6.5(b), since January 31, 1999 with
respect to Borrower and since December 31, 1998 with respect to
Target, neither Borrower nor Target has:
(1) written off or been required by GAAP to write
off any Accounts in excess of $25,000 in the aggregate;
(2) written down Inventory in excess of $25,000 in
the aggregate; or
(3) suffered any Material Adverse Effect or any
event or condition which could reasonably be expected to result
in a Material Adverse Effect.
6.6 SUBSIDIARIES. Except as set forth on Schedule 6.6, Borrower does
not, and will not have on the Closing Date, after giving effect to the
Transactions, (a) any Subsidiaries or (b) except for Permitted Investments, any
capital stock or other equity interest in any other Person or any option,
warrant or right to purchase or acquire any such capital stock or other equity
interest.
6.7 LITIGATION; NO VIOLATION OF GOVERNMENTAL ORDERS OR LAWS.
(a) Except as set forth in Schedule 6.7(a), there are no
actions, suits or proceedings pending, or, to the best knowledge of Borrower
after due inquiry, threatened against or affecting Borrower or any of its
Subsidiaries, any of their respective Properties or any officer or director of
Borrower or any such Subsidiary which is reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect; or which seek to enjoin, or
otherwise prevent the consummation of, any of the Transactions in any court or
before any arbitrator of any kind or before or by any Governmental Body.
(b) Except as set forth in Schedule 6.7(b), neither Borrower
nor any of its Subsidiaries (nor any of their respective Properties) will be,
after or as a result of giving effect to the Transactions, in default under or
in violation of any Order of any court, arbitrator or Governmental Body or any
statute or law or any rule or regulation of any Governmental Body (including,
without limitation, any building, zoning or other ordinance, code or rule),
which default or violation has or could reasonably be expected to have a
Material Adverse Effect; and none of them is subject to or a party to any Order
of any court or Governmental Body arising out of any action, suit or proceeding
under any statute or other law respecting antitrust, monopoly, restraint of
trade, unfair competition or similar matters.
6.8 OUTSTANDING INDEBTEDNESS; INVESTMENTS.
(a) Schedule 6.8(a) sets forth a correct and complete list
and description of each item of Funded Debt of Borrower and its Subsidiaries and
all Liens securing such Funded Debt, now outstanding or existing, or which will
be outstanding or existing on the Closing Date after giving effect to the
Transactions.
<PAGE> 45
(b) Schedule 6.8(b) sets forth a correct and complete list
of each Investment of Borrower and its Subsidiaries which is now outstanding or
existing, or which will be outstanding or existing on the Closing Date after
giving effect to the Transactions.
6.9 CONSENTS, ETC. No consent, approval or authorization of or
declaration, registration or filing with any Governmental Body or any
nongovernmental Person (including, without limitation, any creditor or
stockholder of Target or Borrower, and also including, without limitation, any
consent, approval, authorization, declaration or filing or the expiration of any
waiting period under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976)
is required in connection with the execution or delivery of this Agreement, the
Notes, the Subsidiary Guarantee, the Acquisition Agreement or the other Loan
Documents by the respective parties thereto or the performance by such parties
of their respective obligations thereunder, or in connection with the
consummation of the transactions contemplated hereby and thereby, or as a
condition to the legality, validity or enforceability of this Agreement, the
Notes, the Guarantees, the Acquisition Agreement or the other Loan Documents,
except for such consents, approvals, authorizations, declarations, registrations
or filings as are listed in Schedule 6.9, all of which have been or will on or
prior to the Closing Date be obtained and are or will then be in full force and
effect. Target and Borrower are exempt from all applicable bulk sale and bulk
transfer laws in connection with the Acquisition.
6.10 TITLE TO PROPERTIES. Borrower and each of its Subsidiaries has
(i) good and marketable fee simple title to its respective real Properties
(other than real Properties which are leased from others), subject to no Lien of
any kind except for Liens described in Schedule 6.10 and Permitted Liens and
(ii) good title to all of its Equipment and other personal Property and assets
(other than Properties and assets leased from others), subject to no Lien of any
kind except Permitted Liens. Schedule 6.10 sets forth a true and complete list
and brief description of all real Property owned or leased by Borrower and its
Subsidiaries and all other real Property where Borrower and its Subsidiaries
maintain any assets on the Closing Date (after giving effect to the Acquisition
but excluding locations where the aggregate value of assets owned by Borrower at
such location is less than $2,000 (each a "DeMinimis Site" and collectively the
"DeMinimis Sites")), together with a true and complete list of all leases of
real Property to which Borrower or any of its Subsidiaries is a party,
identifying the parties to each such lease and the Property to which it relates.
True and complete copies of all such leases, together with all amendments,
modifications and supplements thereto to the date hereof, have been made
available to Agent. As of the Closing Date, Borrower and each of its
Subsidiaries enjoys peaceful and undisturbed possession under all such leases to
which it is a party, none of which contains any unusual or burdensome provisions
which might have a Material Adverse Effect, and all such leases are valid and
subsisting and in full force and effect. As of the Closing Date, Borrower and
its Subsidiaries are not in breach or violation of the terms of any of such
leases (except for such breaches and violations as will not have, individually
or in the aggregate, a Material Adverse Effect), and after due inquiry Borrower
knows of no breach or violation of any of such leases by any party other than
Borrower and its Subsidiaries. None of the personal Property owned or to be
owned by Borrower or any such Subsidiary is or will be located or stored on
sites other than those listed on Schedule 6.10 (except for DeMinimis Sites).
Except as set forth in Schedule 6.10, as of the Closing Date the tangible
Properties of Borrower and its Subsidiaries are and will be reasonably fit for
the use for which they are being put by each of such Persons in the ordinary
course of its business and are in reasonably sufficient and satisfactory
condition to operate the business of each of such Persons as presently conducted
except for such tangible Properties with respect to which the failure to be so
fit or to be in such condition shall not give rise to a Material Adverse Effect.
Schedule 6.10 also contains a true, complete and correct list and brief
descriptions of all Equipment having a Fair Market Value of $5,000 or more owned
or leased by each of such Persons on the Closing Date and the addresses where
Borrower and each of its Subsidiaries maintain its chief executive office and
principal place of business.
<PAGE> 46
6.11 TAXES. Except as disclosed on Schedule 6.11, as of the Closing
Date, Borrower and each of its Subsidiaries, and each Person required to file
any tax or informational return in respect of any consolidated group of which
any of them is or has been a member, as the case may be, has prepared and timely
filed or on behalf of each of such Persons there have been filed or validly
extended, all required federal, state, local and foreign tax returns which are
required to have been filed by or on behalf of such Persons, which returns were
prepared on a basis consistent with its financial records and all taxes shown
thereon to be due have been timely paid in full or validly extended. As of the
Closing Date no tax liens have been filed and no claims are being asserted with
respect to any such taxes. Except as disclosed on Schedule 6.11, as of the
Closing Date no tax assessment against any such Person has been proposed and all
of their respective tax liabilities are adequately provided for on their
respective books and financial statements in accordance with GAAP.
6.12 NO CONFLICTS WITH AGREEMENTS, ETC.. Neither the execution and
delivery of this Agreement, the Notes or any other Loan Document nor the
fulfillment of or compliance with the terms and provisions hereof or thereof,
will conflict with, or result in a breach or violation of any of the terms,
conditions or provisions of, or constitute a default under, the charter or
by-laws of Borrower or any contract, agreement, mortgage, indenture, lease,
instrument, Order, statute, law, rule or regulation to which any of them or any
of their respective assets is subject, or (except pursuant to the Loan
Documents) result in the creation of any Lien on any Properties of the Borrower
or any of its Subsidiaries, which conflict, breach, violations, defaults or
Liens, could have a Material Adverse Effect.
6.13 RELATED DOCUMENTS. Borrower has delivered to Agent and its
counsel true and correct copies of the Acquisition Agreement and each of the
other documents executed and delivered in connection therewith (including all
Exhibits and Schedules thereto) as now in effect, including all amendments,
modifications and supplements thereto, and of each document, certificate or
statement required to be executed or delivered by any party thereunder (there
being no amendments or modifications to the Acquisition Agreement or any of such
other documents, and no waiver of any rights thereunder by Borrower, nor of any
condition to the obligations of Borrower under any thereof, except as heretofore
disclosed to Agent in writing).
6.14 DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to Agent in writing by or on behalf of
Borrower and its Subsidiaries in connection herewith, including the Acquisition
Agreement (together with the schedules thereto as updated through the Closing
Date), contained, as of its respective date, or now contains, any untrue
statement of a material fact or as of any such date omitted, or now omits, to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. Except as otherwise disclosed in this Agreement and
the Schedules hereto, there is no fact known to Borrower (other than matters of
a general economic or political nature) which now has or is likely to have a
Material Adverse Effect.
6.15 BROKER'S OR FINDER'S COMMISSIONS. Except as set forth on
Schedule 6.15, no broker's or finder's fee or commission will be payable by
Borrower with respect to any of the Transactions. Borrower agrees to indemnify
Agent and hold Agent harmless against any loss, cost, claim or liability
(including, without limitation, reasonable attorneys' fees and disbursements for
the investigation and defense of claims) arising out of or relating to any such
actual or alleged fee or commission.
<PAGE> 47
6.16 LABOR MATTERS.
(a) Borrower and each of its Subsidiaries is in compliance
with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and
hours, and none of such Persons is engaged in any unlawful labor
or employment practice nor has received any notice of a
complaint, charge or allegation to the contrary, except for such
practices and instances of non-compliance as could not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. There is no labor strike,
dispute, slowdown or work stoppage pending or, to Borrower's
best knowledge after due inquiry, threatened against or
affecting Borrower or any of its Subsidiaries. No material
grievance or arbitration proceeding arising out of or under any
collective bargaining agreement to which Borrower or any
Subsidiary is a party or subject is pending. To Borrower's best
knowledge after due inquiry, no present or former employee of
Borrower or any Subsidiary has any rightful claim for wrongful
discharge against any of such Persons.
(b) During the five year period ending on the Closing Date,
no present or (to the best knowledge of Borrower and its
Subsidiaries after due inquiry) former employee or independent
contractor of Borrower or any Subsidiary has any pending or
threatened material claim against them for (A) overtime pay,
other than overtime pay for the current period; (B) wages,
salaries or profit sharing (excluding wages, salaries or profit
sharing for the current payroll period); (C) vacations, time off
or pay in lieu of vacation or time off, other than vacation or
time off (or pay in lieu thereof) earned in respect of the
employer's current fiscal year; (D) any violation of any
statute, ordinance, contract or regulation relating to minimum
wages or maximum hours of work; (E) discrimination against
employees on any basis; (F) unlawful or wrongful employment or
termination practices; (G) unlawful retirement, termination or
labor relations practices, breach of contract or other claim
arising under a collective bargaining agreement, individual,
express or implied contract, or policy, practice or procedure
manual or statement; (H) any violation of occupational safety or
health standards, or any violation of the Worker Adjustment
Retraining and Notification Act ("WARN").
6.17 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 6.17, as
of the Closing Date:
(a) there is no pending Environmental Matter relating to
Borrower, any of its Subsidiaries or any of their respective Properties, and
after due inquiry Borrower is aware of no facts that could result in any such
Environmental Matter. None of such Persons has agreed to assume by contract or
otherwise any liability of any other Person for cleanup, compliance, or required
capital expenditures in connection with any Environmental Matter arising prior
to the date hereof;
(b) the Properties used, owned, leased, operated, managed or
controlled at any time by Borrower or any of its Subsidiaries are free of
contamination from Hazardous Materials, including, without limitation, any
contamination of the associated air, soil, groundwater or surface waters, and
are free of any other potentially injurious chemical or physical conditions
which could give rise to an Environmental Matter;
(c) Neither Borrower nor any of its Subsidiaries is in
violation of applicable Environmental Laws, nor has any of them failed to cure
any past violations or alleged violations of Environmental Laws to the
satisfaction of applicable Governmental Bodies. To the best knowledge of
Borrower and its Subsidiaries after due inquiry, none of such Persons has
generated, manufactured, refined, recycled, discharged, emitted, released,
<PAGE> 48
buried, processed, produced, reclaimed, stored, treated, transported and
disposed of Hazardous Materials in a manner which is reasonably likely to give
rise to an Environmental Matter;
(d) no real Property of Borrower or any of its Subsidiaries
is (i) listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act or is (ii)
listed in the Comprehensive Environmental Response, Compensation, Liability
Information System List promulgated pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, or on any comparable list maintained
by any Governmental Body;
(e) no Properties of Borrower or any of its Subsidiaries is
subject to any Lien or claim for Lien in favor of any Person as a result of any
Environmental Matter or response thereto;
(f) to the best knowledge of Borrower after due inquiry, no
Hazardous Materials, including leachate and effluents, generated, disposed of,
transported, managed or released by Borrower or any of its Subsidiaries have
caused or will cause in whole or in party any contamination or injury to the
environment, any person, any natural resource or any Property, including,
without limitation, Property through which or to which such materials were
shipped. To the best knowledge of Borrower after due inquiry, neither Borrower
nor any such Subsidiary has handled, transported, disposed of or managed any
Hazardous Material in any manner that is reasonably likely to form the basis for
any present or future Environmental Matter, and no such Person has any material
liabilities, absolute or contingent, on the date hereof with respect thereto;
and
(g) to the best knowledge of Borrower after due inquiry, all
facilities where any Person has treated, stored, disposed of, reclaimed, or
recycled any Hazardous Material on behalf of Borrower or any of its Subsidiaries
are in compliance with all applicable Environmental Laws to the extent
reasonably necessary to avoid giving rise to an Environmental Matter.
6.18. POSSESSION OF FRANCHISES, LICENSES, ETC.. As of the Closing
Date, each of Borrower and each of its Subsidiaries is in possession of all
material permits, licenses or other authorizations of Governmental Bodies
required for the conduct of its business and the ownership of its respective
Properties (including all licenses and certificates of occupancy which are
material to the ownership or operation of any real Property) have been obtained
and are usable by such respective Persons, and their respective businesses are
being conducted in accordance with the material requirements of such permits,
licenses or other authorizations of Governmental Bodies in effect on the date
hereof, and after due inquiry Borrower is not aware of any condition that would
prevent the renewal of such permits, licenses or other authorizations or cause
it to incur any material costs to renew such permits, licenses or other
authorizations.
6.19 TRADEMARKS, ETC.. Except as set forth on Schedule 6.19, Borrower
is the sole owner or has the right to use, free from any restrictions, claims,
rights, encumbrances or burdens, all of the patents, trademarks, service marks,
trade names, copyrights, licenses, processes, designs, formulas, computer
programs, computer software packages, trade secrets, inventions, product
manufacturing instructions, technology, research and development, know-how and
all other intellectual property that are necessary for the operation of its
business as heretofore conducted and as proposed to be conducted from and after
the consummation of the Acquisition. To the best knowledge of Borrower after due
inquiry, as of the Closing Date (i) none of the present or contemplated products
or operations of Borrower or any of its Subsidiaries infringes any patent,
trademark, service mark, trade name, copyright, license or other right owned by
any other Person, and (ii) there is no pending or threatened claims or
litigation against or affecting Borrower or any of its Subsidiaries contesting
the right of any of them to sell or use any such product or to engage in any
such operation which, if adversely determined could have, individually or in the
aggregate, a Material Adverse Effect.
<PAGE> 49
6.20 MARGIN REGULATIONS; USE OF PROCEEDS. Except as permitted by
Section 7.17, Borrower neither owns nor now intends to acquire any "margin
stock" as defined in Regulation U of the Board of Governors of the Federal
Reserve System (12 CAR 207). The proceeds of the Loans will be used to finance
in part the Acquisition, to pay transaction fees and expenses incurred in
connection with the Transactions and for working capital and other general
business purposes of Borrower and its Subsidiaries. No part of the proceeds of
the Loans will be used directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CAR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve Borrower in a violation of Regulation X of said Board (12 CAR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CAR 220). As used in this Section, the term "purpose of buying or carrying" has
the meaning assigned thereto in the aforesaid Regulation U.
6.21 COMPLIANCE WITH ERISA.
(a) Neither Borrower nor any ERISA Affiliate has a Pension
Plan which is subject to Part 3 of Subtitle B of Title 1 of ERISA or Section 412
of the Code;
(b) neither Borrower nor any ERISA Affiliate maintains or
has maintained, contributes to or has contributed to, or has any liability or
contingent liability with respect to a Pension Plan subject to Title IV of
ERISA;
(c) neither Borrower nor any ERISA Affiliate maintains or
has maintained, contributes to or has contributed to, or has any liability or
contingent liability with respect to a Multiemployer Plan;
(d) neither Borrower nor any ERISA Affiliate has any
contingent liability with respect to any post-retirement benefit under a welfare
plan (as such term is defined in Section 3(l) of ERISA) other than liability for
continuation coverage described in Part 6 of Title 1 of ERISA;
(e) to the best knowledge of Borrower and its Subsidiaries,
Borrower and all Plans contributed to or maintained by any of them are in
compliance in all material respects with all applicable provisions of ERISA and
the Code and with the applicable law and administrative requirements of any
relevant jurisdiction and the regulations and published interpretations
thereunder, including, without limitation, the provisions of ERISA and the Code
requiring continuation coverage under Plans which are group health plans subject
to the Consolidated Omnibus Budget Reconciliation Act of 1985 or similar law;
(f) neither Borrower nor any of its ERISA Affiliates is a
party in interest with respect to any employee benefit plan (as defined in
Section 3(3) of ERISA) other than a Plan;
(g) neither Borrower nor any of its ERISA Affiliates has
breached any of the responsibilities, obligations or duties imposed upon any of
such Persons by the Code or ERISA which breach has given rise, or could give
rise in the future to any obligation to pay money that would have a Material
Adverse Effect on any of such Persons;
(h) there are no actions, suits or claims other than for
routine claims for benefits pending or threatened, involving the Plans that
would have a Material Adverse Effect; and
<PAGE> 50
(i) all required reports and descriptions of the Plans of
Borrower or its ERISA Affiliates (including but not limited to Form 5500 Annual
Reports, Summary Annual Reports and Summary Plan Descriptions) have been timely
filed and distributed, and any notices required by ERISA or the Code or the law
of any other applicable jurisdiction or any ruling or regulation of any
administrative agency of any applicable jurisdiction with respect to such Plans,
including but not limited to any notices required by Section 204(h) or Section
606 of ERISA or Section 4980B of the Code have been appropriately given.
6.22 MATERIAL CONTRACTS. Schedule 6.22 contains a list of all written
supply agreements, requirements contracts, customer agreements, franchise
agreements, license agreements, distribution agreements, joint venture
agreements, asset purchase agreements, stock purchase agreements, merger
agreements, agency or advertising agreements and other contracts, agreements and
commitments (other than purchase orders entered into in the ordinary course of
business, leases of real Property listed on Schedule 6.10, and other than this
Agreement, the Acquisition Agreement and the other Loan Documents, or any
agreement, instrument or document executed and delivered pursuant thereto) to
which Borrower or any of its Subsidiaries is now, or will be on the Closing Date
after giving effect to the Transactions, a party and which are now or will then
be material to the business, assets or operations of such Persons ("Material
Contracts"). True and complete copies of each of the Material Contracts, with
all material amendments, modifications and supplements thereto to the date
hereof, have previously been made available by Borrower to Agent or its
representatives. Each of the Material Contracts is, and on the Closing Date
after giving effect to the Transactions will be, valid, subsisting and in full
force and effect, neither Borrower nor any of its Subsidiaries is in default
under any of the Material Contracts, nor has any such default under any of the
Material Contracts been asserted by any other party thereto, and there has not
occurred any event which, with the giving of notice or the passage of time, or
both, would constitute such a default.
6.23 INSURANCE. As of the Closing Date, Schedule 6.23 sets forth a
true and complete list, in all material respects, and brief descriptions of all
policies of workers compensation, general liability, fire, property, casualty,
marine, business interruption, errors and omissions, flood, earthquake and other
insurance carried by Borrower and its Subsidiaries, true and complete copies of
which policies (or certificates therefore) have been previously delivered to
Agent. Such policies are in full force and effect on the date hereof, and none
of such Persons has received notice of cancellation with respect to any such
policy. All premiums payable with respect to such policies have been paid
through the Closing Date or otherwise will be paid in the ordinary course of
business.
6.24 SOLVENCY. Borrower and each of its Subsidiaries will be Solvent
on the Closing Date after giving effect to the Transactions and the application
of the net proceeds of the Loans.
6.25 STATUS UNDER CERTAIN LAWS. Neither Borrower nor any of its
Subsidiaries is an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning
of the Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Company Holding Act of 1935, as amended. Neither Borrower
nor any of its Subsidiaries is subject to regulation as a "common carrier" or
"contract carrier" or any similar classification by the Interstate Commerce
Commission or under the laws of any state.
6.26 PLACES OF BUSINESS. The principal place of business and the
chief executive office of Borrower and each of its Subsidiaries is, and on the
Closing Date after giving effect to the Transactions will be, located at the
addresses set forth on Schedule 6.26.The books and records (including, without
limitation, all records of
<PAGE> 51
Accounts) of Borrower and each Subsidiary are, and on the Closing Date after
giving effect to the Transactions all will be, located at such locations.
6.27 OTHER NAMES. During the five-year period preceding the Closing
Date, the business conducted by Borrower and its Subsidiaries has not been
conducted under any corporate, trade or fictitious name other than those names
listed on Schedule 6.27.
6.28 ACCOUNT WARRANTIES. With respect to Eligible Accounts scheduled,
listed or referred to in any Accounts Trial Balance delivered to Agent pursuant
to the terms hereof, Borrower represents and warrants that, except as disclosed
in the applicable Accounts Trial Balance, as of the date of each such Accounts
Trial Balance: (a) the Accounts are genuine, are in all respects what they
purport to be, and are not evidenced by a judgment; (b) they represent
undisputed, bona fide transactions; (c) the amounts shown on the applicable
Accounts Trial Balance and on Borrower's books and records and all invoices and
statements which may be delivered to Agent with respect thereto are actually and
absolutely owing solely to Borrower or one of Borrower's Subsidiaries and are
not contingent; (d) no payments have been made thereon; (e) there are no
setoffs, counterclaims or disputes asserted or, to the best knowledge of
Borrower, existing with respect thereto and neither Borrower nor any of its
Subsidiaries has made any agreement with any Account Debtor for any deduction
therefrom except or discounts or allowances allowed by Borrower and its
Subsidiaries in the ordinary course of business for prompt payment; (f) to the
best of Borrower's knowledge, there are no facts, events or occurrences which in
any way impair the validity or enforcement thereof or tend to reduce the amount
payable thereunder as shown on the respective Borrowing Base Certificate,
Borrower's and its Subsidiaries' books and records and all invoices and
statements delivered to Agent with respect thereto; (g) to the best of
Borrower's knowledge, all Account Debtors have the capacity to contract and are
Solvent; except, as to Solvency, for such Eligible Accounts as will not, in the
aggregate, give rise to a Material Adverse Effect; and (h) the services
furnished and/or goods sold giving rise thereto are not subject to any Lien
except for the first and valid fully perfected security interest granted to
Agent hereunder, and except for Permitted Liens.
6.29 INVENTORY WARRANTIES. With respect to Eligible Inventory
scheduled, listed or referred to in the Initial Borrowing Base Certificate and
in each subsequent Borrowing Base Certificate hereafter delivered to Agent
pursuant to the terms hereof, Borrower represents and warrants that, except as
disclosed in the applicable Borrowing Base Certificate, as of the date of each
Borrowing Base Certificate: (a) Borrower and its Subsidiaries have good,
indefeasible and merchantable title to such Eligible Inventory and such
Inventory is not subject to any Lien whatsoever, except for the prior, first and
valid, fully perfected security interest granted to Agent hereunder or Permitted
Liens; (b) such Eligible Inventory together with all other Inventory is located
only in the United States of America at the location set forth in Schedule 6.10
hereto or such other locations in the United States of America as are permitted
hereunder (or is in transit to such location as set forth in such Borrowing Base
Certificate); (c) such Inventory is of good and merchantable quality, free from
any defects and such Inventory is not subject to any licensing, patent, royalty,
trademark, trade name or copyright agreement which would prohibit, or impose a
material burden or expense upon, the completion in manufacture and sale or other
disposition of such Inventory by a Person other than Borrower or one of its
Subsidiaries; and (d) to the best knowledge of Borrower and its Subsidiaries,
the sale or other disposition of such Inventory by a Person other than Borrower
or one of its Subsidiaries would not require the consent of any Person or
constitute a breach of any contract to which Borrower or any of its Subsidiaries
is a party or to which the Inventory is subject. No Inventory shall at any time
be in the possession or control of any warehouseman, bailee or any of Borrower's
or its Subsidiaries' agents or processors except in conformity with the
applicable provisions hereof. Borrower shall (or shall cause the applicable
Subsidiary to) notify any such warehouseman, bailee or processor holding
Inventory having a Fair Market Value in excess of $1,000,000 of the Liens
created in favor of Agent and the Lenders and shall instruct such Person to hold
such Inventory for Agent's account subject to Agent's instructions. As of the
date hereof,
<PAGE> 52
no Inventory is in the possession or control of any warehouseman, bailee or any
of Borrower's or its Subsidiaries' agents or processors, except as disclosed on
Schedule 6.29 and Inventory in transit to or from any Person identified on
Schedule 6.29.
6.30 EQUIPMENT. After giving effect to the Transactions, (a) Borrower
and each of its Subsidiaries has good, indefeasible and merchantable title to
its respective Equipment; (b) except for items under repair and molds and tools
in the possession of third-party molders having an aggregate Fair Market Value
of not more than $1,000,000 at any one time, the Equipment is located only on
the premises set forth on Schedule 6.10 (and Borrower shall (or shall cause the
applicable Subsidiary to) notify any such third-party molder holding Equipment
having a Fair Market Value in excess of $1,000,000 of the Liens created in favor
of Agent and the Lenders and shall instruct such Person to hold such Equipment
for Agent's account subject to Agent `s instructions); (c) the Equipment is not
subject to any Lien whatsoever except for the first and valid fully perfected
security interest granted to Agent pursuant to the terms hereof, and except for
Permitted Liens; (d) the Equipment is in good condition and repair except for
such Equipment, the failure of which to be no good condition and repair, would
not cause a Material Adverse Effect, ordinary wear and tear excepted, and is
currently used or usable in Borrower's and its Subsidiaries' businesses.
6.31 YEAR 2000 REQUIREMENT. Except as set forth on Schedule 6.31,
Borrower and each of its Subsidiaries have reviewed the areas in their business
and operations which could be adversely affected by, and have developed or are
developing a program to address on a timely basis the risk that computer
applications used by the Borrower and each of its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (i) Borrower's
and any of its Subsidiaries' computer systems and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which Borrower or any such Subsidiary's systems interface) and the testing of
all such systems and equipment, as so reprogrammed, will be substantially
completed by July 31, 1999. The cost to the Borrower and each of its
Subsidiaries of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrower and each of its Subsidiaries
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a Default or a Material Adverse Effect.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrower and each of its Subsidiaries are and, with ordinary course upgrading
and maintenance, will continue for the term of this Agreement to be, sufficient
to permit the Borrower and each of its Subsidiaries to conduct their business
without Material Adverse Effect.
6.32 RELIANCE BY AGENT AND LENDERS; CUMULATIVE. Each warranty and
representation contained in this Agreement (including without limitation the
Schedules hereto as modified from time to time) shall be automatically deemed
repeated with each Advance and shall be conclusively presumed to have been
relied on by Agent and the Lenders regardless of any investigation made or
information possessed by Agent and the Lenders. The warranties and
representations set forth herein shall be cumulative and in addition to any and
all other warranties and representations that Borrower shall now or hereinafter
give, or cause to be given, to Agent and the Lenders.
7. COVENANTS. Borrower covenants and agrees that, so long as any
credit hereunder shall be available and thereafter until the expiration of all
Letters of Credit and final payment in full of the Obligations, Borrower shall,
and shall cause each of its Subsidiaries to, comply with the following
provisions of this Section 7:
<PAGE> 53
7.1 FINANCIAL STATEMENTS AND INFORMATION. So long as any of the
Obligations shall be outstanding, Borrower will furnish to Agent (with
sufficient copies for each Lender):
(a) as soon as available and in any event within 45 days
after the end of each fiscal quarter, copies of the consolidated and
consolidating balance sheets of Borrower and its Subsidiaries as of the end of
such fiscal quarter, and of the related consolidated and consolidating
statements of operations, earnings and cash flows for such fiscal quarter and
for the portion of the fiscal year of Borrower ended with the last day of such
fiscal quarter, all in reasonable detail and stating in comparative form (i) the
consolidated and consolidating figures as of the end of and for the
corresponding date and period in the previous fiscal year and (ii) the
corresponding figures from the consolidated budget of Borrower and its
Subsidiaries for such period, all such statements being Certified by the chief
financial officer of Borrower;
(b) as soon as available and in any event within 90 days
after the end of each fiscal year of Borrower, copies of the audited
consolidated and consolidating balance sheets of Borrower and its Subsidiaries
as of the end of such fiscal year, and of the related audited consolidated and
consolidating statements of operations, earnings and cash flows for such fiscal
year, together with the notes thereto, all in reasonable detail and stating in
comparative form (i) the respective audited consolidated and consolidating
figures as of the end of and for the previous fiscal year and (ii) the
corresponding figures from the consolidated budget of Borrower and its
Subsidiaries for such fiscal year, (x) in the case of such audited consolidated
financial statements, accompanied by a report thereon of Arthur Andersen, LLP,
or other independent public accountants selected by Borrower and acceptable to
Agent (the "Accountants"), which report shall be accompanied by a loan
compliance letter addressed to Agent and unqualified as to going concern and
scope of audit and shall state that such consolidated financial statements
present fairly the consolidated financial position of Borrower and its
Subsidiaries as at the end of such fiscal year and the consolidated results of
their operations and cash flows for such fiscal year in conformity with GAAP
applied on a basis consistent with prior years and that the examination by the
Accountants in connection with such consolidated financial statements has been
made in accordance with generally accepted auditing standards, and (y) in the
case of such consolidating financial statements, Certified by the chief
financial officer of Borrower;
(c) within 45 days after the end of each fiscal quarter of
Borrower, an Officer's Certificate of Borrower (1) setting forth calculations in
reasonable detail demonstrating whether or not as at the end of such fiscal
quarter Borrower was in compliance with Sections 7.7, 7.8 and 7.16 of this
Agreement and (2) stating that, based upon such examination or investigation and
review of this Agreement and other Loan Documents as in the opinion of the
signer is necessary to enable the signer to express an informed opinion with
respect thereto, no default by Borrower and its Subsidiaries in the fulfillment
of any of the terms, covenants, provisions or conditions of this Agreement or
any of the Loan Documents exists or has existed during such period or, if such a
default shall exist or have existed, the nature and period of existence thereof
and what action Borrower (or the applicable Subsidiary) has taken, is taking or
proposes to take with respect thereto;
(d) promptly after the same are available and in any event
within 10 days of filing, copies of all such proxy statements, financial
statements, notices and reports as Borrower or any Subsidiary shall send or make
available generally to any of its securityholders, and copies of all regular and
periodic reports (including without limitation annual reports on Form 10-K and
quarterly reports on Form 10-Q), all reports on Form 8-K and all registration
statements which Borrower or any Subsidiary may file with the SEC or with any
securities exchange;
(e) within 20 days after the last Business Day of each
calendar month, Borrower shall deliver to Agent and each Lender (i) a
certificate in the form of Exhibit E hereto ("Borrowing Base Certificate")
<PAGE> 54
showing the Borrowing Base as of the close of business on the last Business Day
of the immediately preceding calendar month, (ii) an aged trial balance of all
Accounts of Borrower and its Subsidiaries as of such date ("Accounts Trial
Balance"), indicating which Accounts are current, up to 90 days, and more than
90 days past the invoice date, (iii) an Inventory analysis (including raw
materials, work in progress and finished Inventory), and (iv) an accounts
payable aging, in each case certified as complete and correct on behalf of
Borrower by an authorized officer of Borrower;
(f) at any time when an Event of Default shall have occurred
and be continuing, upon the request of Agent, Borrower shall provide Agent with
a Borrowing Base Certificate with such frequency as Agent shall specify. Upon
request by Agent, Borrower shall furnish copies of any other material reports,
documents or information, in a form and with such specificity as is reasonably
satisfactory to Agent (to the extent such reports, documents and information can
be produced or furnished without unreasonable cost), concerning Accounts and
Inventory included, described or referred to in such Borrowing Base
Certificates, including without limitation, copies of all invoices prepared in
connection with such Accounts;
(g) promptly after the receipt thereof by Borrower and in
any event within 3 Business Days thereof, copies of any reports as to material
inadequacies in accounting controls (including reports as to the absence of any
such inadequacies) submitted to Borrower by the Accountants in connection with
any audit of such corporation made by the Accountants;
(h) promptly (and in any event within 3 Business Days) after
becoming aware of (1) the existence of any Default or Event of Default on the
part of Borrower, an officer's certificate of Borrower specifying the nature and
period of existence thereof and what action Borrower is taking or proposes to
take with respect thereto; or (2) any Funded Debt of Borrower or any of its
Subsidiaries in excess of $100,000 in the aggregate being declared due and
payable before its expressed maturity, or any holder of such Indebtedness having
the right to declare such Indebtedness due and payable before its expressed
maturity, because of the occurrence of any default (or any event which, with
notice and/or the lapse of time, shall constitute any such default) under such
Indebtedness, an officer's certificate of Borrower describing the nature and
status of such matters and what action Borrower or any applicable Subsidiary is
taking or proposes to take with respect thereto;
(i) promptly and in any event within 3 Business Days after
Borrower knows or, in the case of a Pension Plan has reason to know, that a
Reportable Event with respect to any Pension Plan has occurred, that any Pension
Plan or Multi Employer Plan is or reasonably may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA, or Borrower or any of
its ERISA Affiliates will or reasonably may incur any material liability to or
on account of a Pension Plan or Multi Employer Plan under Title IV of ERISA or
any other liability under ERISA which could reasonably have a Material Adverse
Effect has been asserted against Borrower or any of its ERISA Affiliates, an
officer's certificate of Borrower setting forth information as to such
occurrence and what action, if any, Borrower or an ERISA Affiliate is required
or proposes to take with respect thereto, together with any notices concerning
such occurrences which are (a) required to be filed by Borrower or an ERISA
Affiliate or the plan administrator of any such Pension Plan controlled by
Borrower or such ERISA Affiliate with the Internal Revenue Service or the PBGC,
or (b) received by Borrower or such ERISA Affiliate from any plan administrator
of a Pension Plan not under their control or from a Multi Employer Plan;
(j) promptly after becoming aware of any Material Adverse
Effect with respect to which notice is not otherwise required to be given
pursuant to this Section 7.1, an officer's certificate of Borrower
<PAGE> 55
setting forth the details of such Material Adverse Effect and stating what
action Borrower has taken or proposes to take with respect thereto;
(k) promptly (and in any event within 3 Business Days) after
Borrower knows of (a) the institution of, or reasonably credible threat of, any
action, suit, proceeding, governmental investigation or arbitration against or
affecting Borrower or any of its Property, or (b) any material development in
any such action, suit, proceeding, governmental investigation or arbitration,
which, in either case, if adversely determined, is likely to have a Material
Adverse Effect, an officer's certificate of Borrower describing the nature and
status of such matter in reasonable detail;
(l) as soon as available but in no event later than the last
day of each fiscal year of Borrower, a copy of a consolidated business plan for
Borrower and its Subsidiaries for the 24 month period commencing on the first
day of the succeeding fiscal year, which business plan shall contain
consolidated balance sheets as well as consolidated projections of sales, cash
flow and borrowing needs for such 24-month period, on a month-by-month basis for
the first 12 months of such period and on an annual basis for the second 12
months of such period;
(m) at least once in each fiscal year of Borrower, (i) an
Officer's Certificate setting forth all material insurance coverage maintained
by Borrower as of the date of such certificate and of all insurance planned to
be maintained by such Persons in such fiscal year, and (ii) certificates
evidencing renewals of such insurance;
(n) not less than two times in each calendar year, Agent
shall conduct, on behalf of the Lenders and at Borrower's expense (not to exceed
$14,000 in the aggregate in any fiscal year unless an Event of Default has
occurred), an audit of the Accounts and Inventory of Borrower and its
Subsidiaries, the results of which audits shall be satisfactory to Agent and the
Lenders in form and substance and shall be performed by Persons acceptable to
Agent and the Lenders, provided that at any time when an Event of Default shall
have occurred and be continuing Agent shall be entitled to conduct such
additional audits as it may require, at Borrower's sole cost and expense;
(o) as soon as available but in any event by the date on
which such filing is required to be made with the Securities and Exchange
Commission, a copy of Borrowers 8-K as of the Closing Date after giving effect
to the Acquisition; and
(p) any other information, including financial statements
and computations, relating to the performance of obligations arising under this
Agreement and/or the affairs of Borrower that Agent or any Lender may from time
to time reasonably request and which is capable of being obtained, produced or
generated without unreasonable cost by Borrower or of which Borrower has
knowledge.
7.2 PAYMENT OF PRINCIPAL, INTEREST AND FEES; TO KEEP BOOKS;
RESERVES; ETC. Borrower will duly and punctually pay the principal of and
interest and fees on the Loans in accordance with the terms of the Notes and
this Agreement. Borrower will, and will cause each of its Subsidiaries to,
comply with all of the covenants, agreements and conditions contained in this
Agreement and the other Loan Documents to which it is a party. Borrower's fiscal
year end is August 31. Borrower will maintain the same fiscal year during and
after the fiscal year ended August 31, 1999 and will keep proper books of record
and account and set aside appropriate reserves, all in accordance with GAAP.
<PAGE> 56
7.3 PAYMENT OF TAXES AND CLAIMS. Borrower will, and will cause each
of its Subsidiaries to, pay before they become delinquent:
(a) all taxes (including excise taxes), assessments and
governmental charges or levies imposed upon it or its income or profits or upon
its Property, real, personal or mixed, or upon any part thereof;
(b) all claims for labor, materials and supplies which, if
unpaid, might result in the creation of a Lien upon its Property; and
(c) all claims, assessments, or levies required to be paid
by any of them pursuant to any agreement, contract, law, ordinance or
governmental rule or regulation governing any pension, retirement,
profit-sharing or any similar plan;
provided, that, with respect to Property, items of the foregoing description
need not be paid while being diligently contested in good faith and by
appropriate proceedings so long as (i) adequate book reserves have been
established with respect thereto and (ii) Borrower's title to and right to use
its Property is not materially adversely affected by such non-payment. Borrower
will timely file all Federal and state tax returns and informational returns
required to be filed in connection with the payment of taxes and claims required
by this Section 7.3.
7.4 MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE. Borrower
will, and will cause each of its Subsidiaries to:
(a) maintain its Property in good condition and make all
necessary renewals, repairs, replacements, additions, betterments, and
improvements thereto consistent with the historical practices of such Persons;
(b) keep true books of records and accounts in which full
and correct entries will be made of all its business transactions and will
reflect in its financial statements adequate accruals and appropriations to
reserves;
(c) do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and powers and
franchises including, without limitation thereof, any necessary qualification or
licensing in any foreign jurisdiction;
(d) comply with (i) all applicable statutes, regulations,
franchises, and Orders of, and all applicable restrictions imposed by, any
Governmental Body, in respect of the conduct of its business and the ownership
of its Properties (including, without limitation, all Environmental Laws and all
applicable statutes, rules, ordinances, regulations and Orders relating to fair
labor standards, equal employment opportunities and occupational health and
safety) and (ii) all terms of any material mortgage, indenture, contract,
agreement or instrument, applicable to Borrower or any of its Properties; and
(e) keep any Property it owns or operates free of
contamination from Hazardous Materials and any other potentially harmful
chemical or physical conditions. If Borrower or any Subsidiary receives notice
of any Environmental Matter or contamination with Hazardous Materials that
relates to any of them or their respective Properties, then Borrower agrees,
upon request of Agent, to provide Agent with such reports, certificates,
engineering studies or other written material or data as Agent may reasonably
require so as to satisfy Agent that Borrower or such Subsidiary is in compliance
with its obligations under this Agreement. Borrower
<PAGE> 57
covenants and agrees to, and to cause each of its Subsidiaries to, cooperate
fully with such consultant in any such audits, including, without limitation, by
providing such reasonable access to Borrower's and its Subsidiaries' books,
records, Properties, employees and agents and by furnishing such written and
oral information as such consultant may reasonably request in connection with
any such audits.
7.5 INSURANCE. Borrower will, and will cause its Subsidiaries to,
carry and maintain in full force and effect at all times with financially sound
and reputable insurers, rated A or better by AM Best & Co., provided that if the
rating of such insurer is lowered so that it no longer complies with this
provision, Borrower shall have 30 days to replace (or to cause the applicable
Subsidiary to replace) such insurance with other insurance satisfying the
requirements of this Section 7.5 (or, as to workers' compensation or similar
insurance, in an insurance fund or by self-insurance authorized by the
jurisdiction in which its operations are carried on): (i) all workers'
compensation or similar insurance as may be required under the laws of any
jurisdiction, (ii) business interruption insurance covering risk of loss as a
result of the cessation for all or any part of one year of all or any
substantial part of the business conducted by it, (iii) insurance against such
other risks as are usually insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated,
including, without limitation, fire, casualty, flood, public liability and
products liability insurance, and (iv) with respect to any Collateral consisting
of insurable Property, insurance against loss by fire, explosion, theft and such
other casualties as may be reasonably satisfactory to Agent and insurance
insuring Borrower and its Subsidiaries against liability for personal injury and
property damage relating to such Collateral, in the forms and amounts required
hereunder and under the Mortgages. Insurance specified in clauses (ii) and (iii)
shall be maintained in such amounts (and with co-insurance, deductibles and
self-insured retention, if any) as such insurance is usually carried by
corporations of established reputation engaged in the same or similar businesses
and similarly situated. Insurance specified in clause (iv) shall be maintained
in such form and amounts and having such coverage as may be reasonably
satisfactory to Agent. All insurance required hereunder shall (A) provide that
no cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by Agent of
written notice thereof, (B) name Agent (for the benefit of the Lenders) as loss
payee or additional insured, as its interests may appear, and (C) be reasonably
satisfactory to Agent in all other respects.
7.6 FURTHER ASSURANCES. Promptly upon request by Agent, Borrower
shall, and shall cause its Subsidiaries to, (1) correct any material defect or
error that may be discovered in any Loan Document or in the execution,
acknowledgment or recordation thereof, and (2) do, execute, acknowledge,
deliver, record, re-record, file, re-file, register and re-register any and all
such further acts, deeds, conveyances, pledge agreements, mortgages, deeds of
trust, trust deeds, assignments, estoppel certificates, financing statements and
continuations thereof, termination statements, notices of assignment, transfers,
certificates, assurances, powers, proxies and other instruments as Agent may
reasonably require from time to time in order (A) to carry out more effectively
the purposes of this Agreement or any other Loan Document, (B) to subject to the
Liens and security interests created by any of the Loan Documents any of their
respective Properties, rights or interests covered or now or hereafter intended
to be covered by any of the Loan Documents, (C) to perfect and maintain the
validity, effectiveness and priority of any of the Collateral Documents and the
Liens and security interests intended to be created thereby and (D) better to
assure, convey, grant, assign, transfer, preserve, protect and confirm to Agent
the rights granted or now or hereafter intended to be granted to it under any
Loan Document or under any other instrument executed in connection with or
pursuant to any Loan Document.
7.7 RESTRICTIONS ON INDEBTEDNESS. Borrower will not, and will not
permit any of its Subsidiaries to, incur, create, assume or suffer to exist any
Indebtedness, other than the following:
(a) Indebtedness incurred pursuant to this Agreement and the
other Loan Documents;
<PAGE> 58
(b) Accounts payable and other accrued liabilities in the
ordinary course of business;
(c) Senior Debt, in addition to the Obligations, in an
aggregate principal amount not to exceed $2,000,000 in any fiscal year
(provided, that the aggregate outstanding Indebtedness permitted under this
Section7.7(c) plus the aggregate outstanding Indebtedness permitted under
Section 7.7(c) with reference to Section 7.8(k) shall not exceed $2,000,000 at
any time);
(d) Indebtedness of any of Borrower's Subsidiaries to
Borrower. provided that such Indebtedness is evidenced by a promissory note
issued by such Subsidiary in the form annexed hereto as Exhibit O (each an
"Intercompany Note") and Borrower's rights under the promissory note have been
pledged to Agent, for the benefit of the Lenders, as collateral security for the
Obligations; and
(e) Indebtedness secured by Liens permitted under Section
7.8. RESTRICTIONS ON LIENS. Borrower will not, and will not permit
any of its Subsidiaries to, create, assume or suffer to exist any Lien upon any
of their respective Properties, whether now owned or hereafter acquired, except
the following (herein collectively referred to as "Permitted Liens"):
(a) Liens for taxes, assessments or governmental charges or
claims the payment of which is not at the time required by Section 7.3;
(b) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law incurred in
the ordinary course of business for sums not yet delinquent or being diligently
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made therefore;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, government contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money), provided that the amount of Liens of Borrower referred to in this
Subsection (c) outstanding at any time shall not exceed $125,000 in the
aggregate;
(d) Any attachment or judgment Lien (including judgment or
appeal bonds) which shall, within 30 days after the entry thereof, have been
discharged, bonded or execution thereof stayed pending appeal, or which shall
have been discharged or bonded within 30 days after the expiration of any such
stay;
(e) Leases or subleases granted to others not interfering
with the ordinary conduct of business;
(f) Easements, rights-of-way, restrictions and other similar
charges or encumbrances which do not, individually or in the aggregate,
materially interfere with the ordinary conduct of business;
(g) Any interest, title or Lien of a lessor under any
permitted operating lease;
(h) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods;
<PAGE> 59
(i) Liens incurred pursuant to the Loan Documents;
(j) Liens listed on Schedule 6.8(a) or Schedule 6.10 in
existence on the Closing Date after giving effect to the Transactions; and
(k) Commencing in fiscal year 1999, and for each fiscal year
thereafter, Liens (including Capitalized Leases) in respect of Property acquired
or constructed or improved by Borrower after the Closing Date, which Liens exist
or are created at the time of acquisition or completion of construction or
improvement of such Property or within 60 days thereafter, but any such Lien
shall cover only the Property so acquired or constructed and any improvements
thereto (and any real Property on which such Property is located, if such
Property is a building, improvement or fixture), provided that the aggregate
principal amount of all Indebtedness secured by Liens incurred pursuant to this
Subsection (K) in any fiscal year, together with any Indebtedness incurred
pursuant to Section 7.7(c), shall not exceed $2,000,000.
7.9 SALE-LEASEBACK TRANSACTIONS. Borrower will not, and will not
permit any of its Subsidiaries to, enter into any arrangements with any lender
or investor or to which such lender or investor is a party providing for the
leasing by Borrower or any Subsidiary of real or personal Property which has
been or is to be sold or transferred by Borrower or such Subsidiary to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such Property or rental
obligations of Borrower or such Subsidiary.
7.10 TRANSACTIONS WITH AFFILIATES. Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into or permit
to exist any transaction (including, without limitation, the purchase, sale,
lease or exchange of any Property or the rendering of any service), with any
Affiliate except in the ordinary course of business and on terms that are not
less favorable to Borrower or such Subsidiary than those that would be
obtainable at the time in an arms' length transaction with any Person who is not
such an Affiliate.
7.11 MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS; ACQUISITIONS.
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any transaction of merger or consolidation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, Property or fixed assets, whether
now owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all of the business, Property or fixed assets of, or stock or
other evidence of beneficial interest in any Person, except:
(a) Borrower and its Subsidiaries may in the ordinary course
of its business sell or otherwise dispose of Inventory;
(b) Borrower and its Subsidiaries may sell or otherwise
dispose of, in the ordinary course of business, (i) Property that is worn out or
obsolete or no longer used in its business, and (ii) other Property in an amount
not to exceed an aggregate Fair Market Value of $500,000 on a consolidated basis
per fiscal year;
(c) any Subsidiary of Borrower may merge with Borrower
(provided that Borrower is the surviving entity) or any other Subsidiary of
Borrower.
7.12 SALE OR DISCOUNT OF RECEIVABLES. Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, sell with or without
recourse, or discount or otherwise sell any of its notes or accounts receivable.
<PAGE> 60
7.13 CERTAIN CONTRACTS. Borrower will not, and will not permit any of
its Subsidiaries to, enter into or be a party to, any Guarantee or contract
which, in economic effect, is substantially equivalent to a Guarantee, except to
the extent permitted by Section 7.7.
7.14 RESTRICTED PAYMENTS AND INVESTMENTS. Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, make any
Restricted Payment (except to Borrower) or any Investment other than Permitted
Investments and the loans to Borrower's Subsidiaries permitted under Section
7.7(d). This Section 7.14 shall not prohibit Borrower or any Subsidiary from
owning the capital stock of their respective Subsidiaries; provided that no
Investments may be made in Excluded Subsidiaries in excess of those Investments
existing as of the Closing Date.
7.15 FINANCIAL COVENANTS. All financial covenants are determined for
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.
(a) Borrower will have, as at the last day of each fiscal
quarter, a Book Net Worth of not less than the following during the periods set
forth below:
<TABLE>
<S> <C>
from Closing Date through August 30, 1999 $29,000,000
from August 31, 1999 through August 30, 2000 $33,000,000
from August 31, 2000 and thereafter $38,000,000
</TABLE>
"Book Net Worth" means the aggregate book value of all assets of Borrower and
its Subsidiaries on a consolidated basis, net of liabilities, determined in
accordance with GAAP.
(b) Borrower will not permit, as at the last day of each
fiscal quarter, its ratio of Total Liabilities to Book Net Worth to be greater
than the following during the periods set forth below:
from Closing Date through August 30, 1999 2.3 to 1.0
from August 31, 999 through August 30, 2000 1.9 to 1.0
from August 31, 2000 and thereafter 1.5 to 1.0
"Total Liabilities" means the aggregate liabilities of Borrower and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
(c) Borrower will have, as at the end of each fiscal
quarter, a ratio of Funded Debt to EBITDA of not more than the following:
<TABLE>
<S> <C>
fiscal quarter ending February 28, 1999 2.75 to 1
fiscal quarter ending May 31, 1999 2.50 to 1
fiscal quarter ending August 31, 1999 2.25 to 1
fiscal quarter ending November 30, 1999
and each fiscal quarter end thereafter 2.0 to 1
</TABLE>
(d) Borrower shall at all times have a ratio of (x)
Consolidated Net Income plus depreciation and amortization to (y) the current
portion of long-term Indebtedness plus Capital Expenditures incurred but not
financed during the applicable period of measurement of not less than 1.5 : 1.0,
as at the end of each fiscal quarter for the period of four consecutive fiscal
quarters then ended.
<PAGE> 61
(e) Borrower shall have a ratio of Consolidated Current
Assets to Consolidated Current Liabilities of not less than .70 : 1.0, as at the
end of each fiscal quarter.
7.16 ACQUISITION OF MARGIN SECURITIES. Borrower will not, and will
not permit any Subsidiary to, own, purchase or acquire (or enter into any
contract to purchase or acquire) any "margin security" as defined by any
regulation of the Board of Governors of the Federal Reserve System as now in
effect or as the same may hereafter be in effect unless, prior to any such
purchase or acquisition or entering into any such contract, Agent shall have
received an opinion of counsel satisfactory to it to the effect that such
purchase or acquisition will not cause this Agreement or the Loans to be in
violation of Regulations G, U or X or any other regulation of such Board then in
effect; provided that Borrower and its Subsidiaries may from time to time
acquire and hold "margin securities" so long as the aggregate Fair Market Value
of all such margin securities held by Borrower and its Subsidiaries at any one
time does not exceed $25,000.
7.17 COLLATERAL LOCATIONS. Neither the location of the principal
place of business and chief executive office of Borrower nor the location of any
Collateral (except Collateral being disposed of as permitted under this
Agreement) shall be changed nor shall there be established additional places of
business or additional locations at which Collateral is stored, kept or
processed except upon at least 30 days' prior written notice to Agent and in
compliance with the applicable provisions of this Agreement.
7.18 NEGATIVE PLEDGES, RESTRICTIVE AGREEMENTS, ETC. Borrower will
not, and will not permit any of its Subsidiaries to, enter into any agreement
(excluding the Loan Documents) prohibiting the creation or assumption of any
lien upon any of the Collateral, whether now owned or hereafter acquired, or the
ability of Borrower or any Subsidiary to amend or otherwise modify any Loan
Document to which it is a party.
7.19 ADDITIONAL COLLATERAL MATTERS. Schedule 7.19 sets forth a
complete and accurate list of all banking and other depository accounts of
Borrower and its Subsidiaries existing on the Closing Date after giving effect
to the Acquisition. Borrower shall, and shall cause each of its Subsidiaries to,
within the applicable time period indicated for each such account on Schedule
7.19, either (i) cause such account to be maintained with Agent, (ii) close such
account or (iii) cause such account to become subject to an account take-over
letter substantially in the form of Exhibit L hereto executed and delivered by
the institution at which such account is maintained (if other than Agent).
Borrower will, and will cause each of its Subsidiaries to: (a) use best efforts
have the lessors of their respective real Properties execute and deliver to
Agent landlord waivers substantially in the form of Exhibit K hereto, and each
of them shall require the execution and delivery of such a landlord waiver in
connection with any new lease of real Property; (b) not open or suffer to exist
any banking or depositary account unless such account is either (x) maintained
with Agent or (y) (if not maintained with Agent) made subject to an account
take-over letter substantially in the form of Exhibit L hereto executed by the
institution at which such account is maintained or otherwise subject to a first
priority security interest in favor of Agent; (c) notify any warehouseman,
bailee or processor holding Inventory having a Fair Market Value in excess of
$1,000,000 of the Liens created in favor of Agent and the Lenders and instruct
such Person to hold such Inventory for Agent's account subject to Agent's
instructions; and (d) notify any third-party molder holding Equipment having a
Fair Market Value in excess of $1,000,000 of the Liens created in favor of Agent
and the Lenders and instruct such Person to hold such Equipment for Agent's
account subject to Agent's instructions.
7.20 FUTURE SUBSIDIARIES. Notwithstanding any other provision of this
Agreement or the other Loan Documents, Borrower will not, and not permit any of
its Subsidiaries to, create or acquire any other Subsidiary (a "New Subsidiary")
unless (a) such New Subsidiary is a corporation organized under the laws of the
United States, (b) such New Subsidiary (i) executes and delivers a Trademark
Security Agreement with respect to any
<PAGE> 62
Property owned by such New Subsidiary that constitutes collateral under the form
of Trademark Security Agreement, (ii) becomes a party to the Security Agreement
and the Subsidiary Guaranty and (iii) if requested by Required Lenders, with
respect to any real property owned by such Subsidiary, a Mortgage, (c) the
ownership interests in such New Subsidiary are pledged to Agent pursuant to a
Pledge Agreement, (d) Agent and the Lenders receive an opinion of counsel to
such Subsidiary addressing, with respect to such New Subsidiary and its Loan
Documents, the matters addressed with respect to Borrower's Subsidiaries on the
Closing Date in the opinion attached hereto as Exhibit D, and (e) after giving
effect to the creation or acquisition of such New Subsidiary, no Default or
Event of Default shall have occurred and be continuing (for purposes of
determining compliance with this clause (e), Borrower shall deliver an Officer's
Certificate in the form required by Section 7.1(c) which shall set forth
calculations of the specified covenants on a pro-forma basis at last day of
Borrower's most recently ended fiscal quarter as if the New Subsidiary had been
a Subsidiary of Borrower during such fiscal quarter).
8. EVENTS OF DEFAULT; REMEDIES.
8.1 EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default under this Agreement.
(a) If Borrower fails to make any payment of all or any
portion of the Obligations when due and payable or when declared due and payable
(whether interest, fees or otherwise, including any interest which, but for the
provisions of the United States Bankruptcy Code, would have accrued on any of
the Obligations);
(b) If Borrower or any of its Subsidiaries defaults in the
performance or observance of any term, provision, condition, covenant, or
agreement contained in Section 7.7, 7.10, 7.11, 7.12, 7.13, 7.14, 7.15, 7.16,
7.17, 7.18 or 7.20;
(c) If Borrower or any of its Subsidiaries defaults in the
performance or observance of any term, provision, condition, covenant, or
agreement contained in Section 7.1, 7.5, 7.8, 7.9 or 7.19 and such default
continues unremedied for a period of 5 days;
(d) If Borrower of any of its Subsidiaries fails or neglects
to perform, keep, or observe any term, provision, condition, covenant, or
agreement contained in this Agreement or in any of the other Loan Documents
other than as specified in any other subsection of this Section 8.1, and such
default continues unremedied for a period of 30 days;
(e) If any material portion of the Properties of Borrower or
any of its Subsidiaries is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any judicial officer
or assignee;
(f) If any bankruptcy, reorganization, receivership,
liquidation, assignment for the benefit of creditors or other insolvency
proceeding (each, an "Insolvency Proceeding") is commenced by Borrower or any of
its Subsidiaries;
(g) If an Insolvency Proceeding is commenced against
Borrower or any of its Subsidiaries and not dismissed within 60 calendar days;
(h) If Borrower or any of its Subsidiaries is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs and such injunction or other
<PAGE> 63
order is not released to the satisfaction of Required Lenders within 10 calendar
days of the entry of such injunction, restraint or order;
(i) If a notice of lien, levy, or assessment is filed of
record with respect to any material portion of the Property of Borrower or any
of its Subsidiaries by any Governmental Body, or if any taxes or debts owing at
any time hereafter to any one or more of such entities becomes a Lien, whether
choate or otherwise, upon any material portion of Borrower's or any of its
Subsidiaries' Property and the same is not paid on the payment date thereof,
unless the same is being contested in good faith by appropriate proceedings and
with appropriate reserves and no Lien has attached in respect thereof;
(j) If a judgment or other claim becomes a Lien upon any
material portion of Borrower's or any Subsidiary's Property and is not being
contested in good faith by Borrower or such Subsidiary, execution on which has
been stayed pending such contest;
(k) If Agent's Lien in any Collateral shall cease or fail to
be a valid, perfected first-priority Lien, subject to Permitted Liens and such
other exceptions as may be permitted under this Agreement;
(1) If any Loan Document shall cease to be valid and
enforceable against Borrower or any of its Subsidiaries, or Borrower or any
Subsidiary shall so assert;
(m) If any Person, or any group of Persons acting in
concert, shall have become the direct or indirect beneficial owner (within the
meaning of Rule 13d under the Exchange Act) of more than 25% of the outstanding
shares of Borrower's capital stock having ordinary voting power;
(n) If there is a default in any agreement to which Borrower
or any of its Subsidiaries is a party with third parties resulting in a right by
such third parties, whether or not exercised, to accelerate the maturity of
Borrower's or any such Subsidiary's Funded Debt in an aggregate principal amount
in excess of $100,000;
(o) If any representation, warranty, certification or
statement made by or on behalf of Borrower or its Subsidiaries or any officer of
any of them in this Agreement, any other Loan Document or in any certificate,
instrument, financial statement or other document now or hereafter delivered
hereunder or pursuant to or in connection with any provision hereof shall prove
to be false or incorrect or breached in any material respect on the date as of
which made; or
(p) If there is a Material Adverse Change.
8.2 REMEDIES. If any Event of Default described in clause (f) or (g) of
Section 8.1 shall occur, the Commitment and the Loans (if not theretofore
terminated) shall automatically terminate and the outstanding principal amount
of all outstanding Obligations shall automatically be and become immediately due
and payable, without notice or demand and the Commitment shall be automatically
and immediately terminated. If any other Event of Default shall occur for any
reason, whether voluntary or involuntary, and be continuing, Agent may, and upon
being directed to do so by Required Lenders shall, by notice to Borrower,
declare all or any portion of the outstanding principal amount of the
Obligations immediately due and payable and/or the Loans and the Commitment (if
not theretofore terminated) to be terminated, whereupon the full unpaid amount
of such Obligations which shall be so declared due and payable shall be and
become immediately due and payable, without further notice, demand or
presentment, all of which are expressly waived by Borrower, and/or, as the case
may be, the Loans and the Commitment shall terminate. If any Event of Default
has occurred and is
<PAGE> 64
continuing, the Agent shall, upon being directed to do so by the Required Banks,
demand immediate delivery of cash collateral, and Borrower agrees to deliver
such cash collateral upon demand, in an amount equal to the maximum amount that
may be available to be drawn at any time prior to the stated expiry of all
outstanding Letters of Credit. In addition, upon any Event of Default Agent may,
and shall, if directed to do so by the Required Lenders or the Lenders, as
applicable (subject to the terms hereof) exercise any and all remedies available
to it at law or in equity as well as any rights or remedies specified in any of
the Loan Documents.
8.3 REMEDIES WITH RESPECT TO COLLATERAL.
(a) Without limiting the foregoing, if any Event of Default
shall occur and be continuing, Agent may exercise, and shall, if directed to do
so, by the Required Leaders or the Lenders, as applicable (subject to the terms
hereof), in addition to all other rights and remedies granted to it in this
Agreement, any other Loan Document or by law, all rights and remedies of a
secured party under the UCC. Without limiting the generality of the foregoing,
Borrower expressly agrees that in any such event Agent may, without demand of
performance or other demand, advertisement, legal process or notice of any kind
(except as may be required by law or provided herein) to or upon Borrower or any
other Person (all and each of which demands, advertisements and/or notices are
hereby expressly waived to the maximum extent permitted by the UCC and other
applicable law), (i) at any time or times enter Borrower's premises and take
physical possession of the Collateral and maintain such possession on Borrower's
premises, without any obligation to pay rent or other compensation to Borrower,
(ii) remove the Collateral or any part thereof, to such other places as Agent
may desire, (iii) forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or (iv) forthwith sell, lease, assign, give
an option or options to purchase, or sell or otherwise dispose of and deliver
said Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker's board or
at any of Agent's offices or elsewhere at such prices and on such terms as Agent
may deem commercially reasonable (irrespective of the impact of any such sales
on the market price of the Collateral), for cash or on credit or for future
delivery. Any such purchaser (including, without limitation, Agent and any other
Lender) of Collateral sold pursuant to this Section 8.3 shall purchase the same
absolutely free from any claim or right on the part of Borrower and Borrower
does hereby waive (to the maximum extent permitted by the UCC and other
applicable law) all rights of redemption, stay, and appraisal which Borrower now
has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Borrower further agrees, at Agent's request to
assemble the Collateral and make it available to Agent at places which Agent
shall reasonably select, whether at Borrower's premises or elsewhere. To the
maximum extent permitted by applicable law, Borrower waives all claims, damages,
and demands against Agent arising out of the repossession, retention or sale of
the Collateral except such as may arise out of the gross negligence or willful
misconduct of Agent or the failure of Agent to exercise reasonable care in the
custody and preservation of Collateral in its possession or under its control as
provided in Section 4.3. Borrower agrees that, to the extent notice of sale
shall be required by law, Agent need not give more than ten (10) days' notice of
the time and place of any public sale or of the time after which a private sale
may take place and that such notice shall constitute reasonable notification
within the meaning of Section 9504(3) of the UCC.
(b) Borrower also agrees to pay all reasonable costs of
Agent and Lenders, including, without limitation, reasonable attorneys' fees,
incurred in connection with the enforcement of any of Agents or Lenders' rights
and remedies hereunder or as provided by law, including, without limitation,
reasonable fees for attorneys employed by Agent or any Lenders to collect any
deficiency existing after the application of proceeds from any sale of
Collateral pursuant to this Section 8.3.
(c) Borrower hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement or any Collateral.
<PAGE> 65
(d) The proceeds of any disposition of any Collateral
obtained pursuant to this Section 8.3 and\or the other Loan Documents shall be
applied as follows:
(i) first, to the payment of any and all expenses
and fees (including reasonable attorney's fees) incurred by
Agent in foreclosing on and disposing of the Collateral;
(ii) next, any surplus then remaining to the payment
of the Obligations (whether matured or unmatured) in such order
as Required Lenders may determine in its sole discretion; and
(iii) thereafter, if no other Obligations are
outstanding, any surplus then remaining shall be paid to
Borrower or to such other Person legally entitled to same; it
being understood that Borrower will remain liable to Agent and
the Lenders to the extent of any deficiency between the amount
of the Obligations and the aggregate of all amount realized from
Collateral.
9. THE AGENT
9.1 APPOINTMENT OF AGENT. Each Lender and the holder of each Note
irrevocably appoints and authorizes the Agent to act on behalf of such Lender or
holder under this Agreement and the other Loan Documents and to exercise such
powers hereunder and thereunder as are specifically delegated to Agent by the
terms hereof and thereof, together with such powers as may be reasonably
incidental thereto, including without limitation the power to execute or
authorize the execution of financing or similar statements or notices, and other
documents. In performing its functions and duties under this Agreement, the
Agent shall act solely as agent of the Lenders and does not assume and shall not
be deemed to have assumed any obligation towards or relationship of agency or
trust with or for Borrower. Each Lender agrees (which agreement shall survive
any termination of this Agreement) to reimburse Agent for all reasonable
out-of-pocket expenses (including house and outside attorneys' fees and
disbursements) incurred by Agent hereunder or in connection herewith or with an
Event of Default or in enforcing the obligations of Borrowers under this
Agreement or the other Loan Documents or any other instrument executed pursuant
hereto, and for which Agent is not reimbursed by Borrower, pro rata according to
such Lender's Percentage, but excluding any such expense resulting from Agent's
gross negligence or wilful misconduct. Agent shall not be required to take any
action under the Loan Documents, or to prosecute or defend any suit in respect
of the Loan Documents, unless indemnified to its satisfaction by the Lenders
against loss, costs, liability and expense (excluding liability resulting from
its gross negligence or wilful misconduct). If any indemnity furnished to Agent
shall become impaired, it may call for additional indemnity and cease to do the
acts indemnified against until such additional indemnity is given.
9.2 DEPOSIT ACCOUNT WITH AGENT. Borrower hereby authorizes Agent, in
Agent's sole discretion, upon notice to Borrower to charge its general deposit
account(s), if any, maintained with Agent for the amount of any principal,
interest, or other amounts or costs due under this Agreement when the same
become due and payable under the terms of this Agreement or the Notes.
9.3 SCOPE OF AGENT'S DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement or otherwise, have a fiduciary relationship with any
Lender (and no implied covenants or other obligations shall be read into this
Agreement against the Agent). None of Agent, its Affiliates nor any of their
respective directors, officers, employees or agents shall be liable to any
Lender for any action taken or omitted to be taken by it or them under this
Agreement or any document executed pursuant hereto, or in connection herewith or
therewith with the consent or at the request of the Required Lenders (or all of
the Lenders for those acts requiring consent of all of the Lenders) (except for
its
<PAGE> 66
or their own wilful misconduct or gross negligence), nor be responsible for or
have any duties to ascertain, inquire into or verify (a) any recitals or
warranties made by the Borrower, or any Subsidiary or Affiliate of the Borrower,
or any officer thereof contained herein or therein, (b) the effectiveness,
enforceability, validity or due execution of this Agreement or any document
executed pursuant hereto or any security thereunder, (c) the performance by
Borrower of their respective obligations hereunder or thereunder, or (d) the
satisfaction of any condition hereunder or thereunder, including without
limitation the making of any Advance or the issuance of any Letter of Credit.
Agent and its Affiliates shall be entitled to rely upon any certificate, notice,
document or other communication (including any cable, telegraph, telex,
facsimile transmission or oral communication) believed by it to be genuine and
correct and to have been sent or given by or on behalf of a proper person. Agent
may treat the payee of any Note as the holder thereof. Agent may employ agents
and may consult with legal counsel (who may be counsel for Borrower),
independent public accountants and other experts selected by it and shall not be
liable to the Lenders (except as to money or property received by them or their
authorized agents), for the negligence or misconduct of any such agent selected
by it with reasonable care or for any action taken or omitted to be taken by it
in good faith in accordance with the advice of such counsel, accountants or
experts.
9.4 SUCCESSOR AGENT. Agent may resign as such at any time upon at
least 30 days prior notice to Borrower and all Lenders. If Agent at any time
shall resign or if the office of Agent shall become vacant for any other reason,
Required Lenders shall, by written instrument, appoint successor agent(s)
satisfactory to such Required Lenders, and, so long as no Default or Event of
Default has occurred and is continuing, to Borrower. Such successor agent shall
thereupon become the Agent hereunder, as applicable, and shall be entitled to
receive from the prior Agent such documents of transfer and assignment as such
successor Agent may reasonably request. Any such successor Agent shall be a
commercial lender organized under the laws of the United States or any state
thereof and shall have a combined capital and surplus of at least $500,000,000.
If a successor is not so appointed or does not accept such appointment before
the resigning Agent's resignation becomes effective, the resigning Agent may
appoint a temporary successor to act until such appointment by the Required
Lenders is made and accepted or if no such temporary successor is appointed as
provided above by the resigning Agent, the Required Lenders shall thereafter
perform all of the duties of the resigning Agent hereunder until such
appointment by the Required Lenders is made and accepted. Such successor Agent
shall succeed to all of the rights and obligations of the resigning Agent as if
originally named. The resigning Agent shall duly assign, transfer and deliver to
such successor Agent all moneys at the time held by the resigning Agent
hereunder after deducting therefrom its expenses for which it is entitled to be
reimbursed. Upon such succession of any such successor Agent, the resigning
agent shall be discharged from its duties and obligations hereunder, except for
its gross negligence or wilful misconduct arising prior to its resignation
hereunder, and the provisions of this Article 9 shall continue in effect for the
benefit of the resigning Agent in respect of any actions taken or omitted to be
taken by it while it was acting as Agent.
9.5 AGENT IN ITS INDIVIDUAL CAPACITY. Comerica Bank California, its
Affiliates and their respective successors and assigns, shall have the same
rights and powers hereunder as any other Lender and may exercise or refrain from
exercising the same as though Comerica Bank-California were not the Agent.
Comerica Bank-California and its Affiliates may (without having to account
therefor to any Lender) accept deposits from, lend money to, and generally
engage in any kind of banking, trust, financial advisory or other business with
Borrower (or its Subsidiaries) as if Comerica Bank-California were not acting as
Agent hereunder, and may accept fees and other consideration therefor without
having to account for the same to the Lenders.
9.6 CREDIT DECISIONS. Each Lender acknowledges that it has,
independently of Agent and each other Lender and based on the financial
statements of Borrower and such other documents, information and investigations
as it has deemed appropriate, made its own credit decision to extend credit
hereunder from time to time. Each Lender also acknowledges that it will,
independently of Agent and each other Lender and based on
<PAGE> 67
such other documents, information and investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any document executed pursuant hereto.
9.7 AUTHORITY OF AGENT TO ENFORCE NOTES AND THIS AGREEMENT. Each
Lender, subject to the terms and conditions of this Agreement, authorizes the
Agent with full power and authority as attorney-in-fact to institute and
maintain actions, suits or proceedings for the collection and enforcement of the
Notes and to file such proofs of debt or other documents as may be necessary to
have the claims of the Lenders allowed in any proceeding relative to Borrower,
or any of its Subsidiaries, or their respective creditors or affecting their
respective properties, and to take such other actions which Agent considers to
be necessary or desirable for the protection, collection and enforcement of the
Notes, this Agreement or the other Loan Documents.
9.8 INDEMNIFICATION. The Lenders agree to indemnify the Agent and
its Affiliates (to the extent not reimbursed by Borrower, but without limiting
any obligation of Borrowers to make such reimbursement), ratably according to
their respective Percentages, from and against any and all claims, damages,
losses, liabilities, costs or expenses of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Agent and its Affiliates in any
way relating to or arising out of this Agreement, any of the other Loan
Documents or the transactions contemplated hereby or any action taken or omitted
by the Agent and its Affiliates under this Agreement or any of the Loan
Documents; provided, however, that no Lender shall be liable for any portion of
such claims, damages, losses, liabilities, costs or expenses resulting from the
Agent's or its Affiliates's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent and its
Affiliates promptly upon demand for its ratable share of any out-of-pocket
expenses (including, without limitation, fees and expenses of counsel) incurred
by the Agent and its Affiliates in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement or any of the other
Loan Documents, to the extent that the Agent and its Affiliates is not
reimbursed for such expenses by Borrower, but without limiting the obligation of
Borrower to make such reimbursement. Each Lender agrees to reimburse the Agent
and its Affiliates promptly upon demand for its ratable share of any amounts
owing to the Agent and its Affiliates by the Lenders pursuant to this Section,
provided that, if the Agent or its Affiliates is subsequently reimbursed by the
Borrower for such amounts, it shall refund to the Lenders on a pro rata basis
the amount of any excess reimbursement. If the indemnity furnished to the Agent
and its Affiliates under this Section shall, in the judgment of the Agent, be
insufficient or become impaired, the Agent may call for additional indemnity
from the Lenders and cease, or not commence, to take any action until such
additional indemnity is furnished.
9.9 KNOWLEDGE OF DEFAULT. It is expressly understood and agreed that
the Agent shall be entitled to assume that no Event of Default has occurred and
is continuing, unless the officers of the Agent immediately responsible for
matters concerning this Agreement shall have been notified in a writing
specifying such Event of Default and stating that such notice is a "notice of
default" by a Lender or by Borrower. Upon receiving such a notice, the Agent
shall promptly notify each Lender of such Event of Default and provide each
Lender with a copy of such notice and, shall endeavor to provide such notice to
the Lenders within three (3) Business Days (but without any liability whatsoever
in the event of its failure to do so). Agent shall also furnish the Lenders,
promptly upon receipt, with copies of all other notices or other information
required to be provided by Borrowers hereunder.
9.10 AGENT'S AUTHORIZATION; ACTION BY LENDERS. Except as otherwise
expressly provided herein, whenever the Agent is authorized and empowered
hereunder on behalf of the Lenders to give any approval or consent, or to make
any request, or to take any other action on behalf of the Lenders (including
without
<PAGE> 68
limitation the exercise of any right or remedy hereunder or under the other Loan
Documents), the Agent shall be required to give such approval or consent, or to
make such request or to take such other action only when so requested in writing
by the Required Lenders or the Lenders, as applicable hereunder. Action that may
be taken by Required Lenders or all of the Lenders, as the case may be (as
provided for hereunder) may be taken (i) pursuant to a vote at a meeting (which
may be held by telephone conference call) as to which all of the Lenders have
been given reasonable advance notice, or (ii) pursuant to the written consent of
the requisite Percentages of the Lenders as required hereunder, provided that
all of the Lenders are given reasonable advance notice of the requests for such
consent.
9.11 ENFORCEMENT ACTIONS BY THE AGENT. Except as otherwise expressly
provided under this Agreement or in any of the other Loan Documents and subject
to the terms hereof, Agent will take such action, assert such rights and pursue
such remedies under this Agreement and the other Loan Documents as the Required
Lenders or all of the Lenders, as the case may be (as provided for hereunder)
shall direct in writing; provided, however, that the Agent shall not be required
to act or omit to act if, in the judgment of the Agent, such action or omission
may expose the Agent to personal liability or is contrary to this Agreement, any
of the Loan Documents or applicable law. Except as expressly provided above or
elsewhere in this Agreement or the other Loan Documents, no Lender (other than
the Agent, acting in its capacity as agent) shall be entitled to take any
enforcement action of any kind under any of the Loan Documents.
9.12 COPIES, ETC. Agent shall give prompt notice to each Lender of
each notice or request required or permitted to be given to Agent by Borrower
pursuant to the terms of this Agreement (unless concurrently delivered to the
Lenders by Borrower). Agent will distribute to each Lender each document or
instrument received for its account and copies of all other communications
received by Agent from Borrower for distribution to the Lenders by Agent in
accordance with the terms of this Agreement.
9.13 PAYMENT PROCEDURE.
(a) All payments by the Borrower in respect of principal of,
or interest on, any Advance or in respect of any Letter of Credit Obligations or
fees which are payable shall be made without setoff or counterclaim on the date
specified for payment under this Agreement not later than 2:00 p.m. (Pacific
time) in immediately available funds to Agent, for the ratable account of the
Lenders, at Agent's office located at 301 East Ocean Blvd., Long Beach,
California 90802. Upon receipt of each such payment, the Agent shall make prompt
payment to each Lender, or, in respect of LIBOR Loan, such Lender's LIBOR
lending office, in like funds and currencies, of all amounts received by it for
the account of such Lender.
(b) Unless the Agent shall have been notified by Borrower
prior to the date on which any payment to be made by Borrower is due that
Borrower do not intend to remit such payment, the Agent may, in its sole
discretion and without obligation to do so, assume that the Borrower have
remitted such payment when so due and the Agent may, in reliance upon such
assumption, make available to each Lender on such payment date an amount equal
to such Lender's share of such assumed payment. If Borrower have not in fact
remitted such payment to the Agent each Lender shall forthwith on demand repay
to the Agent the amount of such assumed payment made available or transferred to
such Lender, together with the interest thereon, in respect of each day from and
including the date such amount was made available by the Agent to such Lender to
the date such amount is repaid to the Agent at a rate per annum equal to (i) for
Floating Rate Loan, the Federal Funds Effective Rate (daily average), as the
same may vary from time to time, and (ii) with respect to LIBOR Loan, Agent's
aggregate marginal cost (including the cost of maintaining any required reserves
or deposit insurance and of any fees, penalties, overdraft charges or other
costs or expenses incurred by Agent) of carrying such amount.
<PAGE> 69
(c) Subject to the definition of Interest Period, whenever
any payment to be made hereunder shall otherwise be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in computing interest, if any, in
connection with such payment.
(d) All payments to be made by Borrower under this Agreement
or any of the Notes shall be made without set-off or counterclaim, as aforesaid,
and, subject to compliance by the Lenders with Section 10.18, without deduction
for or on account of any present or future withholding or other taxes of any
nature imposed by any governmental authority or of any political subdivision
thereof or any federation or organization of which such governmental authority
may at the time of payment be a member, unless Borrower is compelled by law to
make payment subject to such tax. In such event, Borrower shall:
(i) pay to the Agent for Agent's own account and/or,
as the case may be, for the account of the Lenders such
additional amounts as may be necessary to ensure that the Agent
and/or such Lender or Lenders receive a net amount equal to the
full amount which would have been receivable had payment not
been made subject to such tax; and
(ii) remit such tax to the relevant taxing
authorities according to applicable law, and send to the Agent
or the applicable Lender or Lenders, as the case may be, such
certificates or certified copy receipts as the Agent or such
Lender or Lenders shall reasonably require as proof of the
payment by the Borrower, of any such taxes payable by the
Borrower.
As used herein, the terms "tax", "taxes" and "taxation" include all taxes,
levies, imposts, duties, charges, fees, deductions and withholdings and any
restrictions or conditions resulting in a charge together with interest (and any
taxes payable upon the amounts paid or payable pursuant to this Section 9.3)
thereon and fines and penalties with respect thereto which may be imposed by
reason of any violation or default with respect to the law regarding such tax,
or the payment or delivery of funds into or out of any jurisdiction other than
the United States (whether assessed against any of the Borrower, Agent or any of
the Lenders). Borrower shall be reimbursed by the applicable Lender for any
payment made by Borrower under this Section 9.3 if the applicable Lender is not
in compliance with its obligations under Section 15.18.
9.14 APPLICATION OF PROCEEDS OF COLLATERAL. Notwithstanding anything
to the contrary in this Agreement, after an Event of Default, the proceeds of
any Collateral, together with any offsets, voluntary payments by Borrower or any
Subsidiary of the Borrower or others and any other sums received or collected in
respect of the Indebtedness, shall be applied, first, to the Advances of the
Revolving Loan, the Term Loans and any Reimbursement Obligations on a pro rata
basis (or in such order and manner as determined by the Required Lender;
subject, however, to the applicable Percentages of the loans held by each of the
Lenders), next, to any other Indebtedness on a pro rata basis, and then, if
there is any excess, to Borrower and the Subsidiaries, as the case may be.
Subject to the terms of this Section 9.14, the application of such proceeds and
other sums to the Advances of the Revolving Credit, Term Loans and the
Reimbursement Obligations shall be based on each Lender's Percentage of the
aggregate of the Loans.
9.15 PRO-RATA RECOVERY. If any Lender shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of offset or
otherwise) on account of principal of, or interest on, any of the Indebtedness
in excess of its pro rata share of payments then or thereafter obtained by all
Lenders upon principal of and interest on all Indebtedness, such Lender shall
purchase from the other Lenders such participations in the Revolving Credit, the
Term Loans and/or Reimbursement Obligation held by them as shall be necessary to
cause such purchasing Lender to share the excess payment or other recovery
ratably in accordance with the Percentage
<PAGE> 70
with each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing holder,
the purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
10. GENERAL PROVISIONS
10.1 NOTICES. Except as expressly provided otherwise in this
Agreement, all notices and communications provided for hereunder shall be in
writing and delivered by hand, by mail, by reputable overnight courier, by telex
or by telecopy (with such telecopy to be confirmed promptly in writing sent by
first class mail), sent (i) if to any Lender or Agent, to the address or
telecopy number of such party set below its signature in this Agreement or to
such other address or telecopy number as Agent or such Lender may have
designated to Borrower in writing; and (ii) if to Borrower, to:
Summa Industries
21250 Hawthorne Blvd., Suite 500
Torrance, CA 90503
Attention: Mr. James R. Swartwout, Chairman
Telecopy Number: (310) 792-7079
or to such other address or addresses or telecopy number or numbers as Borrower
may most recently have designated in writing to Agent and the Lenders by such
notice.
All such communications shall be deemed to have been given or made (i)
when so delivered by hand or refused, or when received if mailed and properly
addressed with postage prepaid and sent by registered or certified mail, (ii) if
given by reputable overnight courier and properly addressed, two (2) Business
Days after the date it was sent, unless it is actually received sooner by the
named addressee; (iii) if transmitted by telex or telecopy, when received
(answer back confirmed in the case of telexes and receipt confirmed in the case
of telecopies) or (iv) three (3) Business Days after being so mailed if mailed,
and properly addressed with postage prepaid and sent by first class mail.
10.2 SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS.
(a) This Agreement shall be binding upon and shall inure to
the benefit of Borrower, Agent and the Lenders and their respective successors
and assigns.
(b) The foregoing shall not authorize any assignment by
Borrower, of its rights or duties hereunder, and, except as otherwise provided
herein, no such assignment shall be made (or effective) without the prior
written approval of the Lenders.
(c) The Borrower and Agent acknowledge that each of the
Lenders may at any time and from time to time, without cost of the Borrower,
subject to the terms and conditions hereof, assign or grant participations in
such Lender's rights and obligations hereunder (on a pro rata or a non-rata
basis) and under the other Loan Documents to any commercial Lender, savings and
loan association, insurance company, pension fund, mutual fund, loan or debt
fund, commercial finance company or other similar financial institution, the
identity of which institution is approved by Borrower and Agent, such approval
not to be unreasonably withheld or delayed; provided, however, that (i) the
approval of Borrower shall not be required upon the occurrence and during the
continuance of an Event of Default, (ii) the approval of Borrower and Agent
shall not be required for any such sale, transfer, assignment or participation
to the Affiliate of an assigning Lender, any other Lender or any
<PAGE> 71
Federal Reserve Lender and (iii) no assignment shall be made or participation
granted to an entity which is a competitor of Borrower and its Subsidiaries
without the consent of the Borrower, which consent may be withheld in the sole
discretion of Borrower. The Borrower authorizes each Lender to disclose to any
prospective assignee or participant, once approved by Borrower and Agent, any
and all financial information in such Lender's possession concerning the
Borrower which has been delivered to such Lender pursuant to this Agreement.
(d) Each assignment by a Lender of all or any portion of its
rights and obligations hereunder and under the other Loan Documents, which
assignments shall be on a pro rata or (but only with the consent of the Agent) a
non pro-rata basis, shall be made pursuant to an Assignment Agreement
("Assignment Agreement") substantially (as determined by Agent) in the form
attached hereto as Exhibit N (with appropriate insertions acceptable to Agent)
(provided however that such Lender need not deliver an Assignment Agreement in
connection with assignments to such Lender's Affiliates or to a Federal Reserve
Lender) and shall be subject to the terms and conditions hereof, and to the
following restrictions:
(i) no assignment shall be effective unless Agent
has received from the assignee (or from the assigning Lender) an
assignment fee of $3,500 for each such assignment; and
(ii) each assignment shall be in an amount approved
by Agent, such approval not to be unreasonably withheld.
In connection with any assignment, Borrower and Agent shall be entitled to
continue to deal solely and directly with the assigning Lender in connection
with the interest so assigned until (x) the Agent shall have received a notice
of assignment duly executed by the assigning Lender and an Assignment Agreement
(with respect thereto) duly executed by the assigning Lender and each assignee;
and (y) the assigning Lender shall have delivered to the Agent the original of
each Note held by the assigning Lender under this Agreement. From and after the
date on which the Agent shall notify Borrower and the assigning Lender in
writing that the foregoing conditions shall have been satisfied and all consents
(if any) required shall have been given, the assignee thereunder shall be deemed
to be a party to this Agreement. To the extent that rights and obligations
hereunder shall have been assigned to such assignee as provided in such notice
of assignment (and Assignment Agreement), such assignee shall have the rights
and obligations of a Lender under this Agreement and the other Loan Documents
(including without limitation the right to receive fees payable hereunder in
respect of the period following such assignment). In addition, the assigning
Lender, to the extent that rights and obligations hereunder shall have been
assigned by it as provided in such notice of assignment (and Assignment
Agreement), but not otherwise, shall relinquish its rights and be released from
its obligations under this Agreement and the other Loan Documents.
Within five (5) Business Days following Borrower's receipt of written notice
from the Agent that Agent has accepted and executed a notice of assignment and
the duly executed Assignment Agreement and assuming the Borrower has consented
to such assignment (if their consent is required), Borrower shall, to the extent
applicable, execute and deliver to the Agent in exchange for any surrendered
Note, new Note(s) payable to the order of the assignee in an amount equal to the
amount assigned to it pursuant to such notice of assignment (and Assignment
Agreement), and with respect to the portion of the Indebtedness retained by the
assigning Lender, to the extent applicable, new Note(s) payable to the order of
the assigning Lender in an amount equal to the amount retained by such Lender
hereunder. Agent, the Lenders and the Borrower acknowledge and agree that any
such new Note(s) shall be given in renewal and replacement of the surrendered
Notes and shall not effect or constitute a novation or discharge of the
Obligations evidenced by any surrendered Note, and each such new Note may
contain a provision confirming such agreement. In addition, promptly following
receipt of such Notes, Agent shall prepare and distribute to Borrower and the
assigning Lender and the assignee Lender a revised Schedule 1
<PAGE> 72
to this Agreement setting forth the applicable new Percentages of the Lenders
(including the assignee Lender), taking into account such assignment.
(e) Each Lender agrees that any participation agreement
permitted hereunder shall comply with all applicable laws and shall be subject
to the following restrictions (which shall be set forth in the applicable
Participation Agreement):
(i) such Lender shall remain the holder of its Notes
hereunder, notwithstanding any such
participation;
(ii) except as expressly set forth in this Section
10.2 with respect to rights of setoff and the
benefits of Sections 3.4 through 3.8 hereof, a
participant shall have no direct rights or
remedies hereunder; (iii) a participant shall
not reassign or transfer, or grant any
sub-participations in its participation interest
hereunder or any part thereof; and
(iv) such Lender shall retain the sole right and
responsibility to enforce the obligations of the
Borrower relating to the Notes and the other
Loan Documents, including, without limitation,
the right to proceed against any Guarantee, or
cause Agent to do so (subject to the terms and
conditions hereof), and the right to approve any
amendment, modification or waiver of any
provision of this Agreement without the consent
of the participant (other than a participant
which is an Affiliate of such Lender), except
for those matters covered by Section 10.6(a)
through (e) and (h) hereof (provided that a
participant may exercise approval rights over
such matters only on an indirect basis, acting
through such Lender, and Borrower, Agent and the
other Lenders may continue to deal directly with
such Lender in connection with such Lender's
rights and duties hereunder).
Borrower agrees that each participant shall be deemed to have the right of
setoff under Section 10.7 hereof in respect of its participation interest in
amounts owing under this Agreement and the other Loan Documents to the same
extent as if the Obligations were owing directly to it as a Lender under this
Agreement, shall be subject to the pro rata recovery provisions of Section 9.15
hereof and shall be entitled to the benefits of Sections 3.4 through 3.8 hereof.
The amount, terms and conditions of any participation shall be as set forth in
the participation agreement between the issuing Lender and the Person purchasing
such participation, and none of the Borrower, the Agent and the other Lenders
shall have any responsibility or obligation with respect thereto, or to any
Person to whom any such participation may be issued. No such participation shall
relieve any issuing Lender of any of its obligations under this Agreement or any
of the other Loan Documents, and all actions hereunder shall be conducted as if
no such participation had been granted.
(f) Nothing in this Agreement, the Notes or the other Loan
Documents, expressed or implied, is intended to or shall confer on any Person
other than the respective parties hereto and thereto and their successors and
assignees and participants permitted hereunder and thereunder any benefit or any
legal or equitable right, remedy or other claim under this Agreement, the Notes
or the other Loan Documents.
10.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
<PAGE> 73
10.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Agent, any Lender or
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties (each of which has had the
benefit of advice from legal counsel) and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly accomplish
the purposes and intentions of all parties hereto.
10.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
10.6 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Loan Document, nor consent to any departure by
Borrower or any Subsidiary therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Lenders (or by the Agent at
the written request of the Required Lenders) or, if this Agreement expressly so
requires with respect to the subject matter thereof, by all Lenders (and, with
respect to any amendments to this Agreement or the other Loan Documents, by
Borrower or the Subsidiaries which are signatories thereto), and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Lenders, do any of the
following: (a) increase any Lender's commitments hereunder, (b) reduce the
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (c) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, (d) waive
any Event of Default specified in Section 8.1(a) hereof, (e) except as expressly
permitted hereunder, or under the Collateral Documents, release or defer the
granting or perfecting of a lien or security interest in any Collateral or
release any guaranty or similar undertaking provided by any Person except as
shall be otherwise expressly permitted in this Agreement or any other Loan
Document, provided however that Agent shall be entitled to release any
Collateral which Borrower or any Subsidiary is permitted to sell or transfer
under the terms of this Agreement or the other Loan Documents without notice to
or any further action or consent of the Lenders, (f) terminate or modify any
indemnity provided to the Lenders hereunder or under the other Loan Documents,
except as shall be otherwise expressly provided in this Agreement or any other
Loan Document, (g) take any action which requires the approval or consent of all
Lenders pursuant to the terms of this Agreement or any other Loan Document, or
(h) change the definitions of "Percentage","Interest Period"," Required Lenders"
or this Section 10.6; provided, further, that notwithstanding the foregoing, no
amendment, waiver, or consent shall, unless in writing and signed by the Agent
in addition to all the Lenders, affect the rights or duties of the Agent under
this Agreement or any other Loan Document. All references in this Agreement to
"Lenders" or "the Lenders" shall refer to all Lenders, unless expressly stated
to refer to Required Lenders.
10.7 SET OFFS. Upon the occurrence and during the continuance of any
Event of Default, Agent and each Lender is hereby authorized at any time and
from time to time, without notice to Borrower (any such notice being expressly
waived by Borrower), to set off and apply to the payment of the Obligations
(whether or not then due and regardless of whether Agent shall have made any
demand therefore), and (as security for such Obligations) Borrower hereby grants
to Agent (for the benefit of the Lenders) a continuing security interest in, any
and all balances, credits, deposits, accounts or moneys of Borrower then or
thereafter maintained with Agent or any Lender (whether general or special, time
or demand, provisional or final). Agent and each Lender agrees promptly to
notify Borrower after set-off and application made by Agent or any Lender, as
the case may be, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The provisions of this Section
10.7 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Agent may have.
<PAGE> 74
10.8 ATTORNEYS' FEES AND COSTS. Borrower agrees to pay on demand all
expenses of Agent (including the fees and out-of-pocket expenses of counsel to
Agent and of local counsel, if any, who may be retained by counsel to Agent) in
connection with the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and exhibits, and
any amendments, waivers, consents, supplements or other modifications to this
Agreement or any other Loan Document as may from time to time hereafter be
required, whether or not the transactions contemplated hereby are consummated.
Borrower further agrees to pay, and to save Agent harmless from all liability
for, any stamp or other taxes which may be payable in connection with the
execution or delivery of this Agreement, the Borrowings hereunder, or the
issuance of the Notes or any other Loan Documents. Borrower also agrees to
reimburse Agent upon demand for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses) incurred by Agent and the Lenders in
connection with (x) the negotiation of any restructuring or "work-out", whether
or not consummated, of any Obligations and (y) the enforcement of any
Obligations and any Lien in favor of Agent.
10.9 INDEMNIFICATION. In consideration of the execution and delivery
of this Agreement by Agent and Lenders and Lenders' agreement to provide the
Loans hereunder, Borrower hereby indemnifies, exonerates and holds Agent, each
Lender and each of their respective and each of its parents, officers,
directors, employees and agents (collectively, the "Indemnified Parties") free
and harmless from and against any and all actions, causes of action, suits,
losses, costs, liabilities and damages, and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or arising
out of, or relating to any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the Loans; except for any
such Indemnified Liabilities arising for the account of a particular Indemnified
Party by reason of the relevant Indemnified Party's gross negligence or willful
misconduct. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
10.10 DISSEMINATION. Borrower acknowledges that Agent and the Lenders
may provide information regarding Borrower and the Loans to their respective
parents, subsidiaries, affiliates and service providers in each case in
accordance with their respective customary business practices.
10.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
10.12 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted, modified, or
qualified by any other agreement, oral or written, whether before or after the
date hereof.
10.13 NO WAIVER; REMEDIES CUMULATIVE. Agent and the Lenders shall not
by any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by Agent and the Lenders and then only to the extent expressly provided
therein. A waiver by Agent and the Lenders of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
Agent and the Lenders would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of Agent and the
Lenders, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or
<PAGE> 75
privilege. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law.
10.14 RESTATEMENT. This Agreement amends and restates in its entirety
the Prior Loan Agreement, provided, however, the Obligations under Term Loan A
which were governed by the Prior Loan Agreement shall remain outstanding and in
full force and effect and provided further that this Agreement does not
constitute a novation of such Obligations.
10.15 INTEREST. In the event the obligation of Borrower to pay
interest on the principal balance of the Notes is or becomes in excess of the
maximum interest rate which Borrower are permitted by law to contract or agree
to pay, giving due consideration to the execution date of this Agreement, then,
in that event, the rate of interest applicable with respect to such Lender's
Percentage shall be deemed to be immediately reduced to such maximum rate and
all previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not of interest.
10.16 FURTHER ACTION. Borrower, from time to time, upon written
request of Agent will make, execute, acknowledge and deliver or cause to be
made, executed, acknowledged and delivered, all such further and additional
instruments, and take all such further action as may reasonably be required to
carry out the intent and purpose of this Agreement or the Loan Documents, and to
provide for Advances under and payment of the Notes, according to the intent and
purpose herein and therein expressed.
10.17 INDULGENCE. No delay or failure of Agent and the Lenders in
exercising any right, power or privilege hereunder shall affect such right,
power or privilege nor shall any single or partial exercise thereof preclude any
further exercise thereof, nor the exercise of any other right, power or
privilege. The rights of Agent and the Lenders hereunder are cumulative and are
not exclusive of any rights or remedies which Agent and the Lenders would
otherwise have.
10.18 WITHHOLDING TAXES. If any Lender is not incorporated under the
laws of the United States or a state thereof, such Lender shall promptly (but in
any event prior to the initial payment of interest hereunder) deliver to the
Agent two executed copies of (i) Internal Revenue Service Form 1001 specifying
the applicable tax treaty between the United States and the jurisdiction of such
Lender's domicile which provides for the exemption from withholding on interest
payments to such Lender, (ii) Internal Revenue Service Form 4224 evidencing that
the income to be received by such Lender hereunder is effectively connected with
the conduct of a trade or business in the United States or (iii) other evidence
satisfactory to the Agent that such Lender is exempt from United States income
tax withholding with respect to such income. Such Lender shall amend or
supplement any such form or evidence as required to insure that it is accurate,
complete and non-misleading at all times. Promptly upon notice from the Agent of
any determination by the Internal Revenue Service that any payments previously
made to such Lender hereunder were subject to United States income tax
withholding when made, such Lender shall pay to the Agent the excess of the
aggregate amount required to be withheld from such payments over the aggregate
amount actually withheld by the Agent. In addition, from time to time upon the
reasonable request and at the sole expense of the Borrower, each Lender and the
Agent shall (to the extent it is able to do so based upon applicable facts and
circumstances), complete and provide the Borrower with such forms, certificates
or other documents as may be reasonably necessary to allow the Borrower, as
applicable, to make any payment under this Agreement or the other Loan Documents
without any withholding for or on the account of any tax under Section 9.13(d)
hereof (or with such withholding at a reduced rate), provided that the execution
and delivery of such forms, certificates or other documents does not adversely
affect or otherwise restrict the right and benefits (including without
limitation economic benefits) available to such of the Lender or
<PAGE> 76
the Agent, as the case may be, under this Agreement or any of the other Loan
Documents, or under or in connection with any transactions not related to the
transactions contemplated hereby.
10.19 TAXES AND FEES. Should any tax (other than as a result of a
Lender's failure to comply with Section 10.18 or a tax based upon the net income
or capitalization of any Lender or the Agent by any jurisdiction where a Lender
or Agent is located), recording or filing fee become payable in respect of this
Agreement or any of the other Loan Documents or any amendment, modification or
supplement hereof or thereof, the Borrower agree to pay the same, together with
any interest or penalties thereon arising from the Borrower' act or omission,
and agrees to hold the Agent and the Lenders harmless with respect thereto.
Notwithstanding the foregoing, nothing contained in this Section 10.19 shall
affect or reduce the rights of any Lender or the Agent under Section 3.8 hereof.
10.20 SEVERABILITY. In case any one or more of the obligations of
Borrower under this Agreement, the Notes or any of the other Loan Documents
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining obligations of Borrower shall not
in any way be affected or impaired thereby, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the validity, legality or
enforceability of the obligations of Borrower under this Agreement, the Notes or
any of the other Loan Documents in any other jurisdiction.
10.21 INDEPENDENCE OF COVENANTS. Each covenant hereunder shall be
given independent effect (subject to any exceptions stated in such covenant) so
that if a particular action or condition is not permitted by any such covenant
(taking into account any such stated exception), the fact that it would be
permitted by an exception to, or would be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default or an Event of
Default.
10.22 CONFIDENTIALITY. Each Lender agrees that it will not disclose
without the prior consent of Borrower (other than to its employees, its
Subsidiaries, another Lender, an Affiliate of a Lender or to its auditors or
counsel) any information with respect to Borrower, which is furnished pursuant
to this Agreement or any of the other Loan Documents; provided that any Lender
may disclose any such information (a) as has become generally available to the
public or has been lawfully obtained by such Lender from any third party under
no duty of confidentiality to Borrower, (b) as may be required or appropriate in
any report, statement or testimony submitted to, or in respect to any inquiry,
by, any municipal, state or federal regulatory body having or claiming to have
jurisdiction over such Lender, including the Board of Governors of the Federal
Reserve System of the United States, the Office of the Comptroller of the
Currency or the Federal Deposit Insurance Corporation or similar organizations
(whether in the United States or elsewhere) or their successors, (c) as may be
required or appropriate in respect to any summons or subpoena or in connection
with any litigation, (d) in order to comply with any law, order, regulation or
ruling applicable to such Lender, and (e) to any permitted transferee or
assignee or to any approved participant of, or with respect to, the Notes, as
aforesaid.
10.23 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND ALL OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES OF SUCH STATE).
10.23 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO ACKNOWLEDGES
THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE
WAIVED. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES (AFTER CONSULTING OR HAVING THE OPPORTUNITY TO CONSULT
<PAGE> 77
WITH COUNSEL OF THEIR CHOICE) ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY HERETO. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER
PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR AGENT AND EACH LENDER TO ENTER INTO THIS
AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURES FOLLOW]
<PAGE> 78
IN WITNESS WHEREOF, the parties hereto have executed this Loan Agreement
as of the date first set forth above.
BORROWER: SUMMA INDUSTRIES
By: /s/ Trygve M. Thoresen
---------------------------------------
Trygve M. Thoresen
Title: Vice President
AGENT: COMERICA BANK-CALIFORNIA
By: /s/ Scott T. Monson
---------------------------------------
Title: Senior Vice President
------------------------------------
Address: 301 E. Ocean Blvd., 18th Floor
Long Beach, California 90802
Attention:
Telephone: (562) 590-2500
Facsimile: (562) 595-8251
LENDER(S): COMERICA BANK-CALIFORNIA
By: /s/ Scott T. Monson
---------------------------------------
Title: Senior Vice President
------------------------------------
Address: 301 E. Ocean Blvd., 18th Floor
Long Beach, California 90802
Attention:
Telephone: (562) 590-2500
Facsimile: (562) 595-8251
<PAGE> 79
SCHEDULES
Schedule 1 - Percentages
Schedule 6.4 - Equity Interests
Schedule 6.5(b) -
Schedule 6.6 - Subsidiaries
Schedule 6.7(a) - Actions, Suits, Proceedings
Schedule 6.7(b) -
Schedule 6.8(a) - Funded Debt
Schedule 6.8(b) - Investments
Schedule 6.9 - Required Consents
Schedule 6.10 - Locations of Collateral
Schedule 6.11 - Tax Disclosures
Schedule 6.15 - Broker's Fees
Schedule 6.17 - Environmental Disclosures
Schedule 6.19 - Tradenames, Patents
Schedule 6.22 - Material Contracts
Schedule 6.23 - Insurance
Schedule 6.26 - Chief Executive Office
Schedule 6.27 - Other Names
Schedule 6.29 - Inventory in Possession of Third Parties
Schedule 6.31 - Year 2000 Disclosures
Schedule 7.19 - Banking and Depository Accounts
EXHIBITS
Exhibit A - Revolving Note
Exhibit B - Term Note A
Exhibit B-1 - Term Note B
Exhibit C - Form of Security Agreement
Exhibit D - Form of Opinion Letter
Exhibit E - Borrowing Base Certificate
Exhibit F-1 - Form of Mortgage
Exhibit F-2 - Form of Deed of Trust
Exhibit G - Form of Pledge Agreement
Exhibit H - Form of Guaranty
Exhibit I - Form of Collateral Assignment as Security
Exhibit J-1 - Form of Patent Security Agreement
Exhibit J-2 - Form of Trademark Security Agreement
Exhibit K - Form of Landlord Waiver
Exhibit L - Form of Account Takeover Letter
Exhibit M - Form of Letter of Credit Notice
Exhibit N - Form of Assignment Agreement
Exhibit O - Form of Intercompany Note
Exhibit P - Form of Amendment, Joinder and Reaffirmation of Certain Collateral
Documents
<PAGE> 1
EXHIBIT 10.2
SUMMA INDUSTRIES
PLASTRON ACQUISITION STOCK OPTION PLAN
1. PURPOSE. The Corporation recently entered into an agreement
whereby Plastron Industries, Inc., a Delaware corporation and wholly-owned
subsidiary of the Corporation ("Plastron"), will acquire substantially all of
the assets of Plastron Industries, L.P., a Delaware limited partnership ("Old
Plastron"). In connection with the asset acquisition, the Corporation shall
grant to certain employees and consultants of Plastron options to purchase
shares of the Common Stock (defined below) of the Corporation. This Plan is
intended to set forth the terms and conditions upon which such options would be
granted, to encourage proprietary interest in Plastron and the Corporation, to
encourage such employees to remain in the employ of Plastron, and to afford
additional incentive to consultants to increase their efforts in providing
significant services to Plastron and the Corporation.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the
Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean the committee, if any, appointed
by the Board in accordance with Section 4 of the Plan.
(d) "Common Stock" shall mean the Common Stock, par value
$.001 per share, of the Corporation.
(e) "Corporation" shall mean Summa Industries, a Delaware
corporation.
(f) "Disability" shall mean the condition of an Employee who
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months.
(g) "Employee" shall mean an individual who is employed
(within the meaning of Code Section 3401 and the regulations thereunder) by the
Corporation or a Subsidiary.
(h) "Exercise Price" shall mean the price per Share of
Common Stock, determined by the Board or the Committee, at which an Option may
exercised.
(i) "Fair Market Value" shall mean the value of one (1)
Share of Stock as determined by the price at which the Shares traded at the
close of business on the date of valuation, or if not listed on an exchange, the
fair market value as determined by the Board or the Committee in good faith.
Such determination shall be conclusive and binding on all persons.
(j) "Incentive Stock Option" shall mean an option described
in Section 422 of the Code.
<PAGE> 2
(k) "Nonstatutory Stock Option" shall mean an option not
described in Section 422(b), 422A(b), 423(b) or 424(b) of the Code.
(l) "Option" shall mean any stock option granted pursuant to
the Plan.
(m) "Optionee" shall mean an employee or consultant who has
received an Option.
(n) "Plan" shall mean this Plastron Acquisition Stock Option
Plan, as may be amended from time to time.
(o) "Purchase Price" shall mean the Exercise Price times the
number of Shares with respect to which an Option is exercised.
(p) "Retirement" shall mean the voluntary termination of
employment by an Employee upon the attainment of age sixty-five (65) and the
completion of not less than twenty (20) years of service with the Corporation or
a Subsidiary.
(q) "Share" shall mean one (1) share of Common Stock,
adjusted in accordance with Section 10 of the Plan (if applicable).
(r) "Subsidiary" shall mean Plastron and any other
corporation at least fifty percent (50%) of the total combined voting power of
which is owned by the Corporation or by another Subsidiary.
3. EFFECTIVE DATE. The Plan was adopted by the Board on February
23, 1999, which shall be the effective date of the Plan.
4. ADMINISTRATION. The Plan shall be administered by the Board, or
by a committee appointed by the Board which shall consist of not less than two
(2) members (the "Committee"). If a Committee has been appointed, the Committee
shall hold meetings at such times and places as it may determine. Acts of a
majority of the Committee at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. The Board, or the Committee if there be one, shall
from time to time at its discretion select the Employees, directors, vendors and
consultants who are to be granted Options, determine the number of Shares to be
optioned to each Optionee and designate such Options such as Incentive Stock
Options or Nonstatutory Stock Options, except that no Incentive Stock Option may
be granted to a non-Employee director or a non-Employee consultant.
Notwithstanding the foregoing, no Incentive Stock Options may be granted under
the Plan unless and until the Plan has been approved by the Corporation's
stockholders. A member of the Board or a Committee member shall in no event
participate in any determination relating to Options held by or to be granted to
such Board or Committee member. The interpretation and construction by the
Board, or by the Committee if there be one, of any provision of the Plan or of
any Option granted thereunder shall be final. No member of the Board or of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted thereunder.
5. PARTICIPATION.
<PAGE> 3
(a) Eligibility. The Optionees shall be such persons as the
Board, or the Committee if there be one, may select from among the following
classes of persons, subject to the terms and conditions of (b) below: (1)
Employees of Plastron (who may be officers and/or directors); and (2)
Consultants, vendors, customers, and others except significant services to the
Plastron.
For purposes of this Plan, an Optionee who is a director or a
consultant, vendor, customer, or other provider of significant services to
Plastron shall be deemed to be an Employee, and service as a director,
consultant, vendor, customer, or other provider of significant services to
Plastron shall be deemed to be employment, except that no Incentive Stock may be
granted to a non-Employee director or non-Employee consultant, vendor, customer,
or other provider of significant services to Plastron, and except that no
Nonstatutory Stock Option may be granted to a non-Employee director or
non-Employee consultant, vendor, customer, or other provider of significant
services to Plastron other than upon a finding by the Board, or the Committee
Option if there be one, that the value of the services rendered or to be
rendered to Plastron by such non-Employee director or non-Employee consultant,
vendor, customer, or other provider of services is at least equal to the value
of the option or options granted.
(b) Ten-Percent Stockholders. An Employee who owns more than
ten percent (10%) of the total combined voting power of all classes of
outstanding stock of the Corporation, its parent or any of its Subsidiaries
shall not be eligible to receive an Incentive Stock Option unless (i) the
Exercise Price of the Shares subject to such Option is at least one hundred ten
percent (110%) of the Fair Market Value of such Shares on the date of grant and
(ii) such Option by its terms is not exercisable after the expiration of five
(5) years from the date of grant.
(c) Stock Ownership. For purposes of (b) above, in
determining stock ownership an Employee shall be considered as owning the stock
owned, directly or indirectly, by or for his brothers, sisters, spouses,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Employee holds an Option shall not be counted.
(d) Outstanding Stock. For purposes of (b) above,
"outstanding stock" shall include all stock actually issued and outstanding
immediately after the grant of the Option to the Optionee. "Outstanding stock"
shall not include shares authorized for issue under outstanding Options held by
the Optionee or by any other person.
6. STOCK. The stock subject to Options granted under the Plan shall
be Shares of the Corporation's authorized but unissued or reacquired Common
Stock. The aggregate number of Shares which may be issued upon exercise of
Options under the Plan shall not exceed 200,000 shares. The number of Shares
subject to Options outstanding at any time shall not exceed the number of Shares
remaining available for issuance under the Plan. In the event that any
outstanding Option for any reason expires or is terminated, the Shares allocable
to the unexercised portion of such Option may again be made subject to any
Option. The limitations established by this Section 6 shall be subject to
adjustment in the manner provided in Section 10 hereof upon the occurrence of an
event specified therein."
7. TERMS AND CONDITIONS OF OPTIONS.
<PAGE> 4
(a) Stock Option Agreements. Options shall be evidenced by
written stock option agreements in such form as the Board, or the Committee if
there be one, shall from time to time determine. Such agreements shall comply
with and be subject to the terms and conditions set forth below.
(b) Number of Shares. Each Option shall state the number of
Shares to which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 10 hereof.
(c) Exercise Price. Each Option shall state the Exercise
Price. The Exercise Price in the case of any Incentive Stock Option shall not be
less than the Fair Market Value on the date of grant and, in the case of any
Incentive Stock Option granted to an Optionee described in Section 5(b) hereof,
shall not be less than one hundred ten percent (110%) of the Fair Market Value
on the date of grant. The Exercise Price in the case of any Nonstatutory Stock
Option shall not be less than 85 % of the Fair Market Value on the date of
grant.
(d) Medium and Time of Payment. The Purchase Price shall be
payable in full in cash in United States dollars upon the exercise of the
Option. In the event the Corporation determines that it is required to withhold
state or Federal income tax as a result of the exercise of an Option, as a
condition to the exercise thereof, an Employee may be required to make
arrangements satisfactory to the Corporation to enable it to satisfy such
withholding requirements.
(e) Term and Nontransferability of Options. Each Option
shall state the time or times, and the conditions upon which, all or part
thereof becomes exercisable. No Option shall be exercisable after the expiration
of ten (10) years from the date it was granted, and no Incentive Stock Option
granted to an Optionee described in Section 5(b) hereof shall be exercisable
after the expiration of five (5) years from the date it was granted. During the
lifetime of the Optionee, the Option shall be exercisable only by the Optionee
and shall not be assignable or transferable. In the event of the Optionee's
death, the Option shall not be transferable by the Optionee other than by will
or the laws of descent and distribution.
(f) Termination of Employment. Except for cause or as a
result of death, Disability or Retirement, if an Optionee who is an Employee
ceases to be an Employee for any reason other than for cause or as a result of
his or her death, Disability or Retirement, such Optionee shall have the right,
subject to the restrictions of (e) above, to exercise the Option at any time
within thirty days after termination of employment, but only to the extent that,
at the date of termination of employment, the Optionee's right to exercise such
Option had accrued pursuant to the terms of the applicable option agreement and
had not previously been exercised. If the Optionee was terminated for cause, any
Option not exercised in full prior to such termination shall be canceled. For
this purpose, the employment relationship shall be treated as continuing intact
while the Optionee is on military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the Committee). The
foregoing notwithstanding, (i) in the case of an Incentive Stock Option,
employment shall not be deemed to continue beyond the thirtieth (30th) day after
the Optionee's reemployment rights are guaranteed by statute or by contract, and
(ii) in the case of a Nonstatutory Stock Option, the Board, or the Committee if
there be one, may extend or otherwise modify the period of time specified herein
during which the Option may be exercised following termination of Optionee's
employment.
(g) Death of Optionee. If an Optionee dies while an
Employee, or after ceasing to be an Employee but during the period while he or
she could have exercised the Option under this Section 7, and has not fully
exercised the Option, then the Option may be exercised in full, subject to the
restrictions
<PAGE> 5
of (e) above, at any time prior to and including, but not later than the
termination date set forth in the Option, by the executors or administrators of
his or her estate or by any person or persons who have acquired the Option
directly from the Optionee by bequest or inheritance, but only to the extent
that, at the date of death, the Optionee's right to exercise such Option had
accrued and had not been forfeited pursuant to the terms of the applicable
Option Agreement and had not previously been exercised. The foregoing
notwithstanding, in the case of a Nonstatutory Stock Option, the Board, or the
Committee if there be one, may extend or otherwise modify the period of time
specified herein during which the Option may be exercised following termination
of Optionee's employment.
(h) Disability of Optionee. If an Optionee ceases to be an
Employee by reason of Disability, such Optionee shall have the right, subject to
the restrictions of (f) above, to exercise the Option at any time prior to and
including, but not later than the termination date set forth in the Option, but
only to the extent that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued pursuant to the terms of
the applicable option agreement and had not previously been exercised. The
foregoing notwithstanding, in the case of a Nonstatutory Stock Option, the
Board, or the Committee if there be one, may extend or otherwise modify the
period of time specified herein during which the Option may be exercised
following termination of Optionee's employment.
(i) Retirement of Optionee. If an Optionee ceases to be an
Employee by reason of Retirement, such Optionee shall have the right, subject to
the restrictions of (e) above, to exercise the Option at any time prior to and
including, but not later than the termination date set forth in the Option, but
only to the extent that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued pursuant to the terms of
the applicable option agreement and had not previously been exercised. The
foregoing notwithstanding, in the case of a Nonstatutory Stock Option, the
Board, or the Committee if there be one, may extend or otherwise modify the
period of time specified herein during which the Option may be exercised
following termination of Optionee's employment.
(j) Rights as a Stockholder. An Optionee, or a transferee of
an Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 10 hereof.
(k) Modification, Extension and Renewal of Option. Within
the limitations of the Plan, the Board, or the Committee, if there be one, may
modify, extend or renew outstanding Options or accept the cancellation of
outstanding Options (to the extent not previously exercised) for the granting of
new Options in substitution therefor. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.
(l) Other Provisions. The stock option agreements authorized
under the Plan may contain such other provisions not inconsistent with the terms
of the Plan (including, without limitation, restrictions upon the exercise of
the Option) as the Board, or the Committee, if there be one, shall deem
advisable.
8. LIMITATION ON VALUE OF EXERCISABLE SHARES. In the case of
Incentive Stock Options granted hereunder, the aggregate Fair Market Value
(determined as of the date of the grant thereof) of the Shares with respect to
which Incentive Stock Options become exercisable by any
<PAGE> 6
employee of the Company for the first time during any calendar year (under this
Plan and all other plans maintained by the Corporation, its parent or its
Subsidiaries) shall not exceed $100,000.
9. TERM OF PLAN. Options may be granted pursuant to the Plan until
the expiration of ten (10) years from the effective date of the Plan.
10. RECAPITALIZATIONS. Subject to any required action by
stockholders, the number of Shares covered by the Plan as provided in Section 6
hereof, the number of Shares covered by each outstanding Option and the Exercise
Price thereof shall be proportionately adjusted for any increase of decrease in
the number of issued Shares resulting from a subdivision or consolidation of
Shares or the payment of a stock dividend (but only of Common Stock) or any
other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Corporation. Subject to any required action by
stockholders, if the Corporation is the surviving corporation in any merger or
consolidation, each outstanding Option shall pertain and apply to the securities
to which a holder of the number of Shares subject to the Option would have been
entitled. In the event of a Change in Control (as defined below) of the
Corporation, the date of exercisability of each and every outstanding Option
shall automatically accelerate to a date and time immediately prior to such
Change in Control. For purposes of the Plan, a "Change in Control" of the
Corporation shall be deemed to have occurred if (i) there shall have be
consummated (x) any consolidation or merger of the Corporation in which the
Corporation is not the continuing or surviving corporation or pursuant to which
shares of the Corporation's Common Stock are converted into cash, securities or
other property, other than a merger of the Corporation in which the holders of
the Corporation's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger (including a reincorporation), or (y) any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Corporation, or (ii) the
stockholders of the Corporation shall approve any plan or proposal for the
liquidation or dissolution of the Corporation, or (iii) any person (as such term
is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the
Corporation's outstanding Common Stock (excluding the Corporation's ESOP and
401(k) Plan from the definition of "person"), or (iv) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Corporation's stockholders, of each new director was approved by a vote of at
least a majority of the directors then still in office who were directors at the
beginning of the period. To the extent that the foregoing adjustments relate to
securities of the Corporation, such adjustments shall be made by the Board, or
the Committee, if there be one, whose determination shall be conclusive and
binding on all persons. Except as expressly provided in this Section 10, the
Optionee shall have no rights by reason of subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution, liquidation, merger or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power to
the Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business assets.
11. SECURITIES LAW REQUIREMENTS.
<PAGE> 7
(a) Legality of Issuance. The issuance of any Shares upon
the exercise of any Option and the grant of any Option shall be contingent upon
the following:
(1) the Corporation and the Optionee shall have
taken all actions required to register the Shares under the Securities Act of
1933, as amended (the "Act"), and to qualify the Option and the Shares under any
and all applicable state securities or "blue sky" laws or regulations, or to
perfect an exemption from the respective registration and qualification
requirements thereof;
(2) any applicable listing requirement of any stock
exchange on which the Common Stock is listed shall have been satisfied;
(3) any other applicable provision of state or
Federal law shall have been satisfied.
(b) Restrictions on Transfer. Regardless of whether the
offering and sale of Shares under the Plan has been registered under the Act or
has been registered or qualified under the securities laws of any state, the
Corporation may impose restrictions on the sale, pledge or other transfer of
such Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Corporation and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Act, the securities laws of any state or any other law. In the
event that the sale of Shares under the Plan is not registered under the Act but
an exemption is available which required an investment representation or other
representation, each Optionee shall be required to represent that such Shares
are being acquired for investment, and not with a view to the sale or
distribution thereof, and to make such other representations as are deemed
necessary or appropriate by the Corporation and its counsel. Any determination
by the Corporation and its counsel in connection with any of the matters set
forth in this Section 11 shall be conclusive and binding on all persons. Stock
certificates evidencing Shares acquired under the Plan pursuant to an
unregistered transaction shall bear the following restrictive legend and such
other restrictive legends as are required or deemed advisable under the
provisions of any applicable law:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH
SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH
REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
(c) Registration or Qualification of Securities. The
Corporation may, but shall not be obligated to register or qualify the issuance
of Options and/or the sale of Shares under the Act or any other applicable law.
The Corporation shall not be obligated to take any affirmative action in order
to cause the issuance of Options or the sale of Shares under the plan to comply
with any law.
(d) Exchange of Certificates. If, in the opinion of the
Corporation and its counsel, any legend placed on a stock certificate
representing shares sold under the Plan is no longer required, the holder of
such certificate shall be entitled to exchange such certificate for a
certificate representing the same number of Shares but lacking such legend.
<PAGE> 8
12. AMENDMENT OF THE PLAN. The Board may from time to time, with
respect to any Shares at the time not subject to Options, suspend or discontinue
the Plan or revise or amend it in any respect whatsoever except that, without
the approval of the Corporation's stockholders if they have previously approved
the Plan, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan;
(b) Change the designation in Section 5 hereof with respect
to the class of persons eligible to receive Options; or
(c) Amend this Section 12 to defeat its purpose.
13. APPLICATION OF FUNDS. The proceeds received by the Corporation
from the exercise of an Option will be used for general corporate purposes.
14. EXECUTION. To record the adoption of the Plan in the form set
forth above by the Board effective as of February 23, 1999, the Corporation has
caused this Plan to be executed in the name and on behalf of the Corporation
where provided below by an officer of the Corporation hereunto duly authorized.
SUMMA INDUSTRIES
By: /s/ Trygve M. Thoresen
---------------------------------------
Trygve M. Thoresen, Vice President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent accountants, we hereby consent to the use of our report dated
January 20, 1999 included in this Form 8-K.
/s/ Friedman Eisenstein Raemer and Schwartz, LLP
Friedman Eisenstein Raemer and Schwartz, LLP
<PAGE> 1
EXHIBIT 99.1
[Letterhead of Friedman Eisenstein Raemer and Schwartz, LLP]
INDEPENDENT AUDITORS' REPORT
January 20, 1999
To the Partners
Plastron Industries L.P.
Bensenville, Illinois
We have audited the accompanying balance sheet of Plastron Industries L.P. as of
December 31, 1998 and 1997, and the related statements of income and partners'
equity and cash flows for the year ended December 31, 1998 and the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Plastron Industries L.P. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998 and the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Friedman Eisenstein Raemer and Schwartz, LLP
Friedman Eisenstein Raemer and Schwartz, LLP
<PAGE> 2
PLASTRON INDUSTRIES L.P.
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 270,248 $ 5,480
----------- -----------
Receivables 1,897,048 2,113,294
Less: Allowance for doubtful accounts 10,000 10,000
----------- -----------
1,887,048 2,103,294
----------- -----------
Inventories 946,863 1,136,476
Prepaid expenses 25,604
----------- -----------
Total Current Assets 3,129,763 3,245,250
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $413,638 and $63,530 in 1998 and
1997, respectively 6,835,097 6,897,868
OTHER ASSETS
Intangibles, net of accumulated amortization of
$340,098 and $67,000 in 1998 and 1997,
respectively 1,025,393 1,273,000
----------- -----------
$10,990,253 $11,416,118
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 550,000 $ 550,000
Accounts payable 904,773 604,408
Deferred tooling revenue 8,600
Accrued expenses 517,073 362,041
Due to seller 445,833 370,832
----------- -----------
Total Current Liabilities 2,417,679 1,895,881
----------- -----------
NONCURRENT LIABILITIES
Long-term debt 4,400,000 6,227,632
Due to seller 250,000 695,835
----------- -----------
Total Noncurrent Liabilities 4,650,000 6,923,467
----------- -----------
Total Liabilities 7,067,679 8,819,348
PARTNERS' EQUITY 3,922,574 2,596,770
----------- -----------
$10,990,253 $11,416,118
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-4-
<PAGE> 3
PLASTRON INDUSTRIES L.P.
STATEMENT OF INCOME AND PARTNERS' EQUITY
YEAR ENDED DECEMBER 31, 1998 AND PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ------------------------------
% of % of
Amount Net Sales Amount Net Sales
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 18,217,327 100.0% $ 4,735,757 100.0 %
------------ ----- ------------ -------
COST OF SALES
Materials 6,289,670 34.5 1,670,251 35.3
Direct labor 4,357,896 23.9 1,164,259 24.6
Manufacturing overhead 3,145,253 17.3 773,696 16.3
------------ ----- ------------ -------
Total Cost of Sales 13,792,819 75.7 3,608,206 76.2
------------ ----- ------------ -------
GROSS PROFIT 4,424,508 24.3 1,127,551 23.8
------------ ----- ------------ -------
OPERATING EXPENSES
Selling, general and
administrative expenses 1,159,912 6.4 308,542 6.5
Corporate expenses 445,654 2.4 124,195 2.6
------------ ----- ------------ -------
Total Operating
Expenses 1,605,566 8.8 432,737 9.1
------------ ----- ------------ -------
OPERATING INCOME 2,818,942 15.5 694,814 14.7
------------ ----- ------------ -------
OTHER EXPENSE
Amortization 273,098 1.5 67,000 1.4
Seller consulting fees 333,333 1.8 83,333 1.8
Interest expense 487,329 2.7 166,211 3.5
Other professional fees 83,179 .5
------------ ----- ------------ -------
Total Other Expense 1,176,939 6.5 316,544 6.7
------------ ----- ------------ -------
INCOME BEFORE STATE
INCOME TAXES 1,642,003 9.0 378,270 8.0
STATE INCOME TAXES 1,771
------------ ----- ------------ -------
NET INCOME 1,640,232 9.0% 378,270 8.0%
===== =======
PARTNERS' EQUITY
Beginning of year 2,596,770
Contributions (distributions) (314,428) 2,218,500
------------ ------------
End of year $ 3,922,574 $ 2,596,770
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
-5-
<PAGE> 4
PLASTRON INDUSTRIES L.P.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 AND PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,640,232 $ 378,270
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 623,206 130,530
Deferred tooling revenue (8,600) 8,600
Net (increase) decrease in assets
Receivables 216,246 39,929
Inventories 189,613 259,042
Prepaid expenses (25,604) 18,224
Net increase (decrease) in liabilities
Accounts payable 300,365 (106,693)
Accrued expenses 155,032 (245,724)
----------- -----------
Net Cash Provided by Operating Activities 3,090,490 482,178
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (287,337) (11,436)
Acquisition of assets, net of liabilities (9,038,061)
Acquisition costs (25,491) (206,847)
----------- -----------
Net Cash Used for Investing Activities (312,828) (9,256,344)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Partners' contributions 2,218,500
Distributions (314,428)
Net borrowings (repayments) on line of credit (1,277,632) 1,277,632
Principal payments on notes payable (550,000)
Payments to seller (370,834) (83,333)
Proceeds from issuance of debt 5,500,000
Loan costs (133,153)
----------- -----------
Net Cash (Used for) Provided by Financing Activities (2,512,894) 8,779,646
----------- -----------
NET INCREASE IN CASH 264,768 5,480
CASH
Beginning of year 5,480
----------- -----------
End of year $ 270,248 $ 5,480
=========== ===========
</TABLE>
-6-
<PAGE> 5
PLASTRON INDUSTRIES L.P.
STATEMENT OF CASH FLOWS - Continued
YEAR ENDED DECEMBER 31, 1998 AND PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 503,683 $111,056
Income taxes 1,771
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
The Company acquired substantially all of the assets
of GFL Enterprises. In relation to the acquisition,
the Company assumed the following obligations:
Noncompete agreements $1,000,000
Note payable to seller 150,000
----------
Total $1,150,000
==========
</TABLE>
-7-
<PAGE> 6
PLASTRON INDUSTRIES L.P.
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Plastron Industries L.P. is a plastic injection molder of components for
the electronics industry. Substantially all sales are made on credit to
customers located throughout the United States.
PARTNERSHIP
The Company commenced operations on September 20, 1997 as a Limited
Partnership under the State of Delaware Revised Uniform Limited
Partnership Act. Plastron Management, Inc. is the general partner. The
Company has a partnership agreement which limits the transferability of
partnership interests. All gains and losses are allocated on the basis
of ownership percentage.
ACQUISITION
On September 20, 1997, the Company acquired substantially all of the
assets of GFL Enterprises, formerly known as Plastron Corp., a plastic
injection molder. The purchase price was $9,038,061, plus $1,150,000 due
to the seller for a total of $10,188,061. This amount approximated the
fair market value of the net assets acquired.
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 reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
INVENTORIES
The Company values its inventories at the lower of cost, on the
first-in, first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided on a straight-line method over
the following estimated useful lives:
<PAGE> 7
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
PROPERTY AND EQUIPMENT - Continued
<TABLE>
<CAPTION>
Description Years
----------- -----
<S> <C>
Buildings and building improvements 40
Furniture and equipment 7
Machinery and equipment 15
Tooling 15
Transportation equipment 5
</TABLE>
Maintenance and repairs, which neither materially add to the value of
the property nor appreciably prolong its life, are charged to expense as
incurred. Gains or losses on dispositions of property and equipment are
included in income.
INTANGIBLES
Intangible assets are recorded at cost less accumulated amortization as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Acquisition costs, net of accumulated amortization
of $56,810 and $10,342 in 1998 and 1997,
respectively, straight-line amortization
over five years $ 175,528 $ 196,505
Loan costs, net of accumulated amortization of
$33,288 and $6,658 in 1998 and 1997,
respectively, straight-line amortization over
the term of the related notes payable 99,865 126,495
Covenants not to compete, net of accumulated
amortization of $250,000 and $50,000
in 1998 and 1997, respectively,
straight-line amortization over five years 750,000 950,000
---------- ----------
Totals $1,025,393 $1,273,000
========== ==========
</TABLE>
<PAGE> 8
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
INCOME TAXES
The Company is a Limited Partnership. As a result, Federal income taxes
on the net earnings of the Company are payable by the partners and no
provision is made for Federal income taxes in the accompanying financial
statements.
CONCENTRATION OF CREDIT RISK
The Company maintains bank accounts in two financial institutions. One
of these accounts is insured by the Federal Deposit Insurance
Corporation up to a maximum of $100,000. The other account is not
insured by the Federal Deposit Insurance Corporation.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 financial statements.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 221,066 $ 312,222
Work in process 133,041 165,694
Finished goods 592,756 658,560
---------- ----------
Totals $ 946,863 $1,136,476
========== ==========
</TABLE>
<PAGE> 9
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land $ 790,000 $ 790,000
Buildings and building improvements 1,748,828 1,746,000
Furniture and equipment 100,233 72,538
Machinery and equipment 2,273,089 2,115,907
Tooling 2,242,163 2,170,087
Transportation equipment 66,866 66,866
Construction-in-progress 27,556
---------- ----------
7,248,735 6,961,398
Less: Accumulated depreciation 413,638 63,530
---------- ----------
Totals $6,835,097 $6,897,868
========== ==========
</TABLE>
4. LONG-TERM DEBT
Substantially all assets of the Company are pledged as collateral for
the loans with the National Bank of Canada (the Bank). The debt to GFL
Enterprises is subordinated to the bank debt.
<PAGE> 10
4. LONG-TERM DEBT - Continued
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
National Bank of Canada
$5,500,000 term note, due September 19, 2002, payable
in monthly installments of $45,833 commencing
January 2, 1998, plus interest at 8.17% $4,950,000 $5,500,000
$2,750,000 revolving line of credit, due September 19,
2002, borrowed in two segments:
Interest payable monthly at 8.3125% until
March 20, 1998 500,000
Interest payable monthly at the prime rate (8.5% at
December 31, 1997) 777,632
---------- ----------
Totals 4,950,000 6,777,632
Less: Current portion 550,000 550,000
---------- ----------
Noncurrent Portion $4,400,000 $6,227,632
========== ==========
</TABLE>
The note payable and line of credit agreements with the Bank contain
restrictive covenants which, among other things, provide for maintaining
certain financial ratios and mandatory loan prepayments based on excess
cash flow, as defined in the loan agreement.
The bank debt contains interest rate options which allow the Company to
periodically change segments to either prime rate-based loans or LIBOR
plus 2.5%.
4. LONG-TERM DEBT - Continued
Maturities of the notes payable for years subsequent to December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ------
<S> <C>
2000 $ 550,000
2001 550,000
2002 3,300,000
-----------
Total $ 4,400,000
===========
</TABLE>
<PAGE> 11
5. DUE TO SELLER
The liabilities to GFL Enterprises consist of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Covenants not to compete, due September 20, 2000,
payable in quarterly installments of $83,333 $ 583,333 $ 916,667
$150,000 term note, due September 20, 1999, payable
in quarterly installments of $37,500 plus interest at
8% beginning December 20, 1998 112,500 150,000
---------- ----------
Totals 695,833 1,066,667
Less: Current portion 445,833 370,832
---------- ----------
Noncurrent Portion $ 250,000 $ 695,835
========== ==========
</TABLE>
The Company is also obligated under a consulting agreement with the
seller. The obligation is payable in quarterly installments of $83,333,
through September, 2000. The agreement requires performance and contains
rights to offset the obligation with certain items, as defined.
Consulting fee expense was $333,333 and $83,333 for the year ended
December 31, 1998 and the period ended December 31, 1997, respectively.
6. MAJOR CUSTOMER
Approximately 16% and 14% of sales for the year ended December 31, 1998
and for the period ended December 31, 1997, respectively, were made to
one customer. Approximately $469,000 and $312,000 of accounts receivable
at December 31, 1998 and 1997, respectively, are due from this customer.
7. MAJOR SUPPLIER
The Company purchased approximately 46% of its materials from two
suppliers during the year ended December 31, 1998. Approximately
$397,000 of accounts payable at December 31, 1998 are due to these
suppliers.
The Company purchased approximately 48% of its materials from one
supplier during the period ended December 31, 1997. Approximately
$186,000 of accounts payable at December 31, 1997 are due to this
supplier.
8. EQUITY APPRECIATION RIGHTS PLAN
The Company maintains an equity appreciation rights plan. Amounts are
payable under certain circumstances including the sale of the Company or
a public offering. Some percentage interests have been awarded. No
amounts have vested as of December 31, 1998.
<PAGE> 12
9. PROFIT SHARING PLAN
The Company approved a qualified profit sharing plan (Plastron
Industries, L.P. 401(k) Retirement Plan), effective January 1, 1998,
covering all full-time employees, as defined, with a specified period of
service. Contributions are discretionary. The plan may be amended or
terminated at any time. Employer matching contributions for the year
ended December 31, 1998 were $82,172.
10. RELATED PARTY TRANSACTIONS
Certain members of the Company's corporate law firm are also limited
partners of the Company. Professional fees paid to this firm, relating
to the acquisition and other legal expenses, were $38,695 and $83,750
for the year ended December 31, 1998 and the period ended December 31,
1997, respectively.
10. RELATED PARTY TRANSACTIONS - Continued
Plastron Management, Inc. is the general partner in the Company. A
transaction fee of $125,000 was paid to an entity controlled by the
shareholders of Plastron Management, Inc. in 1997. The fee was for
finding, negotiating, financing and closing the acquisition of the
Company.
Additionally, management fees paid to this related party for the year
ended December 31, 1998 and the period ended December 31, 1997 were
$159,850 and $37,500, respectively.
During 1998, the Company loaned $1,000,000 to a company controlled by
the owners of Plastron Management, Inc. The loan was repaid during 1998,
with interest at 12%.
