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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ___ TO ___.
COMMISSION FILE NUMBER 1-9843
MORGAN PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1095650
(State or other jurisdiction of incorporation or organization)(I.R.S.
Employer Identification No.)
75 Tri-State International, Suite 222, Lincolnshire, Illinois 60069
(Address of principal executive offices) (Zip Code)
(708) 317-2400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $ .10 par value New York Stock Exchange
Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
Aggregate market value of voting stock of the Registrant held by non-
affiliates as of February 1, 1995: $40,810,300.
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Number of shares of Common Stock outstanding as of February 1, 1995:
8,640,713 shares; 2,386 shares are held in treasury.
Documents incorporated by reference Part
----------------------------------- ---------
Annual Report to Stockholders for the Year ended December 31, 1994 I, II, IV
Proxy Statement for the Annual Meeting of Stockholders to be held
on May 17, 1995 III
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PART I
ITEM 1. BUSINESS
THE COMPANY
Morgan Products Ltd. ("Morgan" or the "Company") is a leading marketer
manufacturer and distributor of premium wood door systems and other specialty
building products under the brand names "Morgan" and "Nicolai." The Company
also distributes premium window systems manufactured by Andersen Corporation
("Andersen"). The Company's manufactured products, Andersen window systems
and products manufactured by others are sold through 11 Company-operated
distribution centers. The Company's manufactured products also are sold
throughout most of the United States through independent distributors, home
improvement center chains and other retail stores. The Company believes that
approximately half of its sales are to the residential and light commercial
improvement, maintenance and repair markets, and the balance are to the
residential and light commercial new construction markets.
The Company is organized into three primary operating business units:
Morgan Manufacturing, which is headquartered in Oshkosh, Wisconsin and
directs the Company's manufacturing facilities; Morgan Distribution, which is
headquartered in Mechanicsburg, Pennsylvania and directs the Company-operated
distribution centers; the Company has recently added Morgan National Accounts
which serves large home center chains, marketing and merchandising millwork
and specialty building products for Morgan Manufacturing and Morgan
Distribution. The Company's manufactured and purchased products are
virtually all considered to be "millwork." In view of the nature of its
products and the method of distribution, management believes that the
Company's business constitutes a single industry segment.
PRODUCTS
Products manufactured by the Company and sold under the "Morgan" and
"Nicolai" trade names constituted approximately 32% of 1994 sales. The
Company is a leader in the design and manufacture of high-quality, wood
interior and exterior doors and entry systems. The Company offers a broad
product line, and many doors are available with special features such as
energy-efficient glass, carved panels, leaded glass and other options.
Various woods, including pine, fir and oak, are used to meet consumer
preferences.
Substantially all of the Company's manufactured products are produced at
the Company's facilities in Oshkosh, Wisconsin, Lexington, North Carolina and
Weed, California.
The Company distributes products it manufactures and specialty building
products of other manufacturers through its 11 Company-operated distribution
centers. The major products distributed by the Company are Morgan doors,
Andersen premium vinyl-clad wood windows, Morgan mantels, Morgan stairway
systems, Therma-Tru steel and composite doors, flush doors, molded-skin
doors, wood bi-fold and louvered doors and moldings.
Andersen products, which are sold under the "Andersen" trademark,
accounted for approximately 39% of the Company's sales in 1994 as compared to
42% in 1993. Andersen produces high-quality, premium-priced windows, and has
been a technological leader in developing energy-efficient window systems.
Andersen has informed the Company that it sells exclusively through
distributors such as the Company. The Company's agreement with Andersen
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provides that Andersen can terminate any of the Company's distributorships at
any time upon 60 days notice. The Company believes that such a termination
provision is Andersen's standard arrangement with its distributors. In the
first quarter of 1994, Andersen Corporation announced its intent to realign
its distribution territories. This has now been substantially completed.
There has been a reduction in sales due to this realignment.
An important part of the Company's distribution process is the assembly
and alteration work that is done at the distribution centers to prepare
distributed products for delivery to the customer and for efficient
installation at the building site. At these centers, window and door systems
are assembled and modified according to customer specifications.
MARKETS
Virtually all of the products manufactured and distributed by the Company
are part of the millwork (fabricated wood products) industry, which includes
wood (including vinyl-clad wood) windows, wood doors, moldings, stairways and
mantels. In 1994, based on United States Department of Commerce and other
data, the estimated manufacturers' sales volume of wood windows totalled $2.7
billion. In 1993, estimated sales volume of wood doors totalled $3.1 billion
and other millwork (including moldings, stairways and mantels) totalled $4.4
billion (to date, no 1994 data was available on these). These products are
sold into the improvement, maintenance and repair markets and the new
construction markets.
According to Department of Commerce data, overall sales in the residential
improvement, maintenance and repair markets grew from $46 billion in 1980 to
$108.2 billion in 1993, representing an increase of 135%. Comparable 1994
data has not yet been made available by the U.S. Department of Commerce. New
construction housing starts were cyclical over the same period, with a high
of approximately 1.8 million units in 1986 and a low of slightly over 1.0
million units in 1991. The 1991 level is the lowest level of starts since
1945. The following table, using an index with 1984 as the base year (equal
to 100%), compares the level of housing starts and the Company's unit sales
of Morgan doors (including the Nicolai brand in all years and the Shasta
brand from the date of purchase of Shasta in March 1986) and Andersen windows
during the period 1984 through 1994:
Housing Morgan Andersen
Starts Doors Windows
_______ ______ _______
1984 . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
1985 . . . . . . . . . . . . . . . . 99.5 104.4 118.0
1986 . . . . . . . . . . . . . . . 103.1 124.1 149.9
1987 . . . . . . . . . . . . . . . 92.6 130.9 156.8
1988 . . . . . . . . . . . . . . . 85.0 114.4(1) 175.1
1989 . . . . . . . . . . . . . . . 78.6 115.4 158.4
1990 . . . . . . . . . . . . . . . 68.2 124.4 120.1
1991 . . . . . . . . . . . . . . . 58.0 95.7 118.4
1992 . . . . . . . . . . . . . . . 68.7 99.0 125.4
1993 . . . . . . . . . . . . . . . 73.4 91.5 122.1
1994 . . . . . . . . . . . . . . . 81.4 75.1(2) 96.8(3)
___________________
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(1) Employees at the Company's Springfield, Oregon facility engaged in a
work stoppage beginning in July 1988. Production at this facility was
resumed near the end of 1988 at reduced levels.
(2) Reflects closing of the Company's Springfield, Oregon facility in May
1994. Production of some of this volume was transferred to the
Company's Lexington, North Carolina facility.
(3) Reflects Andersen realignment of sales territories that occurred in
1994.
The Company believes that its principal opportunities for growth are in
the further penetration of its existing markets, the internal development of
new products, the establishment of new Company-operated distributorships, the
addition of new product lines for distribution through the Company-operated
distribution centers and the addition of independent distributor outlets.
DISTRIBUTION
The Company's manufactured products, Andersen window systems and products
manufactured by others are sold through 11 Company-operated distribution
centers. The Company's manufactured products also are sold in most of the
United States through independent distributors, home improvement center
chains and other retail stores. Approximately 76% of the Company's total
sales are generated by its Company-operated distribution centers, which
includes certain sales of products produced by the Company's manufacturing
business unit.
The following is a list of Company-operated distribution centers as of
February 1, 1995:
Birch Run, Michigan
Chesapeake, Virginia
Columbia (Cayce), South Carolina
Decatur, Illinois
Denver, Colorado
Gainesville, Virginia
Harrisburg (Mechanicsburg), Pennsylvania
Kansas City (Shawnee), Kansas
Scranton (Dunmore), Pennsylvania
West Chicago, Illinois
Wilmington (Newark), Delaware.
The Company's distribution centers warehouse, assemble, and ship products
to customers, provide sales, service and marketing functions and maintain
vehicles to deliver products to customers generally within a 150-mile radius
of each center. The distribution centers are operated as stand-alone profit
centers. Major supplier purchasing negotiations are controlled centrally in
order to obtain the best prices for total volume purchased and to minimize
inventory levels.
Additionally, the Company has relationships with approximately 200
independent distributors and home improvement center chains which, in 1994,
purchased approximately 74% of the products manufactured by the Company's
manufacturing unit. The Company does not have formal distribution agreements
with any of its independent distributors or home improvement center chains.
Such distribution arrangements may generally be terminated by either party at
any time. The Company's largest independent distributor purchased
approximately 8% of the products manufactured by the Company, accounting for
approximately 3% of total Company sales. The Company's largest home
improvement center chain customer purchased approximately 23% of the products
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manufactured by the Company, accounting for approximately 7% of total Company
sales. The Company is unable to predict whether the loss of one or more
independent distributors or home improvement center chains would have a
material adverse effect on the Company.
Many of the products distributed by the Company, including Andersen
products, are modified and assembled at the Company's distribution centers
before shipping. Such products include doors purchased from the Company and
other suppliers which are pre-hung, bay and bow window systems, half round,
octagon, and specialty shaped windows. The Company's assembly operations
allow the builder, contractor or consumer to install pre-assembled units at a
lower cost than modifying and assembling component parts at the job site.
The Company has also developed the capability to provide complete job site
installation for repair and remodeling projects.
SALES AND MARKETING
Most of the Company's advertising and promotion for its manufactured
products is directed to the wholesale and retail trade through catalogs,
brochures, retail product displays, newspapers, trade magazines and trade
shows. In addition, the Company engages in a cooperative advertising program
with its distributors and dealers through brochures, product displays, radio
and television. Through its advertising program, the Company emphasizes the
residential improvement, maintenance and repair markets and promotes the
Morgan Doorman, the Morgan name and logo, and the Nicolai name and logo.
Certain of the Company's suppliers, especially Andersen, advertise both to
the trade and directly to the consumer through nationwide print and
television advertising.
In 1995, the Company has added Morgan National Accounts which will serve
large home center chains, marketing and merchandising millwork and specialty
building products for Morgan Manufacturing and Morgan Distribution.
As of December 31, 1994, the Company employed approximately 110
salespersons who sell directly to independent distributors, building supply
dealers, builders and remodelers, home improvement centers and factory home
manufacturers. The Company trains independent distributors and building
supply dealers through seminars held at its Oshkosh, Wisconsin marketing and
training facility.
RAW MATERIALS
The Company's primary raw material is wood. The Company purchases
softwoods from a variety of suppliers located in Idaho, Washington, Oregon
and California and hardwoods from various suppliers in Tennessee and in the
Great Lakes region. During 1992 and 1993 the cost of solid, long clear
lengths of the Company's traditional softwoods and hardwoods increased
dramatically. This increase in cost has generally been the result of the
cessation of logging on almost all government owned land. As a result the
Company continues to expand the utilization, where appropriate, of veneered
and laminated solid wood components in the manufacture of its products. In
addition, the Company has developed foreign sources for some of its raw
material requirements. Glass, hardware and miscellaneous components are
purchased from suppliers located in proximity to the Company's manufacturing
facilities. The Company believes that it is not dependent upon any single
supplier for any of its raw material.
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BACKLOG
The Company's backlogs of orders for manufactured products at December 31,
1994 and 1993 were approximately $7 million for both years. The Company
anticipates that substantially all of the backlog orders in existence on
December 31, 1994 will be delivered by the end of the current fiscal year.
All of such current backlog orders are cancelable prior to shipment from the
factory. Backlog levels vary during the course of the year because of the
seasonality of the Company's business. Customer orders at the
Company-operated distribution centers are generally filled within one to five
days and, accordingly, there is no appreciable backlog level.
SEASONAL NATURE OF BUSINESS
The building products industry is seasonal, particularly in the Northeast
and Midwest regions of the United States where inclement weather during the
winter months usually reduces the level of building activity in the
improvement, maintenance and repair markets and in the new construction
markets. The Company's lowest sales traditionally occur during the first and
fourth quarters.
COMPETITION
Manufacturers of residential specialty millwork products in the United
States are a highly fragmented group and include approximately 2,000
companies with annual revenues ranging from less than $1 million to several
hundred million dollars. Competition in the residential specialty building
products market is substantial. The Company's distribution centers compete
principally with other distributors of window systems, distributors of
specialty building products manufactured by companies other than the Company
and manufacturers of specialty building products which sell directly to the
Company's target customers. The Company believes that it competes primarily
on the basis of the breadth of its product lines, the quality and design of
its products and the quality and speed of its service. The Company's
manufactured product lines are positioned primarily at the premium end of
their respective markets. The Company believes that producers and
distributors of lower priced or lower cost products may enjoy a competitive
advantage where price is the consumer's primary concern.
The Company has approximately 18 major competitors at the manufacturers'
level in the interior and exterior premium wood door market and believes that
it has the largest market share among such manufacturers of interior and
exterior premium wood panel doors. The Company further believes that
Andersen has 5 principal competitors in the premium wood window markets in
which it competes. The Company also believes that it has a leading position
in premium interior and exterior doors and wood windows in the market areas
surrounding most of its distribution centers.
TRADEMARKS AND NAME
The Company's name, the Morgan Doorman and the Nicolai name and logo are
registered trademarks. The Company also uses its trademarks, "Centry,"
"SwingSet," "Energy Guard," "Fire-Guard" and "Sureguard" in connection with
the sale of Company manufactured products. The Company considers its
trademarks and logos to be valuable to the conduct of its business. The
Company also owns certain patents which it does not consider material to the
operation of its business.
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EMPLOYEES
As of December 31, 1994, the Company employed 1,341 persons, of whom 580
were employed at the Company's manufacturing facilities, 750 were employed at
the Company's distribution centers, and 11 were employed at the corporate
headquarters. Approximately 496 employees are represented by labor unions.
During 1994, the Company did not negotiate any labor agreements with
employees.
ITEM 2. PROPERTIES
The Company owned the following manufacturing facilities as of February 1,
1995:
Approximate
Square Feet
Location Occupied
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Oshkosh, Wisconsin (28 buildings; 27.6 acres) . . . 512,000
Lexington, North Carolina (1 building; 20 acres) . 216,000
The Oshkosh, Wisconsin facility is subject to a mortgage in connection with
certain industrial revenue bonds. See Note 5 of Notes to Consolidated
Financial Statements which appears on page 19 of the Company's 1994 Annual
Report to Stockholders and is incorporated by reference in this Form 10-K
Annual Report.
The Company leased the following facilities as of February 1, 1995:
Approximate
Square Foot Lease
Location Occupied Expiring
-------- ----------- --------
Birch Run, Michigan . . . . . . . . . . . . . . . . 113,000 2005
Chesapeake, Virginia . . . . . . . . . . . . . . . 30,000 1999(1)(5)
Columbia, (Cayce), South Carolina . . . . . . . . . 89,480 1996
Denver, Colorado . . . . . . . . . . . . . . . . . 39,970 1997
Decatur, Illinois . . . . . . . . . . . . . . . . . 93,000 2007(1)
Gainesville, Virginia . . . . . . . . . . . . . . 79,500 2006(1)
Harrisburg (Mechanicsburg), Pennsylvania (2 facilities):
Office . . . . . . . . . . . . . . . . . . . . . 15,570 1998(1)
Warehouse . . . . . . . . . . . . . . . . . . . . 134,910 2002(1)
Kansas City (Shawnee), Kansas . . . . . . . . . . . 79,500 2000(1)
Lincolnshire, Illinois Corporate Office . . . . . . 6,200 1999
Oshkosh, Wisconsin:
Manufacturing Division Office . . . . . . . . . . 19,760 1995(2)
Scranton (Dunmore), Pennsylvania . . . . . . . . . 50,917 1998(4)
Weed, California . . . . . . . . . . . . . . . . . 460,000(3) 1996(1)
West Chicago, Illinois . . . . . . . . . . . . . . 86,170 1996(2)
Wilmington (Newark), Delaware . . . . . . . . . . . 97,421 2000(2)
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(1) Optional renewal term in excess of five years.
(2) Optional renewal term of five years or less.
(3) In 1990, the Company ceased production of fir doors at this facility.
In May 1994, the Company ceased production of veneer at this location. The
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Company continues to use approximately 50,000 square feet for the patio door
assembly, and warehousing.
(4) In October, 1994, the Company sublet 30,000 square feet to Hadden
Craftsman.
(5) The Company recently renewed the lease reducing the square footage
from 94,500.
Distribution center leases generally provide for fixed monthly rental
payments, plus the payment, in most cases, of real estate taxes, utilities,
liability insurance and maintenance. In a few locations, the leases provide
escalation clauses requiring the payment of additional rent according to
certain indices or in specified amounts. The termination dates of these
leases vary widely. See Note 6 of Notes to Consolidated Financial Statements
which appears on page 19 of the Company's 1994 Annual Report to Stockholders
and is incorporated by reference in this Form 10-K Annual Report.
The Company believes that its distribution facilities and manufacturing
capacity are sufficient to serve its existing markets.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders since the last
annual meeting held May 18, 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
In respect of information as to the Company's executive officers, see
caption "Executive Officers of the Company" in Item 10, Part III of this Form
10-K Annual Report.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The information set forth under "Common Stock Market Price Range and
Dividend Policy" which appears on page 22 of the Company's 1994 Annual Report
to Stockholders is incorporated by reference in this Form 10-K Annual Report.
(b) Note: The number of shares of the Company's Common Stock held by non-
affiliates shown on the cover of this Form 10-K was calculated on the
assumption that there were no affiliates other than officers and directors of
the Company and Saugatuck (as defined below).
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1994
which appears on page 1 of the Company's 1994 Annual Report to Stockholders
is incorporated by reference in this Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which appears on pages 10
through 13 of the Company's 1994 Annual Report to Stockholders, is
incorporated by reference in this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Price
Waterhouse LLP dated January 25, 1995, appearing on pages 14 through 23 of
the Company's 1994 Annual Report to Stockholders including Note 13 (page 22)
which includes unaudited quarterly financial data, are incorporated by
reference in this Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 1995 under "Election of Directors" is
incorporated by reference in this Form 10-K Annual Report.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the executive
officers of the Company as of December 31, 1994. Company officers are
appointed by the Board of Directors and such appointments are effective until
resignation or earlier removal by the Board of Directors.
NAME AGE POSITION
---- --- --------
Frank J. Hawley, Jr . . . . . . . 67 Chairman of the Board
Larry R. Robinette . . . . . . . 51 President and Chief Executive
Officer
Douglas H. MacMillan . . . . . . 48 Vice President, Chief
Financial Officer and
Secretary
Joseph G. LaCroix . . . . . . . . 58 Executive Vice President;
President - Morgan
Distribution
Donald E. Schlegel . . . . . . . 53 Vice President; President -
Morgan Manufacturing
Dennis C. Hood . . . . . . . . . 57 Senior Vice President - Human
Resources and Administration
Mr. Hawley has been Chairman of the Board of the Company since December
1983. Since 1982 he has been a Managing Partner of Laurel Partners, the
general partner of Saugatuck Capital Company Limited Partnership
("Saugatuck"), a venture capital partnership and an affiliate of the Company.
Since September 1986, he has been a Managing Partner of Bedford Partners, the
general partner of Saugatuck Capital Company Limited Partnership II
("Saugatuck II"), a venture capital partnership. Since October , 1992, he
has been a Managing Partner of Greyrock Partners Limited Partnership, the
general partner of Saugatuck Capital Company Limited Partnership III
("Saugatuck III"), a venture capital partnership. Since September 1986, he
has been president and principal stockholder of Saugatuck Associates, Inc., a
risk capital management firm which provides investment advice and assistance
to Saugatuck, Saugatuck II and Saugatuck III.
Mr. Robinette was appointed President and Chief Executive Officer of
Morgan Products Ltd. on September 6, 1994. He is the former President and
CEO of Anchor Hocking Packaging of Cincinnati, Ohio, a subsidiary of
CarnaudMetalbox. Previous positions includes a series of executive
assignments at Newell Company and prior to that, he was employed at General
Motors.
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Mr. MacMillan joined the Company in August 1991 as Vice President, Chief
Financial Officer and Secretary of the Company. From 1987 to July 1991, he
was the Chief Financial Officer of Varlen Corporation, a diversified
manufacturer serving the scientific instrument, automotive, heavy truck and
railroad markets. From 1981 to 1987 he held various executive financial
positions with Sealy Incorporated.
Mr. LaCroix was appointed President of the Company's Morgan Distribution
Unit in August 1989 and has been an Executive Vice President of the Company
since December 1987. He joined the Company in October 1986 as the Company's
Vice President and General Manager -- Distribution Group. From 1982 until
September 1986, he was Corporate Vice President of Bird, Inc., a building
materials company, and president of its vinyl products group. From 1978 to
1982, he was a corporate officer of Certainteed Corporation, a building
materials company, and president of its shelter materials group.
Mr. Schlegel joined the Company in August 1989 as Vice President of the
Company and President of the Company's Morgan Manufacturing Unit. From 1987
to July 1989, he was President and Chief Executive Officer of Broan
Manufacturing, a major supplier of products to the residential and commercial
building markets. From 1983 to his appointment as president of Broan
Manufacturing Co., Inc., Mr. Schlegel served as its executive vice president
and chief operating officer. Earlier in his career, he held a variety of
marketing positions with Broan, McGraw Edison and Cummins Engine.
Mr. Hood was appointed Senior Vice President, Human Resources and
Administration in December 1994. Mr. Hood joined the Company as Vice
President -- Human Resources in June 1986. From January 1985 until he joined
the Company, Mr. Hood was Vice President, Human Resources of the Air Systems
Division of the Trane Company, a subsidiary of American Standard, Inc.
engaged in the manufacture of commercial and residential heating and air
conditioning equipment. From March 1978 until January 1985, Mr. Hood was
manager of industrial relations, branch operations of the Trane Company.
Family Relationships
To the best of the Company's knowledge and belief, there is no family
relationship between any of the Company's directors, executive officers or
persons nominated or chosen by the Company to become a director or an
executive officer.
ITEM 11. EXECUTIVE COMPENSATION
The information in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 1995 under "Compensation of Executive
Officers" is incorporated by reference in this Form 10-K Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 1995 under "Security Ownership of Certain
Beneficial Owners" is incorporated by reference in this Form 10-K Annual
Report.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 1995 under "Certain Transactions" is
incorporated by reference in this Form 10-K Annual Report.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Page In
Annual Report*
______________
Consolidated Income Statements for the three years
ended December 31, 1994 . . . . . . . . . . . . 14
Consolidated Balance Sheets at December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . 15
Consolidated Statements of Cash Flow for the three
years ended December 31, 1994 . . . . . . . . . 16
Consolidated Statements of Stockholders' Equity for
the three years ended December 31, 1994 . . . . 17
Notes to Consolidated Financial Statements . . . 18-22
Report of Independent Accountants . . . . . . . . 23
* Incorporated by reference from the indicated pages of the
1994 Annual Report to Stockholders.
2. Financial Statement Schedule: Page
____
Schedule VIII - Valuation and Qualifying Accounts 21
Report of Independent Accountants on Financial
Statement Schedule . . . . . . . . . . . . . . . 23
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3 Exhibits (Filed herewith or incorporated by reference; see index to
exhibits). An "*" indicates a compensatory plan or arrangement in accordance
with Instruction (3) to Item 14.
3.1 Restated Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Form 10-K for the Fiscal Year ended December 31, 1987
(Commission File No. 0-13911)).
3.2 By-laws of the Company, as amended (incorporated by reference
to Exhibit 3.2 to the Company's Form 10-K for the Fiscal Year
ended December 31, 1987 (Commission File No. 0-13911)).
4.1 Stockholders Agreements (Restated) among the Company,
Saugatuck Capital Company Limited Partnership, George T.
Brophy and certain other stockholders of the Company, dated as
of January 13, 1984, as amended (incorporated by reference to
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Exhibits 4.12 and 4.13 to the Company's Registration Statement
(Registration No. 33-00344), Exhibit 4.16 to the Company's
Quarterly Report for the Quarter ended March 29, 1986
(Commission File No. 0-13911) and Exhibit 4.9 of the
Company's Form 10-K for the Fiscal Year ended December 31,
1986 (Commission File No 0-13911)).
4.2 Rights Agreement, dated as of March 15, 1989, between the
Company and Manufacturers Hanover Trust Company, as Rights
Agent (incorporated by reference to Exhibit I-2 to the
Company's Form 8-A Registration Statement on Form S-1
(Commission File No. 1-9843)).
10.1 Loan and Security Agreement among the Company, certain banks,
and Barclays Business Credit, Inc. as agent dated as of July
14, 1994.
10.2 Trust Indenture, dated as of December 1, 1991, by and between
the City of Oshkosh, Wisconsin and Marine Bank of Springfield,
as Trustee (incorporated by reference to Exhibit 10.11 to the
Company's Form 10-K for the Fiscal Year ended December 31,
1991 (Commission File No. 1-9843)).
10.3 Loan Agreement, dated as of December 1, 1991, by and between
the City of Oshkosh, Wisconsin and the Company (incorporated
by reference to Exhibit 10.12 to the Company's Form 10-K for
the Fiscal Year ended December 31, 1991 (Commission File No.
1-9843)).
10.4 Mortgage and Security Agreement with Assignment of Rents,
dated as of December 1, 1991, from the Company to Harris Trust
and Savings Bank (incorporated by reference to Exhibit 10.18
to the Company's Form 10-K for the Fiscal Year ended December
31, 1991 (Commission File No. 1-9843)).
10.5 Letter Agreement, dated January 11, 1984, between the Company
and Andersen Corporation (incorporated by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-1
(Registration No. 33-00344)).
10.6 Letter Agreement, dated March 3, 1986, between the Company and
Andersen Corporation (incorporated by reference to Exhibit
19.7 to the Company's Quarterly Report for the Quarter ended
September 27, 1986 (Commission File No. 0-13911)).
10.7 Distributor Bulletin, dated March 31, 1986, issued by the
Andersen Corporation (incorporated by reference to Exhibit
10.64 to the Company's Form 10-K for the Fiscal Year ended
December 31, 1986 (Commission File No. 0-13911)).
*10.8 Letter Agreement regarding termination of employment between
the Company and Arthur L. Knight, Jr. dated May 31, 1994.
*10.9 Employment Agreement and Trust Under Employment Agreement
between the Company and Larry R. Robinette dated August 19,
1994.
*10.10 Form of Severance Agreement for Messrs. LaCroix, Schlegel,
MacMillan and Hood (incorporated by reference to Exhibit 10.12
<PAGE>
of the Company's Form 10-K for the Fiscal Year ended December
31, 1992 (Commission File No. 1-9843)).
*10.11 Severance policy for certain Covered Executives (incorporated
by reference to Exhibit 10.13 of the Company's Form 10-K for
the Fiscal Year ended December 31, 1992 (Commission File No.
1-9843)).
*10.12 Special Severance/Retention Plan for Executive Officers dated
March 30, 1994. Letter agreement modifying the special
Severance/Retention Plan for Executives.
*10.13 Consulting and Management Assistance Agreement between the
Company and Hawley Management Company (now named Saugatuck
Associates, Inc.) dated as of January 13, 1984 (incorporated
by reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Registration No. 33-00344)).
*10.14 Amended 1994 Executive Performance Incentive Pan.
*10.15 Convertible Appreciation Rights Plan, dated June 1, 1992
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report for the Quarter ended July 4, 1992
(Commission File No. 1-9843)).
*10.16 Morgan Products Ltd. 1992 Non-employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.19 of the
Company's Form 10-K for the Fiscal Year ended December 31,
1992 (Commission File No. 1-9843)).
*10.17 Form of Indemnification Agreement between the Company and each
of Frank J. Hawley, Jr., John S. Crowley, Alexander H. Dunbar,
Howard G. Haas, Donald N. Boyce, William R. Holland, Arthur
L. Knight, Jr., Douglas H. MacMillan, Joseph G. LaCroix,
Donald E. Schlegel, Dennis C. Hood, and Dale H. Von Behren
(incorporated by reference to Exhibit 10.20 of the Company's
Form 10-K for the Fiscal Year ended December 31, 1992
(Commission File No. 1-9843)).
*10.18 The Company's Incentive Stock Option Plan (1985), as amended
(incorporated by reference to the Appendix to the Prospectus
contained in Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (Registration No.
33-32264)).
*10.19 The Company's 1995 Incentive Stock Option Plan.
*10.20 The Company's 1988 Stock Purchase Plan (incorporated by
reference to the Appendix to the Prospective contained in
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-8 (Registration No. 33-23882)).
10.21 Agreement between the Company and the Midwestern Industrial
Council and affiliated Local No. 1363 of the United
Brotherhood of Carpenters & Joiners of America, dated May 10,
1992 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report for the Quarter ended October 3,
1992 (Commission File No. 1-9843)).
<PAGE>
10.22 Agreement between Morgan Distribution, Mechanicsburg,
Pennsylvania and the United Steelworkers of America,
AFL-CIO-CIC, Local 12731, dated February 15, 1992
(incorporated by reference to Exhibit 10.24 of the Company's
Form 10-K for the Fiscal Year ended December 31, 1992
(Commission File No. 1-9843)).
10.23 Form of Agreement between Morgan Distribution and Teamsters
Local Union No. 486 for Birch Run, Michigan, dated as of
November 2, 1992 (incorporated by reference to Exhibit 10.25
of the Company's Form 10-K for the Fiscal Year ended December
31, 1992 (Commission File No. 1-9843)).
13 Items incorporated by reference to the 1994 Annual Report to
Stockholders.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed with the Commision during the last
quarter of the Company's 1994 fiscal year
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MORGAN PRODUCTS LTD.
By /s/ Douglas H. MacMillan
Douglas H. MacMillan
Vice President, Chief Financial
Officer and Secretary
March 25, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Frank J. Hawley, Jr. Chairman of the Board March 25, 1995
Frank J. Hawley, Jr. and DirectoR
/s/ Larry R. Robinette President, Chief Executive March 25, 1995
Larry R. Robinette Officer and Director
(Principal Executive Officer)
/s/ Douglas H. MacMillan Vice President, Chief March 25, 1995
Douglas H. MacMillan Financial Officer and
Secretary (Principal
Financial and Accounting Officer)
/s/ John S. Crowley Director March 25, 1995
John S. Crowley
/s/ Howard G. Haas Director March 25, 1995
Howard G. Haas
/s/ William R. Holland Director March 25, 1995
William R. Holland
/s/ Patrick J. McDonough, Jr. Director March 25, 1995
Patrick J. McDonough, Jr.
/s/ Alton F. Doody, Jr. Director March 25, 1995
Alton F. Doody, Jr.
<PAGE>
/s/ Byron H. Tony Stebbins Director March 25, 1995
Byron H. Tony Stebbins
/s/ Edward T. Tokar Director March 25, 1995
Edward T. Tokar
/s/ Arthur L. Knight, Jr. Director March 25, 1995
Arthur L. Knight, Jr.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Morgan Products Ltd.
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1995 appearing on page 23 of the 1994 Annual Report to
Stockholders of Morgan Products Ltd., (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the Financial Statement Schedule listed
in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 25, 1995
<PAGE>
MORGAN PRODUCTS LTD.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Accounts Receivable
Allowance for doubtful accounts consisted of the following
(in thousands of dollars):
1994 1993 1992
---- ---- ----
Balance at beginning of period $1,448 $1,672 $1,321
Provision charged to expense (54) 697 971
Write-offs (422) (759) (603)
Recoveries/other (19) (162) (17)
------ ------ ------
Balance at end of period $ 953 $1,448 $1,672
====== ====== ======
<PAGE>
EXHIBIT INDEX*
EXHIBIT PAGE NO.
_______ ________
10.1 Loan and Security Agreement among the Company,
certain banks, and Barclays Business Credit, Inc.
as agent, dated as of July 14, 1994.
10.8 Letter Agreement regarding termination of
employment between the Company and
Arthur L. Knight, Jr. dated May 31, 1994.
10.9 Employment Agreement and Trust Under Employment
Agreement between the Company and
Larry R. Robinette dated August 19, 1994.
10.12 Special Severance/Retention Plan for Executive
Officers dated March 30, 1994. Letter agreement
modifying the Special Severance/Retention Plan
for Executives.
10.14 1994 Executive Performance Incentive Plan.
10.19 The Company's 1995 Incentive Stock Option Plan.
13 Items incorporated by reference to the 1994 Annual
Report to Stockholders.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule
* Excludes Exhibits incorporated by reference.
See Item 14(a) 3.
<PAGE>
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
Dated: July 14, 1994
$65,000,000
among
MORGAN PRODUCTS LTD.
as Borrower,
THE LENDERS NAMED HEREIN
as Lenders,
and
BARCLAYS BUSINESS CREDIT, INC.
as Agent and Lender
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. GENERAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . .
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . .
1.2. Accounting Terms . . . . . . . . . . . . . . . . . . . . . .
1.3. Other Terms . . . . . . . . . . . . . . . . . . . . . . . . .
1.4. Certain Matters of Construction . . . . . . . . . . . . . . .
SECTION 2. CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . .
2.1. Revolving Credit Loans . . . . . . . . . . . . . . . . . . .
2.2. Manner of Borrowing Revolving Credit Loans . . . . . . . . .
2.3. Letters of Credit; LC Guaranties . . . . . . . . . . . . . .
2.4. All Loans to Constitute One Obligation . . . . . . . . . . .
2.5. Loan Account . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3. INTEREST, FEES, TERM AND REPAYMENT . . . . . . . . . . . . .
3.1. Interest, Fees and Charges . . . . . . . . . . . . . . . . .
3.2. Letter of Credit and LC Guaranty Fees . . . . . . . . . . . .
3.3. Term of Agreement . . . . . . . . . . . . . . . . . . . . . .
3.4. Termination . . . . . . . . . . . . . . . . . . . . . . . . .
3.5. Payments . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6. Application of Payments and Collections . . . . . . . . . . .
3.7. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . .
3.8. Statements of Account . . . . . . . . . . . . . . . . . . . .
SECTION 4. COLLATERAL: GENERAL TERMS . . . . . . . . . . . . . . . . .
4.1. Security Interest in Collateral . . . . . . . . . . . . . . .
4.2. Lien on Realty . . . . . . . . . . . . . . . . . . . . . . .
4.3. Representations, Warranties and Covenants -- Collateral . . .
4.4. Lien Perfection . . . . . . . . . . . . . . . . . . . . . . .
4.5. Location of Collateral . . . . . . . . . . . . . . . . . . .
4.6. Insurance of Collateral . . . . . . . . . . . . . . . . . . .
4.7. Protection of Collateral . . . . . . . . . . . . . . . . . .
4.8. Release . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 5. PROVISIONS RELATING TO ACCOUNTS . . . . . . . . . . . . . . .
5.1. Representations, Warranties and Covenants . . . . . . . . . .
5.2. Borrowing Base Certificates, Assignments, Records and
Schedules of Accounts . . . . . . . . . . . . . . . . . . . .
5.3. Administration of Accounts . . . . . . . . . . . . . . . . .
5.4. Collection of Accounts. . . . . . . . . . . . . . . . . . . .
5.5. Notice Regarding Disputed Accounts . . . . . . . . . . . . .
SECTION 6. PROVISIONS RELATING TO INVENTORY . . . . . . . . . . . . . .
6.1. Representations, Warranties and Covenants . . . . . . . . . .
6.2. Inventory Reports . . . . . . . . . . . . . . . . . . . . . .
6.3. Returns of Inventory . . . . . . . . . . . . . . . . . . . .
<PAGE>
SECTION 7. PROVISIONS RELATING TO EQUIPMENT . . . . . . . . . . . . . .
7.1. Representations, Warranties and Covenants . . . . . . . . . .
7.2. Evidence of Ownership of Equipment . . . . . . . . . . . . .
7.3. Records and Schedules of Equipment . . . . . . . . . . . . .
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . .
8.1. General Representations and Warranties . . . . . . . . . . .
8.2. Reaffirmation . . . . . . . . . . . . . . . . . . . . . . . .
8.3. Survival of Representations and Warranties . . . . . . . . .
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS . . . . . . . . . . . . .
9.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . .
9.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . .
9.3. Specific Financial Covenants . . . . . . . . . . . . . . . .
SECTION 10. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . .
10.1. Documentation . . . . . . . . . . . . . . . . . . . . . . . .
10.2. Other Conditions . . . . . . . . . . . . . . . . . . . . . .
SECTION 11. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON
DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1. Events of Default . . . . . . . . . . . . . . . . . . . . . .
11.2. Acceleration of the Obligations . . . . . . . . . . . . . . .
11.3. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . .
11.4. Remedies Cumulative; No Waiver . . . . . . . . . . . . . . .
SECTION 12. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . .
12.1. Authorization and Action . . . . . . . . . . . . . . . . . .
12.2. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . .
12.3. BCI and Affiliates . . . . . . . . . . . . . . . . . . . . .
12.4. Lender Credit Decision . . . . . . . . . . . . . . . . . . .
12.5. Indemnification . . . . . . . . . . . . . . . . . . . . . . .
12.6. Successor Agent . . . . . . . . . . . . . . . . . . . . . . .
SECTION 13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . .
13.1. Power of Attorney . . . . . . . . . . . . . . . . . . . . . .
13.2. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . .
13.3. Complete Agreement; Modification of Agreement; Sale of
Interest . . . . . . . . . . . . . . . . . . . . . . . . . .
13.4. Reimbursement of Expenses . . . . . . . . . . . . . . . . . .
13.5. Indulgences Not Waivers . . . . . . . . . . . . . . . . . . .
13.6. Severability . . . . . . . . . . . . . . . . . . . . . . . .
13.7. Successors and Assigns . . . . . . . . . . . . . . . . . . .
13.8. Cumulative Effect; Conflict of Terms . . . . . . . . . . . .
13.9. Execution in Counterparts . . . . . . . . . . . . . . . . . .
13.10. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.11. Agent's or Required Lenders' Consent . . . . . . . . . . . .
13.12. Demand Obligations . . . . . . . . . . . . . . . . . . . . .
13.13. Time of Essence . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
13.14. Entire Agreement . . . . . . . . . . . . . . . . . . . . . .
13.15. Interpretation . . . . . . . . . . . . . . . . . . . . . . .
13.16. GOVERNING LAW; CONSENT TO FORUM . . . . . . . . . . . . . . .
13.17. WAIVERS BY BORROWER . . . . . . . . . . . . . . . . . . . . .
13.18 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
EXHIBITS
Exhibit A Form of Revolving Credit Note - Section 1.1
Exhibit B Borrower's Business Locations - Section 4.5, 6.1(A), 8.1(W)
and Section 9.2(M)
Exhibit C Form of Borrowing Base Certificate - Section 5.2
Exhibit D Jurisdictions in Which Borrower is Authorized to do Business -
Section 8.1(A)
Exhibit E Corporate Names and Predecessors - Section 8.1(B) and 9.2(P)
Exhibit F Patents, Trademarks, Copyrights and Licenses - Section 8.1(H)
Exhibit G Capital Structure and Affiliates - Section 8.1(I)
Exhibit H Contracts Restricting Borrower's Right to Incur Debts - Section
8.1(K)
Exhibit I Litigation - Section 8.1(L)
Exhibit J Pension Plans - Section 8.1(P)
Exhibit K Labor Contracts - Section 8.1(R)
Exhibit L Exceptions to Compliance with Laws - Section 8.1(S)
Exhibit M Surety Obligations - Section 8.1(T)
Exhibit N Capitalized Leases - Section 8.1(Y)
Exhibit O Operating Leases - Section 8.1(Y)
Exhibit P Form of Compliance Certificate - Section 9.1(J)
Exhibit Q Permitted Liens - Section 9.2(H)
Exhibit R Landlord or Warehouseman Locations - Section 10.1(C)
Exhibit S Form of Opinion Letter - Section 10.1(J)
Exhibit T Form of Assignment and Acceptance - Section 13.3(b)
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 14th day of July, 1994
by and among MORGAN PRODUCTS LTD., a Delaware corporation having its chief
executive office at 75 Tri-State International, Suite 222, Lincolnshire,
Illinois 60069 ("Borrower"), the lenders who are or who may from time to
time become signatories hereto ("Lenders"), and BARCLAYS BUSINESS CREDIT,
INC., a Connecticut corporation having an office at 200 West Madison
Street, Chicago, Illinois 60606 ("BCI"), as agent for the Lenders hereunder
(BCI, in such capacity, being "Agent").
SECTION 1. GENERAL DEFINITIONS
1.1. Defined Terms. When used herein, the following terms shall have
the following meanings (terms defined in the singular to have the same
meaning when used in the plural and vice versa):
Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter
acquires any interest.
Account Debtor - any Person who is or may become obligated under
or on account of an Account.
Affiliate - a Person (other than a Subsidiary): (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, Borrower; (ii)
which beneficially owns or holds 10% or more of any class of the
Voting Stock of Borrower; or (iii) 10% or more of the Voting Stock (or
in the case of a Person which is not a corporation, 10% or more of the
equity interest) of which is beneficially owned or held by Borrower or
a Subsidiary of Borrower. For purposes hereof, "control" means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise.
Agent - as defined in the first paragraph of this Agreement.
Agreement - this Loan and Security Agreement.
ALTA Survey - a survey prepared in accordance with the standards
adopted by the American Land Title Association and the American
Congress on Surveying and Mapping in 1986, known as the "Minimum
Standard Detail Requirements of Land Title Surveys". The ALTA Survey
shall be in sufficient form to satisfy the requirements of Chicago
Title Insurance Company (or such other title insurance company as is
reasonably acceptable to Agent) to provide extended coverage over
survey defects and shall also show the location of all easements,
utilities, and covenants of record, dimensions of all improvements,
encroachments from any adjoining property, and certify as to the
location of any flood plain area affecting the subject real estate.
The ALTA Survey shall contain the following certification: "To Morgan
Products Ltd., Barclays Business Credit, Inc., as Agent, and Chicago
Title Insurance Company (or such other title insurance company as is
<PAGE>
reasonably acceptable to Agent). This is to certify that this map of
plat and the survey on which it is based were made in accordance with
the "Minimum Standard Detail Requirements for Land Title Surveys"
jointly established and adopted by ALTA and ACSM in 1992. (signed
(SEAL) License No. _________________".
Bank - Barclays Bank PLC.
Base Rate - the rate of interest announced or quoted by Bank from
time to time as its prime, base or similar rate for commercial loans
to United States borrowers, whether or not such rate is the lowest
rate charged by Bank to its most preferred borrowers; and if the
prime, base or similar rate for commercial loans is discontinued by
Bank as a standard, a comparable reference rate designated by Bank as
a substitute therefor shall be the Base Rate.
BCI - as defined in the first paragraph of this Agreement.
Board - the Board of Governors of the Federal Reserve System of
the United States.
Borrower - as defined in the first paragraph of this Agreement.
Borrowing Base - as at any date of determination thereof, an
amount equal to the lesser of:
(a) the Maximum Revolving Credit Loan; and
(b) an amount equal to:
(i) eighty-five percent (85%) or such lesser
percentage as Agent in its reasonable discretion deems
appropriate, of the net amount of Eligible Accounts
outstanding at such date;
PLUS
(ii) the lesser of (A) Forty Million Dollars
($40,000,000) and (B) the Inventory Percentage of the value
of Eligible Inventory at such date consisting of raw
materials and finished goods, calculated on the basis of the
lower of cost or market, as determined by Agent, in its
reasonable discretion, on a first-in, first-out ("FIFO")
basis;
MINUS (subtract from the lesser of clauses (a) and
(b) above)
(c) an amount equal to the sum of (A) the face amount of
all LC Guaranties and Letters of Credit issued by Agent or Bank
and outstanding at such date, plus (B) any amounts which Agent
and/or Lenders may then be obligated to pay for the account of
Borrower under this Agreement.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all
<PAGE>
returns, rebates, discounts (which, if granted outside the ordinary course
of business as in effect on the Closing Date, may, at Agent's option, be
calculated on shortest terms), credits, allowances or excise taxes of any
nature at any time issued, owing, claimed by Account Debtors, granted,
outstanding or payable in connection with such Accounts at such time, all
as determined by Agent in the reasonable exercise of its discretion.
Business Day - (i) when used with respect to the LIBOR Option,
shall mean a day on which dealings may be effected in deposits of
United States dollars in the London interbank foreign currency
deposits market and on which the Lenders are conducting business and
on which banks may conduct business in London, England, Chicago,
Illinois, and New York, New York and (ii) when used with respect to
the other provisions of this Agreement, shall mean any day that is not
a Saturday, a Sunday or a day on which banks are required or permitted
to be closed in the State of Illinois or the State of Wisconsin.
Capital Expenditures - expenditures made or liabilities incurred
for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more
than one year, including the direct or indirect acquisition of such
assets by way of increased product or service charges, offset items or
otherwise and the principal portion of payments with respect to
Capitalized Lease Obligations.
Capitalized Lease Obligation - any monetary obligations under a
lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP and the amount of such obligations
shall be the capitalized amount of such thereof determined in
accordance with GAAP.
Cash and Cash Equivalents - at any time, any assets of Borrower
which are in the form of, or are readily convertible into money,
including without limitation, cash, checks, and other demand
negotiable instruments, deposits with any bank or financial
institution (whether as demand deposits or time deposits, and whether
or not evidenced by certificates of deposit), and readily marketable
securities of any type.
Closing Date - the date on which all of the conditions precedent
in Section 10 are satisfied and the initial Loan is made hereunder.
Code - the Uniform Commercial Code as adopted and in force in the
State of Illinois, as from time to time in effect.
Collateral - all of the Property and interests in Property
described in Section 4 hereof, and all other Property and interest in
Property that now or hereafter secure the payment and performance of
any of the Obligations.
Commitment Termination Date - the earliest of (i) July 13, 1997,
(ii) the date of termination of the commitment to make further
Revolving Credit Loans pursuant to Section 3.3 or 3.4 hereof, and
(iii) the date of termination of the commitment to make further
Revolving Credit Loans pursuant to Section 11.2 hereof.
<PAGE>
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
Default - an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, become an
Event of Default.
Default Rate - as defined in Section 3.1(C) of this Agreement.
Distribution - in respect of any corporation means and includes:
(i) the payment of any dividends or other distributions on capital
stock of the corporation (except distributions in such stock) and (ii)
the redemption or acquisition of Securities unless made
contemporaneously from net proceeds of the sale of Securities, or made
by the exchange of capital stock or warrants or options for the
Securities.
Distribution Centers - those locations of Borrower designated as
Distribution Centers on Exhibit B attached hereto and incorporated
herein, and any other location of Borrower opened after the Closing
Date which functions as a distribution center for Borrower's products.
Dominion Account - a special account of Agent, for its benefit
and the ratable benefit of Lenders, established by Borrower pursuant
to this Agreement at a bank selected by Borrower, but acceptable to
Agent, in its reasonable discretion, and over which Agent, for its
benefit and the ratable benefit of Lenders, shall have sole and
exclusive access and control for withdrawal purposes.
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services
which Agent, in its reasonable credit judgment, deems to be an
Eligible Account. Without limiting the generality of the foregoing,
no Account shall be an Eligible Account if: (i) it arises out of a
sale made by Borrower to a Subsidiary or an Affiliate of Borrower or
to a Person controlled by an Affiliate of Borrower; or (ii) it is
unpaid for more than sixty (60) days after the original due date shown
on the invoice; or (iii) it arises from service charges or similar
charges or is subject to a debit memo(s), to the extent of any such
service charges or similar charge or debit memo(s), or (iv) twenty-
five percent (25%) or more of the Accounts from the Account Debtor are
not deemed Eligible Accounts hereunder; or (v) the total unpaid
Accounts of the Account Debtor exceed twenty percent (20%) of the net
amount of all Accounts, to the extent of such excess; or (vi) any
covenant, representation or warranty contained in this Agreement with
respect to such Account has been breached; or (vii) the Account Debtor
is also Borrower's creditor or supplier; or the Account Debtor has
disputed liability with respect to such Account, or the Account Debtor
has made any claim with respect to any other Account due from such
Account Debtor to Borrower, or the Account otherwise is subject to any
right of set-off by the Account Debtor, all to the extent of such
dispute, claim or asserted right of set-off; or (viii) the Account
Debtor has commenced a voluntary case under the federal bankruptcy
laws, as now constituted or hereafter amended, or made an assignment
for the benefit of creditors, or a decree or order for relief has been
entered by a court having jurisdiction in the premises in respect of
<PAGE>
the Account Debtor in an involuntary case under the federal bankruptcy
laws, as now constituted or hereafter amended, or any other petition
or other application for relief under the federal bankruptcy laws has
been filed against the Account Debtor, or if the Account Debtor has
failed, suspended business, ceased to be Solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed
for it or for all or a significant portion of its assets or affairs;
or (ix) it arises from a sale to an Account Debtor outside the United
States or Canada (other than Quebec), unless the sale is on letter of
credit, guaranty or acceptance terms, in each case acceptable to Agent
in its reasonable discretion; or (x) it arises from a sale to the
Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or return basis;
or (xi) Agent believes, in its reasonable judgment, that collection of
such Account is insecure or that payment thereof is doubtful or will
be delayed by reason of the Account Debtor's financial condition; or
(xii) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless Borrower assigns
its right to payment of such Account to Agent, in form and substance
satisfactory to Agent, so as to comply with the Assignment of Claims
Act of 1940, as amended (31 U.S.C. Sub-Section 203 et seq.); or (xiii)
the Account Debtor is located in the State of New Jersey unless
Borrower has filed a notice of business activities report with the
appropriate officials in such state for the then current year; or
(xiv) the Account is subject to a Lien other than a Permitted Lien; or
(xv) the goods giving rise to such Account have not been shipped or
delivered to or have been rejected by the Account Debtor or the
services giving rise to such Account have not been performed by
Borrower and accepted by the Account Debtor or the Account otherwise
does not represent a final sale; or (xvi) the Account is evidenced by
chattel paper or an instrument of any kind, or has been reduced to
judgment; or (xvii) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or allowances
which are made in the ordinary course of business for returns,
rebates, cash discounts, volume discounts, performance discounts, co-
op advertising discounts, price concession discounts, service charges
or credit discounts or allowances and which discounts or allowances
are reflected in the calculation of the face value of each invoice
related to such Account or in the Borrowing Certificates, to the
extent of such deduction; or (xviii) after the issuance of an invoice
evidencing an Account, Borrower has made an agreement with the Account
Debtor to extend the time of payment thereof; or (xix) the Account
arises from a retail sale of goods to a Person who is purchasing same
primarily for personal, family or household purposes.
Eligible Inventory - Inventory of Borrower (other than packaging
materials and supplies) which Agent, in the exercise of its reasonable
credit judgment, deemed to be Eligible Inventory. Without limiting
the generality of the foregoing, no Inventory shall be Eligible
Inventory unless, in Agent's opinion, it (i) is raw materials or
finished goods that is, in Agent's opinion, readily marketable in its
current form, (ii) is in good, new and saleable condition, (iii) is
not obsolete or unmerchantable, (iv) meets all standards imposed by
any governmental agency or authority, (v) conforms in all respects to
the warranties and representations set forth in Section 6.1 hereof,
(vi) is at all times subject to Agent's duly perfected, first priority
<PAGE>
security interest and no other Lien except a Permitted Lien, (vii) is
not slow-moving, discontinued, or non-stock finished goods Inventory,
(viii) is not Inventory which consists of capitalized warehouse costs,
and (ix) is situated at a location in compliance with Section 4.5
hereof and is not in-transit.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and
consent decrees relating to health, safety and environmental matters,
including, but not limited to, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Toxic Substances Control Act, as amended,
the Clean Water Act, the River and Harbor Act, Water Pollution Control
Act, the Marine Protection Research and Sanctuaries Act, the
Deep-Water Port Act, the Safe Drinking Water Act, the SuperFund
Amendments and Reauthorization Act of 1986, the Federal Insecticide,
Fungicide and Rodenticide Act, the Mineral Lands and Leasing Act, the
Surface Mining Control and Reclamation Act, state and federal
superlien and environmental clean up programs and laws, and U.S.
Department of Transportation regulations.
Equipment - all machinery, apparatus, equipment, fittings,
furniture, fixtures, motor vehicles and other tangible personal
Property (other than Inventory) of every kind and description, whether
now owned or hereafter acquired by Borrower and wherever located, and
all parts, accessories and special tools therefor and all increases
and accessions thereto and substitutions and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974 as
amended and all final rules and regulations from time to time
promulgated thereunder.
Event of Default - as defined in Section 11.1 of this Agreement.
Excess Revolving Credit Loan Availability - as of any date, the
amount, if any, by which the Borrowing Base exceeds the aggregate
outstanding principal balance of the Revolving Credit Loans.
GAAP - generally accepted accounting principles in the United
States of America.
General Intangibles - all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower,
including, without limitation, all choses in action, causes of action,
corporate or other business records, deposit accounts, inventions,
designs, patents, patent applications, trademarks, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refund claims, computer programs, all claims under
guaranties, security interests or other security held by or granted to
Borrower to secure payment of any of the Accounts by an Account
Debtor, all rights to indemnification and all other intangible
property of every kind and nature (other than Accounts).
Hazardous Substance - the meaning given such term in 42 USC
9601(14), 42 USC 9601(33) and 42 USC 6991(8) or any state or local
counterpart Environmental Law.
<PAGE>
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Indebtedness
is to be determined, including, without limitation, Capitalized Lease
Obligations, (ii) all obligations of other Persons which such Person
has guaranteed, (iii) reimbursement obligations in connection with
letters of credit issued for the benefit of such Person and (iv) in
the case of Borrower (without duplication), the Obligations.
Industrial Revenue Bonds - those certain $3,300,000 City of
Oshkosh, Wisconsin Variable Rate Demand Industrial Development Revenue
Bonds (Morgan Products Ltd. Project) Series 1991A and 1991B.
Interest Coverage Ratio - with respect to any fiscal period, the
ratio of Borrower's (a) net income before interest, income tax
expense, any gain or loss (in excess of $40,000 within the immediately
previous twelve month period) from the sale of assets outside the
ordinary course of business and any charge or expense to net income
(in an amount not to exceed $13,000,000) in respect to the
restructuring of Morgan Manufacturing for or taken within such period
to (b) Borrower's interest expense for such period.
Inventory - all of Borrower's inventory, whether now owned or
hereafter acquired by the Borrower, including, but not limited to, all
goods intended for sale or lease by Borrower, or for display or
demonstration; all work in process; all raw materials and other
materials and supplies of every nature and description used or which
might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or
otherwise used or consumed in Borrower's business; and all documents
evidencing and General Intangibles relating to any of the foregoing,
whether now owned or hereafter acquired by Borrower.
Inventory Percentage - (i) sixty-five percent (65%) or such
lesser percentage as Agent in its reasonable discretion deems
appropriate for the period from the Closing Date through and including
March 31, 1996, (ii) sixty-four percent (64%) or such lesser
percentage as Agent in its reasonable discretion deems appropriate for
the period from and including April 1, 1996 to and including May 31,
1996, (iii) sixty-three percent (63%) or such lesser percentage as
Agent in its reasonable discretion deems appropriate for the period
from and including June 1, 1996 through and including July 31, 1996,
(iv) sixty-two percent (62%) or such lesser percentage as Agent in its
reasonable discretion deems appropriate for the period from and
including August 1, 1996 to and including September 30, 1996, (v)
sixty-one (61%) or such lesser percentage as Agent in its reasonable
discretion deems appropriate for the period from and including October
1, 1996 through and including November 30, 1996 and (vi) sixty percent
(60%) or such lesser percentage as Agent in its reasonable discretion
deems appropriate for all times after November 30, 1996.
LC Guaranty - a guaranty executed by any Lender or by Agent, as
agent for Lenders, at Borrower's request in favor of a person who has
issued a letter of credit for the account of the Borrower.
<PAGE>
Legal Requirement - any requirement imposed upon any Lender by
any law of the United States of America or the United Kingdom or by
any regulation, order, interpretation, ruling or official directive
(whether or not having the force of law) of the Board, the Bank of
England or any other board, central bank or governmental or
administrative agency, institution or authority of the United States
of America, the United Kingdom or any political subdivision of either
thereof.
Letter of Credit - a standby letter of credit at any time issued
by Agent or Bank for the account of Borrower.
LIBOR Option - the option granted pursuant to Section 3.1(B) to
have the interest on all or any portion of the principal amount of the
Revolving Credit Loan based on a LIBOR Rate.
LIBOR Period - any period, selected as provided below in Section
3.1(B) of 1 month, 2 months or 3 months, commencing on any Business
Day, subject to the provisions of Section 3.1(B); provided, however,
that no LIBOR Period shall extend beyond the last day of the Term,
unless Borrower and all Lenders have agreed to an extension of the
Term, beyond the expiration of the LIBOR Period in question. If any
LIBOR Period so selected shall end on a date that is not a Business
Day, such LIBOR Period shall instead end on the next preceding or
succeeding Business Day as determined by the Agent in accordance with
the then current banking practice in London; provided, that Borrower
shall not be required to pay double interest, even though the
preceding LIBOR Period ends and the new LIBOR Period begins on the
same day. Each determination by the Agent of LIBOR Period shall, in
the absence of manifest error, be conclusive, and at Borrower's
request Agent shall demonstrate the basis of such determination.
LIBOR Rate - with respect to any LIBOR Revolving Credit Portion
for the related LIBOR Period, an interest rate per annum (rounded
upwards, if necessary, to the next higher 1/8 of 1%) equal to the
product of (a) the Base LIBOR Rate (as hereinafter defined) and (b)
Statutory Reserves. For purposes of this definition, the term "Base
LIBOR Rate" shall mean the rate (rounded to the nearest 1/8 of 1% or,
if there is no nearest 1/8 of 1%, the next higher 1/8 of 1%) at which
deposits of U.S. dollars approximately equal in principal amount to
the LIBOR Revolving Credit Portion specified in the applicable LIBOR
Request are offered to Bank by prime banks, in the London interbank
foreign currency deposits market at approximately 11:00 a.m., London
time, two (2) Business Days prior to the commencement of such LIBOR
Period, for delivery on the first day of such LIBOR Period. Each
determination of Agent of any LIBOR Rate shall in the absence of
manifest error, be conclusive, and at Borrower's request, Agent shall
demonstrate the basis for such determination.
LIBOR Request - a notice in writing (or by telephonic
communication confirmed by telex, telecopy or other facsimile
transmission on the same day as the telephone request) from Borrower
to Agent requesting that interest on a LIBOR Revolving Credit Loan be
based on the LIBOR Rate, specifying: (i) the first day of the LIBOR
Period, (ii) the length of the LIBOR Period consistent with the
<PAGE>
definition of that term, and (iii) a dollar amount of the LIBOR
Revolving Credit Portion consistent with the definition of such terms.
LIBOR Revolver Added Rate - Two and three quarters percent (2
3/4%).
LIBOR Revolving Credit Portion - that portion of the Revolving
Credit Loan specified in a LIBOR Request (including any Revolving
Credit Loan which is being borrowed by Borrower concurrently with such
LIBOR Request) which is not less than $2,500,000 and an integral
multiple of $100,000, which does not exceed the outstanding balance of
Revolving Credit Loans (including any Revolving Credit Loan which is
being borrowed by Borrower concurrently with such LIBOR Request) not
already subject to a LIBOR Option and, which, as of the date of the
LIBOR Request specifying such LIBOR Revolving Credit Portion, has met
the conditions for basing interest on the LIBOR Rate in Section 3.1(B)
hereof and the LIBOR Period of which was commenced and not
terminated. Each LIBOR Revolving Credit Portion shall be allocated
among Lenders in accordance with their respective Revolving Credit
Percentage.
Lien - any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute or contract, and
including, but not limited to, the security interest, security title
or lien arising from a security agreement, mortgage, deed of trust,
deed to secure debt, encumbrance, pledge, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes.
The term "Lien", when used in respect to real Property, shall include
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property. For the purpose of this
Agreement, Borrower shall be deemed to be the owner of any Property
which it has acquired or holds subject to a conditional sale agreement
or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security purposes.
Loan Account - the loan account established on the books of Agent
pursuant to Section 2.5 hereof.
Loan Documents - this Agreement, the Other Agreements and the
Security Documents.
Loans - all loans and advances made by Lenders pursuant to this
Agreement, including, without limitation, all Revolving Credit Loans
and each payment made pursuant to an LC Guaranty and each payment made
by Agent or Bank pursuant to a Letter of Credit.
Maximum Revolving Credit Loan - Sixty-Five Million Dollars
($65,000,000) provided, however, that on at least thirty (30) days'
prior written notice to Agent, Borrower may reduce the amount of
Maximum Revolving Credit Loan by an amount not less than One Million
Dollars ($1,000,000) and an integral multiple of One Hundred Thousand
Dollars ($100,000). Once the amount of the Maximum Revolving Credit
Loan has been reduced by Borrower, it shall not be thereafter
increased.
<PAGE>
Money Borrowed - as applied to Indebtedness, means (i)
Indebtedness for borrowed money; (ii) Indebtedness, whether or not in
any such case the same was for borrowed money, (A) which is
represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (C) upon which
interest charges are customarily paid (other than accounts payable) or
that was issued or assumed as full or partial payment for Property;
(iii) Indebtedness that constitutes a Capitalized Lease Obligation;
(iv) reimbursement obligations with respect to letters of credit and
(v) Indebtedness under any guaranty of obligations that would
constitute Indebtedness for Money Borrowed under clauses (i) through
(iv) hereof.
Mortgage[s] - the [mortgages] [deeds of trust] to be executed by
Borrower on or about the Closing Date in favor of Lender and by which
Borrower shall grant and convey to Lender, as security for the
Obligations, a Lien upon the real Property of Borrower located as (i)
Springfield, Oregon and (ii) Lexington, North Carolina.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
Net Worth - of any date of determination thereof, (i) the
aggregate amount of all assets of Borrower and its Subsidiaries as may
be properly classified as such, less (ii) the aggregate amount of all
liabilities of Borrower and its Subsidiaries, all as determined in
accordance with GAAP.
New Mortgages - as defined in Section 4.2 hereof.
Note(s) - the Revolving Credit Notes.
Obligations - all Loans and all other advances, letter of credit
reimbursement obligations, and/or any debts, liabilities, obligations,
covenants and duties owing, arising, due or payable from Borrower to
Agent and/or any Lender of any kind or nature, present or future,
whether or not evidenced by any note, guaranty or other instrument,
arising under this Agreement or any of the other Loan Documents or
under any interest rate protection agreements or products with any
Lender (including those acquired by assignment pursuant to the terms
hereof), whether absolute or contingent, primary or secondary, due or
to become due, now existing or hereafter arising and however
acquired. The term includes, without limitation, all interest,
charges, expenses, fees, attorney's fees and any other sums
chargeable to Borrower under any of the Loan Documents.
OSHA - the Occupational Safety and Health Act and all rules and
regulations from time to time promulgated thereunder.
Other Agreements - any and all agreements, instruments and
documents (other than this Agreement and the Security Documents),
heretofore, now or hereafter executed by Borrower and delivered to
Agent and/or Lenders in respect to the transactions contemplated by
this Agreement, including, without limitation, the Revolving Credit
Notes.
<PAGE>
Overadvance - as defined in Section 2.1(C).
Participating Lender - each Person who shall be granted the right
by any Lender to participate in any of the Loans described in this
Agreement and who shall have entered into a participation agreement in
form and substance satisfactory to such Lender.
Patent Assignment - the Patent and License Security Agreement to
be executed by Borrower on the Closing Date in favor of Agent, for its
benefit and the ratable benefit of Lenders, and by which Borrower
shall assign to Agent, for its benefit and the ratable benefit of
Lenders, and grant to Agent, for its benefit and the ratable benefit
of Lenders, a security interest in, as security for the Obligations
all of Borrower's right, title and interest in and to all of its
patents.
Permitted Investments - the investments described in clauses (i)
through (viii) of the definition of Restricted Investment.
Permitted Liens - any Lien of a kind specified in subparagraphs
(i) through (x) of Section 9.2(H) of this Agreement.
Permitted Purchase Money Indebtedness - Purchase Money
Indebtedness of Borrower incurred after the date hereof which is
secured by a Purchase Money Lien and which, when aggregated with the
principal amount of all other such Purchase Money Indebtedness and
Capitalized Lease Obligations of Borrower at the time outstanding,
does not exceed $8,000,000. For the purposes of this definition, the
principal amount of any Purchase Money Indebtedness consisting of
capitalized leases shall be computed as a Capitalized Lease
Obligation.
Person - an individual, partnership, corporation, joint stock
company, land trust, business trust, or unincorporated organization,
or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower to which Title IV of ERISA applies.
Prime Revolver Added Rate - One and one quarter percent (1 1/4%).
Prime Revolving Credit Portion - that portion of the Revolving
Credit Loan not subject to a LIBOR Option.
Prohibited Transaction - any transaction set forth in Section 406
of ERISA or Section 4975 of the Internal Revenue Code of 1986.
Projections - Borrower's forecasted Consolidated (a) balance
sheets, (b) profit and loss statements, (c) cash flow statements, and
(d) capitalization statements, all prepared on a consistent basis with
Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
<PAGE>
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the
purchase price of any fixed assets, (ii) any Indebtedness (other than
the Obligations) incurred at the time of or within ten (10) days prior
to or after the acquisition of any fixed assets for the purpose of
financing all or any part of the purchase price thereof, and (iii) any
renewals, extensions or refinancings thereof, but not any increases in
the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secure
Purchase Money Indebtedness, but only if such Lien shall at all times
be confined solely to the fixed assets the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness
secured by such Lien plus any down payment or initial payment.
Release - as defined in 42 USC 9601 (22).
Rentals - as defined in Section 9.2(W) of this Agreement.
Reportable Event - any of the events set forth in Section 4043(b)
of ERISA, as to which the requirement of PBGC notice has not been
waived by regulations.
Required Lenders - as of any date, the holders of Revolving
Credit Notes evidencing at least sixty-six and sixty-seven hundreds
percent (66.67%) of the aggregate principal amount of the Revolving
Credit Notes.
Restricted Investment - any investment in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness
or other obligation or Security, or by loan, advance or capital
contribution, or otherwise, or in any Property except the following:
(i) investments in one or more Subsidiaries of Borrower; (ii) Property
to be used in the ordinary course of business; (iii) current assets
arising from the sale of goods and services in the ordinary course of
business of Borrower and its Subsidiaries; (iv) investments in direct
obligations of the United States of America, or any agency thereof or
obligations guaranteed by the United States of America, provided that
such obligations mature within one year from the date of acquisition
thereof; (v) investments in certificates of deposit maturing within
one year from the date of acquisition issued by Bank or a bank or
trust company organized under the laws of the United States or any
state thereof having capital surplus and undivided profits aggregating
at least $100,000,000 (a "Qualified Bank"); (vi) investments in
commercial paper given the highest or second highest rating by a
national credit rating agency and maturing not more than two hundred
seventy (270) days from the date of creation thereof; and (vii) money
market instruments with maturities not greater than 90 days at a
Qualified Bank; and (viii) life insurance policies on the lives of
certain highly compensated employees of Borrower procured in
connection with the deferred compensation obligations owed by Borrower
to such employees. The life insurance policies referred to in claus
(viii) shall be placed with reputable, financially sound insurance
companies.
<PAGE>
Revolving Credit Loan - a Loan made by Lenders as provided in
Section 2.1 of this Agreement.
Revolving Credit Notes - the Revolving Credit Notes to be
executed by Borrower on or prior to the Closing Date in favor of
Lenders to evidence the Revolving Credit Loans, which shall be in the
form of Exhibit A attached hereto.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - each Mortgage, each New Mortgage, the Patent
Assignment, the Trademark Assignment and all other instruments and
agreements now or at any time hereafter securing the whole or any part
of the Obligations.
Solvent - as to any Person, such Person (i) owns Property whose
fair saleable value is greater than the amount required to pay all of
such Person's Indebtedness (including contingent debts), (ii) is able
to pay all of its Indebtedness as such Indebtedness matures in the
normal course and (iii) has capital sufficient to carry on its
business and transactions and all business and transactions in which
it is about to engage.
Statutory Reserves - a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency or
supplemental reserves), expressed as a decimal, established by the
Board and any other banking authority to which Bank or any Lender is
subject for Eurocurrency Liabilities (as defined in Regulation D of
the Board or any successor thereto). Such reserve percentages shall
include, without limitation, those imposed under such Regulation D.
LIBOR Revolving Credit Portions shall be deemed to constitute
Eurocurrency Liabilities and as such shall be deemed to be subject to
such reserve requirements without benefit of or credit for proration,
exceptions or offsets which may be available from time to time to Bank
or any Lender under such Regulation D. Statutory Reserves shall be
adjusted automatically on and as of the effective date of any change
in any reserve percentage.
Subordinated Debt - Indebtedness (including the Subordinated
Notes) of Borrower that is subordinated to the Obligations, pursuant
to terms satisfactory to the Required Lenders.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the
Voting Stock at the time of determination.
Tangible Net Worth - as of any date, Net Worth minus the book
value of those assets classified, in a manner consistent with
Borrower's balance sheet dated April 30, 1994, as "Other Current
Assets" and "Other Assets."
Tax - in relation to any LIBOR Revolving Credit Portion and the
applicable LIBOR Rate, any tax, levy, impost, duty, deduction,
<PAGE>
withholding or charges of whatever nature required by any Legal
Requirement (i) to be paid by any Lender and/or (ii) to be withheld or
deducted from any payment otherwise required hereby to be made by
Borrower to any Lender; provided, that the term "Tax" shall not
include any taxes imposed upon the net income of any Lender.
Term - as defined in Section 3.3 of this Agreement.
Trademark Assignment - the Trademark and License Security
Agreement to be executed by Borrower on or about the Closing Date in
favor of Agent, for its benefit and the ratable benefit of Lenders,
and by which Borrower shall assign to Agent, for its benefit and the
ratable benefit of Lenders, and grant to Agent, for its benefit and
the ratable benefit of Lenders, a security interest in, as security
for the Obligations all of Borrower's right, title and interest in and
to all of its trademarks.
Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors
(or Persons performing similar functions).
1.2. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all financial data
pursuant to the Agreement shall be prepared in accordance with such
principles.
1.3. Other Terms. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for by the Code
to the extent the same are used or defined therein.
1.4. Certain Matters of Construction. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to this Agreement
as a whole and not to any particular section, paragraph or subdivision.
Any pronoun used shall be deemed to cover all genders. The section titles,
table of contents and list of exhibits appear as a matter of convenience
only and shall not affect the interpretation of this Agreement. All
references to statutes and related regulations shall include any amendments
of same and any successor statutes and regulations. All references to any
instruments or agreements, including, without limitation, references to any
of the Loan Documents, shall include any and all modifications thereto and
any and all extensions or renewals thereof. Wherever from the context it
appears appropriate, each term stated in either the singular or plural
shall include the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter.
SECTION 2. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lenders severally agree to make a total credit facility of up to
Sixty-Five Million Dollars ($65,000,000) available upon Borrower's request
therefor, as follows:
<PAGE>
2.1. Revolving Credit Loans.
(A) The aggregate amount of the Revolving Credit Loans to be
made by each Lender (such Lender's "Revolving Credit Loan Commitment"),
pursuant to the terms hereof, shall be the amount set below such Lender's
name on the signature pages hereof. The aggregate principal amount of the
Revolving Credit Loan Commitments is Sixty-Five Million Dollars
($65,000,000). The percentage equal to the quotient of (x) each Lender's
Revolving Credit Loan Commitment, divided by (y) the aggregate of all
Revolving Credit Loan Commitments, is that Lender's "Revolving Credit
Percentage". Subject to all of the terms and conditions of this Agreement,
each Lender agrees, for so long as no Default or Event of Default exists,
to make Revolving Credit Loans to Borrower from time to time, as requested
by Borrower in accordance with the terms of Section 2.2 hereof, up to a
maximum principal amount at any time outstanding equal to the product of
(A) the Borrowing Base at such time, multiplied by (B) such Lender's
Revolving Credit Percentage. It is expressly understood and agreed that
Agent and Lenders may use the Borrowing Base as a maximum ceiling on
Revolving Credit Loans outstanding to Borrower at any time. If the unpaid
balance of the Revolving Credit Loans should exceed the ceiling so
determined or any other limitation set forth in this Agreement, such
Revolving Credit Loans shall nevertheless constitute Obligations that are
secured by the Collateral and entitled to all the benefits thereof. In no
event shall Lenders be required to make a Loan at any time that there
exists a Default or an Event of Default. Notwithstanding the foregoing
provisions of this Section 2.1(A), Agent shall have the right to establish
reserves in such amounts, and with respect to such matters, as Agent shall,
in the reasonable exercise of its discretion, deem necessary or
appropriate, against the amount of Revolving Credit Loans which Borrower
may otherwise request under this Section 2.1(A), including, without
limitation, with respect to (i) other sums chargeable against Borrower's
Loan Account as Revolving Credit Loans under any section of this Agreement;
and (ii) matters, events, conditions or contingencies as to which Agent, in
its reasonable discretion, determines reserves should be established from
time to time hereunder, upon such notice to Borrower as is commercially
practical. Except as otherwise provided in Section 3.1(B), each Revolving
Credit Loan shall be made on notice, given not later than 12:00 noon
(Milwaukee time) on the Business Day of the proposed Revolving Credit Loan,
by Borrower to Agent, which shall give to each Lender prompt written notice
thereof by telecopy, telex or cable. Each such notice (a "Notice of
Revolving Credit Loan") shall be in writing or by telephone to Collateral
Analyst of Agent at (414) 774-7570, confirmed immediately in writing,
specifying therein the requested date and amount of such Revolving Credit
Loan. Each Lender shall, not later than 2:00 p.m. (Milwaukee time) on each
requested date, wire to a bank designated by Agent the amount of that
Lender's Revolving Credit Percentage of the requested Revolving Credit
Loan. Agent shall, before 2:30 P.M. (Milwaukee time) on the date of the
proposed Revolving Credit Loan, upon fulfillment of the applicable
conditions set forth in Section 8.2 wire to a bank designated by Borrower
and reasonably acceptable to Agent, the amount of such Revolving Credit
Loan to the extent received from the Lenders. The failure of any Lender to
make the Revolving Credit Loan to be made by it shall not relieve any other
Lender of its obligation hereunder to make its Revolving Credit Loan.
Neither Agent nor any other Lender shall be responsible for the failure of
any other Lender to make the Revolving Credit Loan to be made by such other
Lender. The foregoing notwithstanding, unless otherwise notified by any
<PAGE>
Lender, Agent in its sole discretion, may from its own funds, make a
Revolving Credit Loan on behalf of any Lender hereto. In such event, the
Lender on behalf of whom Agent made the Revolving Credit Loan shall
reimburse Agent for the amount of Revolving Credit Loan so made on its
behalf, on a weekly (or more frequent basis as determined by Agent, in its
sole discretion) basis and the entire amount of interest attributable to
such Revolving Credit Loan for the period from the date on which said
Revolving Credit Loan was made by Agent on such Lender's behalf until Agent
is reimbursed by such Lender, shall be paid to Agent. Further, prior to
the occurrence and continuation of a Default or Event of Default, with
respect to Revolving Credit Loans to be made by any Lender of One Hundred
Thousand Dollars ($100,000,) or less, Agent shall from its own funds make
the Revolving Credit Loan on behalf of such Lender. The Lender on behalf
of whom Agent made the Revolving Credit Loans shall reimburse Agent for the
amount of such Revolving Credit Loans on a weekly (or more or less frequent
basis as determined by Agent, in its sole discretion) basis. The entire
amount of interest attributable to such Revolving Credit Loans made by
Agent on behalf of any such Lender for the period from the date on which
said Revolving Credit Loan was made by Agent on such Lender's behalf until
Agent is reimbursed by such Lender, shall be paid to Agent.
If at any time one or more Lenders refuse or fail to make a requested
Revolving Credit Loan when all conditions to a Revolving Credit Loan have
been satisfied or waived, then Agent may, at its option, but shall have no
obligation whatsoever to, purchase all, but not less than all, of the
Revolving Credit Notes held by the Lender(s) who so fail or refuse, and to
assume such Lender's commitments to make Revolving Credit Loans and each
such Lender shall be obligated to sell and transfer such Revolving Credit
Notes to Agent for a price in cash equal to the principal balance
outstanding plus all accrued but unpaid interest thereon plus all accrued
fees due any such Lender under the terms hereof, and the foregoing
provisions of this Section will be applicable to Agent with respect to the
Revolving Credit Notes so purchased by it. Any such purchase, however,
shall not relieve any such Lender from any breach of contract claims
available to Agent and/or Borrower against such Lender as a result of its
failure to make any such Revolving Credit Loan.
(B) The Revolving Credit Loans shall be evidenced by promissory
notes to be executed and delivered by Borrower at the time of the initial
Revolving Credit Loan, the form of which is attached hereto and made a part
hereof as Exhibit A (the "Revolving Credit Notes"). Each Revolving Credit
Note shall be payable to the order of Lender and shall represent the
obligation of Borrower to pay the amount of such Lender's Revolving Credit
Loan Commitment or, if less, the aggregate unpaid principal amount of all
Revolving Credit Loans made by such Lender to Borrower with interest
thereon as prescribed in Section 3.1.
(C) Insofar as Borrower may request and Lenders may be willing
in their sole and absolute discretion to make Revolving Credit Loans to
Borrower at a time when the unpaid balance of Revolving Credit Loans
exceeds, or would exceed with the making of any such Revolving Credit Loan,
the Borrowing Base (any such Loan or Loans being herein referred to
individually as an "Overadvance" and collectively as "Overadvances"), Agent
shall enter such Overadvances as debits in the Loan Account. All
Overadvances shall be repaid on demand, shall be secured by the Collateral
and shall bear interest as provided in this Agreement for Revolving Credit
<PAGE>
Loans generally. Any Overadvance to be made by Lenders pursuant to the
terms hereof shall be made by Lenders ratably in accordance with their
Revolving Credit Percentages. Overadvances in an aggregate amount of Seven
Hundred Fifty Thousand Dollars ($750,000) or less may, prior to occurrence
and continuation of a Default or an Event of Default, be made in the sole
and absolute discretion of Agent. Overadvances in an aggregate amount of
more than Seven Hundred Fifty Thousand Dollars ($750,000) but less than One
Million Five Hundred Thousand Dollars ($1,500,000) may, prior to the
occurrence and continuation of a Default or an Event of Default, be made in
the sole and absolute discretion of Required Lenders. Overadvances in an
aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000)
or more and Overadvances to be made after the occurrence, and during the
continuation, of a Default or an Event of Default shall require the consent
of all Lenders.
(D) The Revolving Credit Loans shall be used for the
satisfaction of existing Indebtedness for Money Borrowed of Borrower, for
Borrower's general operating capital needs and for other general corporate
purposes to the extent not inconsistent with the provisions of this
Agreement.
2.2. Manner of Borrowing Revolving Credit Loans. Borrowings under the
credit facility established pursuant to Section 2.1 hereof shall be as
follows:
(A) A request for a Revolving Credit Loan shall be made, or
shall be deemed to be made, in the following manner: (i) Borrower may give
Agent notice of its intention to borrow in accordance with the provisions
contained in Section 2.1 hereof; (ii) the becoming due of any amount
required to be paid under this Agreement as interest shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the due date in
the amount required to pay such interest; and (iii) the becoming due of any
other Obligations shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount then so due;
(B) Borrower hereby irrevocably authorizes Agent to disburse the
proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this Section 2.2 as follows: (i) the proceeds of
each Revolving Credit Loan requested under Section 2.2(A)(i) shall be
disbursed by Agent in lawful money of the United States of America in
immediately available funds, in the case of the initial Revolving Credit
Loan, in accordance with the terms of the written disbursement letter from
Borrower, and in the case of each subsequent borrowing, by wire transfer to
such bank account as may be agreed upon by Borrower and Agent from time to
time; and (ii) the proceeds of each Revolving Credit Loan requested under
Section 2.2(A)(ii) or (iii) shall be disbursed by Agent by way of direct
payment of the relevant Obligation; and
(C) Subject to the terms and conditions of this Agreement,
including, without limitation, the absence of a Default or Event of Default
and sufficient Excess Revolving Credit Loan Availability, Lenders shall
make the Revolving Credit Loan requested upon the occurrence of any of the
events referred to in clauses 2.2(A) (ii) and (iii) above.
2.3. Letters of Credit; LC Guaranties. (A) Subject to all of the
terms and conditions of this Agreement, if requested to do so by Borrower,
<PAGE>
Agent shall, on behalf of Lenders, issue its, or cause to be issued Bank's
Letters of Credit for the account of Borrower or shall execute LC
Guaranties by which Lenders shall guaranty the payment or performance by
Borrower of its reimbursement obligation with respect to Letters of Credit
issued for Borrower's account by Bank or Agent; provided that the aggregate
face amount of all Letters of Credit and LC Guaranties outstanding at any
time shall not exceed Nine Million Dollars ($9,000,000) and no Letter of
Credit may have an expiration date that is after the Commitment Termination
Date, unless Borrower provides Agent with cash collateral for said Letter
of Credit or LC Guaranty, in a manner and amount acceptable to Agent. Any
amounts paid by Agent or any Lender under any LC Guaranty or in connection
with any Letter of Credit (i) shall become part of the Obligations (ii)
shall be paid from the proceeds of a Revolving Credit Loan requested
pursuant to Section 2.1(A) above, to the extent Lenders are required to
make a Revolving Credit Loans pursuant to the terms hereof, and (iii)
otherwise, shall be payable on demand. In no event shall Agent, Bank or
Lenders be required to issue or cause to be issued Letters of Credit or LC
Guaranties at any time there exists a Default or an Event of Default.
(B) Immediately upon the issuance of each Letter of Credit by
Agent or Bank or LC Guaranty by the Agent or a Lender hereunder, each
Lender shall be deemed to have automatically, irrevocably and
unconditionally purchased from the Agent or issuing Lender, as the case may
be, an undivided interest and participation in and to such Letter of Credit
or LC Guaranty, the obligations of Borrower in respect thereof and the
liability of the Agent or issuing Lender, as the case may be, thereunder in
an amount equal to the amount available for drawing under such Letter of
Credit or, in the case of a LC Guaranty, the amount guaranteed thereunder,
multiplied by such Lender's Revolving Credit Percentage. The Agent or the
issuing Lender, as the case may be, will notify each Lender promptly upon
presentation to it of a draw under a Letter of Credit or a demand for
payment under a LC Guaranty. On or before the Business Day on which the
Agent or the issuing Lender, as the case may be, makes payment under a
Letter of Credit or LC Guaranty each Lender shall make payment to the Agent
or issuing Lender, as the case may be, in immediately available funds of an
amount equal to such Lender's pro rata share of the amount of such
payment. The obligation of each Lender to reimburse the Agent or issuing
Lender, as the case may be, under this Section 2.3(B) shall be
unconditional, continuing, irrevocable and absolute. In the event that any
Lender fails to make payment to the Agent or issuing Lender, as the case
may be, of any amount due under this Section 2.3(B), the Agent or the
issuing Lender, as the case may be, shall be entitled to receive, retain
and apply against such obligation the principal and interest otherwise
payable to such Lender hereunder until the Agent or issuing Lender, as the
case may be, receives such payment from such Lender or such obligation is
otherwise fully satisfied; provided, however, that nothing contained in
this sentence shall relieve such Lender of its obligation to reimburse the
Agent or issuing Lender, as the case may be, for such amount in accordance
with this Section 2.3(B).
(C) Borrower agrees to unconditionally, irrevocably and
absolutely pay immediately to the Agent, for the account of the Lenders,
the amount drawn under a Letter of Credit or paid pursuant to a LC
Guaranty. If Borrower at any time fails to make such payment, Borrower
shall be deemed to have elected to borrow from the Lenders on such date
Revolving Credit Loans equal in aggregate amount to the amount paid by
<PAGE>
Agent or the issuing Lender, as the case may be, under such Letter of
Credit or LC Guaranty.
2.4. All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by
Agent's security interest in and Lien upon all of the Collateral for
Agent's benefit and the ratable benefit of all Lenders, and by all other
security interests, Liens, claims and encumbrances heretofore, now or at
any time or times hereafter granted by Borrower to Agent for its benefit
and the ratable benefit of Lenders.
2.5. Loan Account. Agent shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account as credits all payments
made by Borrower on any Obligations and all proceeds of Collateral which
are finally paid to Agent, for its own or Lenders' benefit, and may record
therein, in accordance with customary accounting practice, other debits and
credits, including all charges and expenses properly chargeable to Borrower
and any other Obligation.
SECTION 3. INTEREST, FEES, TERM AND REPAYMENT
3.1. Interest, Fees and Charges.
(A) Interest. (i) Interest shall accrue on the Prime Revolving
Credit Portion outstanding at the end of each day (computed on the basis of
a calendar year of 360 days) at a fluctuating rate per annum equal to the
sum of Prime Revolver Added Rate plus the Base Rate. After the date
hereof, the foregoing rate of interest shall be increased or decreased, as
the case may be, by an amount equal to any increase or decrease in the Base
Rate, with such adjustments to be effective as of the opening of business
on the day that any such change in the Base Rate becomes effective. The
Base Rate in effect on the date hereof shall be the Base Rate effective on
the opening of business on the date hereof, but if this Agreement is
executed on a day that is not a Business Day, the Base Rate in effect on
the date hereof shall be the Base Rate effective as of the opening of
business on the last Business Day immediately preceding the date hereof.
(ii) Interest shall accrue on each LIBOR Revolving Credit
Portion outstanding at the end of each day (computed on the basis of a
calendar year of 360 days) at rates equal to the sum of the LIBOR Rate
applicable to each such LIBOR Revolving Credit Portion plus the LIBOR
Revolver Added Rate.
(B) LIBOR Option.
(i) Conditions for Basing Interest on the LIBOR Rate. Upon
the condition that:
(a) Agent shall have received a LIBOR Request from
Borrower at least three (3) Business Days prior to the first day
of the LIBOR Period requested;
(b) There shall have occurred no change in applicable
law which would make it unlawful for Lenders to obtain deposits
of U.S. dollars in the London interbank foreign currency deposits
market;
<PAGE>
(c) As of the date of the LIBOR Request and the first
day of the LIBOR Period, there shall exist no Default or Event of
Default which has not been waived by Required Lenders;
(d) Agent shall not have determined in good faith that
Lenders are unable to determine the LIBOR Rate in respect of the
requested LIBOR Period or that Lenders are unable to obtain
deposits of U.S. dollars in the London interbank foreign currency
deposits market in the applicable amounts and for the requested
LIBOR Period; and
(e) As of the first date of the LIBOR Period, there
are no more than five outstanding LIBOR Revolving Credit Portions
including the LIBOR Revolving Portion in question;
then interest on the LIBOR Revolving Credit Portion requested during the
LIBOR Period requested will be based on the applicable LIBOR Rate. Agent
shall give each Lender prompt written notice by telecopier, telex or cable
of any LIBOR Request made by Borrower in accordance with the terms hereof.
(ii) Indemnification for Funding and Other Losses. Each
LIBOR Request shall be irrevocable and binding on Borrower. Borrower shall
indemnify Agent and Lenders as a result of any failure on the part of
Borrower to fulfill, on or before the date specified in any LIBOR Request,
the applicable conditions set forth in this Agreement or as a result of the
prepayment of the applicable LIBOR Revolving Credit Portion prior to the
last day of the applicable LIBOR Period, including, without limitation, any
loss (including loss of anticipated profits) or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired by
Agent or Lenders to fund or maintain the requested LIBOR Revolving Credit
Portion, when, as a result of such failure on the part of Borrower or
prepayment by Borrower, interest on such LIBOR Revolving Credit Portion is
not based on the applicable LIBOR Rate for the requested LIBOR Period.
(iii) Change in Applicable Laws, Regulations, etc. If
any Legal Requirement shall make it unlawful for any Lender to fund through
the purchase of U.S. dollar deposits any LIBOR Revolving Credit Portion, or
otherwise to give effect to its obligations as contemplated under this
Section 3.1(B), or shall impose on any Lender any costs based on or
measured by the excess above a specified level of the amount of a category
of deposits or other liabilities of such Lender which includes deposits by
reference to which the LIBOR Rate is determined as provided herein or a
category of extensions of credit or other assets of such Lender which
includes any LIBOR Revolving Credit Portion, or shall impose on any Lender
any restrictions on the amount of such a category of liabilities or assets
which such Lender may hold, (i) Agent may by notice thereof to Borrower
terminate the LIBOR Option, with respect to the Revolving Credit Loans made
or to be made by such Lender (ii) any LIBOR Revolving Credit Portion of
such Lender's Revolving Credit Loans subject thereto shall immediately bear
interest thereafter at the rate provided for in Section 3.1(A) payable on
the dates provided for in Sections 3.5(B)(1), and 3.5(B)(2). Borrower
shall indemnify Agent and Lenders against any loss, penalty or expense
incurred by Lenders by reason of the liquidation or redeployment of
deposits or other funds acquired by Lender to fund or maintain such LIBOR
Revolving Credit Portion. If conditions subsequently change so that the
foregoing conditions no longer exist, such Lender shall promptly notify
<PAGE>
Borrower and Agent and upon receipt of such notice the LIBOR Option shall
be reinstated.
(iv) Taxes. It is the understanding of Borrower and Agent
and Lenders that Lenders shall receive payments of amounts of principal of
and interest on the Revolving Credit Note, with respect to the LIBOR
Revolving Credit Portions from time to time subject to a LIBOR Option free
and clear of, and without deduction for, any Taxes. If (i) any Lender
shall be subject to any such Tax in respect of any such LIBOR Revolving
Credit Portion or any part thereof or, (ii) Borrower shall be required to
withhold or deduct any such Tax from any such amount, the LIBOR Rate
applicable to such LIBOR Revolving Credit Portion shall be adjusted by
Agent on behalf of any such Lender to reflect all additional costs incurred
by such Lender in connection with the payments by any such Lender or the
withholding by Borrower of such Tax and Borrower shall provide Agent and
such Lender with a statement detailing the amount of any such Tax actually
paid by Borrower. Determination by Agent of the amount of such costs
shall, in the absence of manifest error, be conclusive, and at Borrower's
request, Agent shall demonstrate the basis of such determination. If after
any such adjustment, any part of any Tax paid by any such Lender is
subsequently recovered by any such Lender, such Lender shall reimburse
Borrower to the extent of the amount so recovered. A certificate of an
officer of such Lender setting forth the amount of such recovery and the
basis therefor shall, in the absence of manifest error, be conclusive.
(C) Default Rate of Interest. Upon and after the occurrence of
an Event of Default, and during the continuation thereof, the principal
amount of the Obligations shall bear interest, calculated daily (computed
on the actual days elapsed over a year of 360 days), at a fluctuating rate
per annum equal to three and one-quarter percent (3 1/4%) above the Base
Rate (the "Default Rate").
(D) Unused Line Fee. If during any month prior to the
Commitment Termination Date (or portion of the month for the month ending
July 31, 1994 and of the month in which the Commitment Termination Date
occurs), the average daily balance of the Revolving Credit Loans plus the
average daily balance of outstanding Letters of Credit and L/C Guaranties
is less than the Maximum Revolving Credit Loan in effect for such
particular month, Borrower shall pay to Agent on behalf of Lenders, in
addition to any interest, late charge or liquidated damages due under this
Agreement, an amount ("Unused Revolving Credit Loan Charge") equal to the
quotient of (i) an amount equal to (A) the positive difference between (x)
the Maximum Revolving Credit Loan in effect for such particular month, and
(y) the average daily balance of Revolving Credit Loans during such month
plus the average daily balance of outstanding Letters of Credit and L/C
Guaranties during such month (or portion of the month ending on July 31,
1994 and the month in which the Commitment Termination Date occurs)
multiplied by (B) a rate equal to one-half of one percent (1/2%),
multiplied by (C) the number of days in such month (or portion of the month
for the month ending July 31, 1994 and of the month in which the Commitment
Termination Date occurs) divided by (ii) 360. The amount of any Unused
Revolving Credit Loan Charge shall be payable to Agent, on behalf of
Lenders, monthly in arrears, commencing August 1, 1994, with a final
payment date on the last day of the Term hereof.
<PAGE>
(E) Closing Fee. Borrower shall pay to Agent and Lenders an
aggregate closing fee of Three Hundred Twenty-Five Thousand Dollars
($325,000) which fee shall be deemed fully earned and nonrefundable at the
closing of the transactions contemplated hereby and shall be paid concur-
rently with the initial Loan hereunder. Such fee shall compensate Agent
and Lenders for the costs associated with the origination, structuring,
processing, approving and closing of the transactions contemplated by this
Agreement, including, but not limited to, administrative, out-of-pocket,
general overhead and lost opportunity costs, but not including any expenses
for which Borrower has agreed to reimburse Agent pursuant to any other
provisions of this Agreement or any of the other Loan Documents, such as,
by way of example, reasonable legal fees and expenses. The closing fee
shall be apportioned among Agent and the other Lenders in accordance with
their mutual agreement. Agent acknowledges that it received from Borrower
(i) a deposit (the "Deposit") in the amount of Fifty Thousand Dollars
($50,000). The Deposit shall be applied by Agent against the costs and
expenses incurred by it in connection with the transactions contemplated
hereby. After Agent has so applied the Deposit, the amount of said Deposit
in excess of such costs and expenses shall be returned to Borrower.
(F) Agency Fee. Borrower shall pay to Agent, an annual agency
fee of Eighty-Seven Thousand Five Hundred Dollars ($87,500) which shall be
paid in installments of Eighty-Seven Thousand Five Hundred Dollars
($87,500) each on the Closing Date and the first two anniversary dates
thereof.
(G) Capital Adequacy Charge. In the event that any Lender shall
have determined that the adoption (effected after the date hereof) of any
law, rule or regulation regarding capital adequacy, or any change therein
or in the interpretation or application thereof or compliance by any Lender
with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority,
does or shall have the effect of reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder to a level
below that which such Lender could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's policies with
respect to capital adequacy) by an amount deemed by such Lender, in its
reasonable discretion, to be material, then from time to time, after
submission by such Lender to Borrower of a written demand therefor, which
demand shall be made within sixty (60) days of such reduction, the Borrower
shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such reduction. A certificate of such Lender
claiming entitlement to payment as set forth above shall be conclusive in
the absence of manifest error. Such certificate shall set forth the nature
of the occurrence giving rise to such payment, the additional amount or
amounts to be paid to such Lender, and the method by which such amounts
were determined. In determining such amount, such Lender may use any
reasonable averaging and attribution methods. Each Lender and Agent agrees
to allocate any such cost increase among its similarly situated customers
in good faith and on an equitable basis.
(H) Audit and Appraisal Fees. Borrower shall reimburse Agent
and Lenders for any reasonable out-of-pocket expenses incurred by Agent or
any Lender in connection audits or appraisals conducted in accordance with
the terms hereof.
<PAGE>
(I) Maximum Interest. In no contingency or event whatsoever
shall the aggregate of all amounts deemed interest hereunder or under the
Revolving Credit Notes and charged or collected pursuant to the terms of
this Agreement or pursuant to the Revolving Credit Notes exceed the highest
rate permissible under any law which a court of competent jurisdiction
shall, in a final determination deem applicable hereto. In the event that
such a court determines that Lenders have charged or received interest
hereunder in excess of the highest applicable rate, the rate in effect
hereunder shall automatically be reduced to the maximum rate permitted by
applicable law and Lenders shall promptly refund to Borrower any interest
received by Lenders in excess of the maximum lawful rate or, if so
requested by Borrower, shall apply such excess to the principal balance of
the Obligations. It is the intent hereof that Borrower not pay or contract
to pay, and that Lenders not receive or contract to receive, directly or
indirectly in any manner whatsoever, interest in excess of that which may
be paid by Borrower under applicable law.
3.2. Letter of Credit and LC Guaranty Fees. As additional
consideration for issuing or causing to be issued, Letters of Credit for
Borrower's account or for issuing its LC Guaranties at Borrower's request
pursuant to Section 2.3 hereof, Borrower agrees to pay fees in respect to
each Letter of Credit or LC Guaranty so issued. Said fees shall be payable
on the date which such Letter of Credit or LC Guaranty is issued and shall
be in an amount equal to (i) one percent (1%) of the amount of the Letter
of Credit or LC Guaranty multiplied by a fraction, the numerator of which
is the number of days in the term of the applicable Letter of Credit or LC
Guaranty and the denominator of which is 360, and (ii) one percent (1%) of
the amount of the Letter of Credit multiplied by a fraction, the numerator
of which is the number of days in the form of the applicable Letter of
Credit and the denominator of which is 360. The fees payable pursuant to
clause (i) of the preceding sentence shall be paid to Agent for the benefit
of Lenders. The fees payable pursuant to clause (ii) of the preceding
sentence shall be paid to Agent for the benefit of the issuer of said
Letter of Credit, which shall be either Agent or Bank. In the event a
Letter of Credit or LC Guaranty is renewed or extended a fee calculated in
the manner provided above shall be payable for any such renewal or extended
period. Further, Borrower shall pay and/or reimburse Agent and/or Lenders
all fees and charges paid by Agent or Lenders on account of any Letter of
Credit or L/C Guaranty.
3.3. Term of Agreement. Subject to Lenders' right to cease making
Loans to Borrower at any time upon or after the occurrence and during the
continuance of any Default or Event of Default and subject to Borrower's
right to terminate this Agreement pursuant to Section 3.4, this Agreement
shall be in effect for a period of three (3) years from the date hereof,
through and including July 13, 1997 (the "Term").
3.4. Termination.
(A) Upon at least thirty (30) days' prior written notice to Agent
and Lenders, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower
has paid all of the Obligations in immediately available funds and all
Letters of Credit issued by Agent or Bank and all LC Guaranties have
expired or Borrower has provided substitute or replacement Letters of
Credit, or cash collateral as provided in Section 3.4(C) below, in amounts
<PAGE>
satisfactory to Agent and, if applicable, the issuing Lender, acting
reasonably.
(B) All of the Obligations shall be due and payable upon any
termination of this Agreement, including, without limitation, any earned
but unpaid fees. Except as otherwise expressly provided for in this
Agreement or the other Loan Documents, no termination or cancellation
(regardless of cause or procedure) of this Agreement, or any of the other
Loan Documents shall in any way affect or impair the rights, powers or
privileges of Agent or Lenders or the obligations, duties, or liabilities
of Borrower or Agent or Lenders in any way relating to (i) any transaction
or event occurring prior to such termination or cancellation or (ii) any of
the undertakings, agreements, covenants, warranties or representations of
Borrower contained in this Agreement, or any of the other Loan Documents.
All such undertakings, agreements, covenants, warranties and
representations of Borrower shall survive such termination or cancellation
and Agent, for its benefit and the ratable benefit of Lenders, shall retain
all of its rights and remedies under this Agreement and the other Loan
Documents notwithstanding such termination or cancellation, and Agent, for
its benefit and the ratable benefit of Lenders, shall retain its Liens in
the Collateral until Borrower has paid the Obligations to Agent and
Lenders, in full, in immediately available funds.
(C) With respect to the face amount of all LC Guaranties and
Letters of Credit issued by Agent, Bank or any Lender outstanding on any
proposed date of termination, Borrower may provide replacement or
substitute Letters of Credit and, if Borrower does not, Agent or any Lender
may require Borrower to deposit with Agent funds equal to such face amount,
in order for any such termination to become effective. Any such deposit or
advance shall be held by Agent as a reserve to fund future payments on such
LC Guaranties and future drawings against such Letters of Credit. At such
time as all LC Guaranties have been paid or terminated and all Letters of
Credit have been drawn upon or expired, any amounts remaining in such
reserve shall be applied against any outstanding Obligations, or to the
extent all Obligations have been indefeasibly paid in full, returned to
Borrower. Agent shall not have any obligation to invest such funds
deposited with it in an interest bearing account and interest and earnings
thereon, if any shall be property of Agent.
(D) It is understood that Borrower may elect to terminate this
Agreement in its entirety only; no section or lending facility may be
terminated singly. The foregoing, however, does not affect Borrower's
right to reduce the Maximum Revolving Credit Loan as provided in the
definition of such term.
3.5. Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lenders specifically containing payment
provisions which are in conflict with this Section 3.5 (in which event the
conflicting provisions of said notes or other instruments shall govern and
control), that portion of the Obligations consisting of:
(A) Principal, payable on account of Revolving Credit Loans made
by Lenders to Borrower pursuant to Section 2.1 of this Agreement, shall be
payable by Borrower to Agent, on behalf of Lenders, immediately upon the
earliest of (i) the receipt by Agent or any Lenders or Borrower of any
proceeds of any of the Collateral consisting of Accounts or Inventory, to
<PAGE>
the extent of said proceeds, which proceeds shall be deposited in the
Dominion Account and distributed as set forth in Section 3.6 and other
provisions of this Agreement, (ii) the occurrence of an Event of Default in
consequence of which Required Lenders elect to accelerate the maturity and
payment of the Obligations, and (iii) termination of this Agreement
pursuant to Section 3.4 hereof; provided, however, that if the principal
balance of Revolving Credit Loans outstanding at any time shall exceed the
Borrowing Base at such time, Borrower shall, on demand, repay the Revolving
Credit Loans in an amount sufficient to reduce the aggregate unpaid
principal amount of such Revolving Credit Loans by an amount equal to such
excess;
(B) Interest accrued on the Prime Revolving Credit Portion and
the LIBOR Revolving Credit Portion shall be due on the earliest of (i) the
first day of each month (for the immediately preceding month), computed
through the last calendar day of the preceding month, (ii) the occurrence
of an Event of Default in the consequence of which Required Lenders elect
to accelerate the maturity and payment of the Obligations or (iii)
termination of this Agreement pursuant to Section 3.4 hereof; provided,
however, the Borrower hereby irrevocably authorizes Lenders, in Agent's
sole discretion, to advance to Borrower and to charge to Borrower's Loan
Account hereunder as a Revolving Credit Loan, a sum sufficient each month
to pay all interest accrued on the Prime Revolving Credit Loan Portion and
on the LIBOR Revolving Credit Portion during the immediately preceding
month.
(C) Costs, fees and expenses payable pursuant to this Agreement
shall be payable by Borrower, on demand, to Agent or to any other Person
designated by Agent in writing; and
(D) The balance of the Obligations requiring the payment of
money, if any, shall be payable by Borrower to Lenders and/or Agent as and
when provided in this Agreement, the Other Agreements or the Security
Documents, or if no such specific payment provision is so provided, then on
demand.
3.6. Application of Payments and Collections. If there has not
occurred an Event of Default which is continuing, all payments and
collections shall be applied against the Obligations, which are due and
payable at the time of payment and/or collections, (i) as provided herein
or (ii) if no specific provision therefor is contained herein, then as
directed by Borrower. After the occurrence and during the continuation of
an Event of Default, (i) Borrower irrevocably waives the right to direct
the application of any and all payments and collections at any time or
times thereafter received by Agent or any Lender from or on behalf of
Borrower, and (ii) Borrower does hereby irrevocably agree that Agent or any
Lender shall have the continuing exclusive right to apply and reapply any
and all such payments and collections received at any time or times
thereafter by Agent or any Lender against the Obligations, in such manner
as Agent or Required Lenders may deem advisable, notwithstanding any entry
by Agent or any Lender upon any of its books and records. If as the result
of collections of Accounts as authorized by Section 5.2 hereof a credit
balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower, but shall be available to Borrower at any
time or times for so long as no Default or Event of Default exists. After
the occurrence and during the continuation of an Event of Default, all
<PAGE>
payments and collections shall be applied against the Obligations as
follows:
first, to Agent and/or Lenders in an amount sufficient to
pay in full the reasonable expenses of Agent in connection with
the enforcement of this Agreement, the Security Documents or the
other Loan Documents or the preservation of the Collateral,
including all expenses, liabilities and advances incurred or made
by Agent and/or Lenders in connection therewith, including,
without limitation, reasonable attorney's fees;
second, to Lenders in an amount equal to the then unpaid
principal of and accrued interest and prepayment premiums, if
any, on the Obligations and to Agent to fund any deposits
required to be paid to Agent in accordance with Section 11.2(F);
third, to Lenders in an amount equal to any other
Obligations which are then unpaid; and
finally, upon payment in full of all of the Obligations, to
pay to Borrower, or its representatives or as a court of
competent jurisdiction may direct, any surplus then remaining
from such payments and collections.
Upon receipt from Borrower of good funds, Agent will, subject to the
foregoing, promptly thereafter cause to be distributed like funds relating
to the payment of principal, interest or, if applicable, fees ratably to
Lenders based upon each Lender's respective Revolving Loan Percentage.
3.7. Sharing of Payments, Etc. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Revolving Credit Loan made by it
in excess of its ratable share of payments on account of the Revolving
Credit Loan made by all Lenders, such Lender shall forthwith purchase from
each other Lender such participation in the Revolving Credit Loan as shall
be necessary to cause such purchasing Lender to share the excess payment
ratably with each other Lender; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender
shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender)
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section
3.7 may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation
as fully as if such Lender were the direct creditor of Borrower in the
amount of such participation.
3.8. Statements of Account. Agent will account to Borrower monthly
with a statement of Loans, charges and payments made pursuant to this
Agreement, a copy of which shall be sent to each Lender and such account
rendered by Agent shall be deemed final, binding and conclusive upon
Borrower unless Agent is notified by Borrower in writing to the contrary
<PAGE>
within thirty (30) days of the date each account is mailed to Borrower.
Such notice shall only be deemed an objection to those items specifically
objected to therein.
SECTION 4. COLLATERAL: GENERAL TERMS
4.1. Security Interest in Collateral. To secure the prompt payment
and performance to Agent and Lenders of the Obligations, Borrower hereby
grants to Agent, for its benefit and the ratable benefit of Lenders, a
continuing security interest in and Lien upon the following Property of
Borrower, whether now owned or existing or hereafter created, acquired or
arising and wheresoever located:
(A) Accounts;
(B) Inventory;
(C) Equipment;
(D) General Intangibles;
(E) All monies and other Property of any kind, now or at any
time or times hereafter, in the possession or under the control of Agent or
any Lender or a bailee of Agent or any Lender;
(F) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), (C), (D) and (E)
above, including, without limitation, proceeds of and unearned premiums
with respect to insurance policies insuring any of the Collateral;
(G) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records) of Borrower pertaining to any of (A), (B),
(C), (D), (E) or (F) above.
Notwithstanding the foregoing, Collateral shall not include (1) any
licenses or permits the encumbrance of which would violate any law, statute
or regulation; (2) any contract rights (including, without limitation, any
contracts or leases), the encumbrance of which would violate the terms of
the agreements establishing such rights; provided that Borrower shall use
reasonable good faith efforts to obtain any necessary consent to enable any
such contract right to be included within the Collateral, or (3) Equipment
located at Borrower's facility in Oshkosh, Wisconsin, or at a Distribution
Center.
4.2. Lien on Realty. The due and punctual payment and performance of
the Obligations shall also be secured by the Lien created by the
Mortgages. If Borrower shall acquire at any time or times hereafter any
interest in other real Property (other than leasehold interests in sales
offices and Distribution Centers), Borrower agrees promptly to execute and
deliver to Agent, for its benefit and the ratable benefit of Lenders, as
additional security and Collateral for the Obligations, deeds of trust,
security deeds, mortgages or other collateral assignments satisfactory in
form and substance to Agent, and its counsel (herein collectively referred
to as "New Mortgages") covering such real Property. The Mortgage and each
New Mortgage shall be duly recorded in each office where such recording is
<PAGE>
required to constitute a valid Lien on the real Property covered thereby.
In respect to each New Mortgage, Borrower shall deliver to Agent, at
Borrower's expense, mortgagee title insurance policies issued by a title
insurance company satisfactory to Agent, for its benefit and the ratable
benefit of Lenders, insuring Agent, for its benefit and the ratable benefit
of Lenders, as mortgagee; such policies shall be in form and substance
satisfactory to Agent and shall insure a valid first Lien in favor of
Agent, for its benefit and the ratable benefit of Lenders, on the Property
covered thereby, subject only to those exceptions acceptable to Agent and
its counsel. Said policies shall be in form and substance satisfactory to
Agent. Borrower shall deliver to Agent such other documents, including,
without limitation, as-built survey prints of the real Property, as Agent
and its counsel may reasonably request relating to the real Property
subject to any such New Mortgage.
4.3. Representations, Warranties and Covenants -- Collateral. To
induce Agent and Lenders to enter into this Agreement, Borrower represents,
warrants, and covenants to Agent and Lenders:
(A) The Collateral is now, and so long as any of the Obligations
are outstanding, prior to any sale, disposition or condemnation permitted
by the terms hereof, will continue to be, owned solely by Borrower. No
other Person has or will have any right, title, interest, claim, or Lien
thereon, other than Permitted Liens.
(B) Except as specifically consented to in writing by Required
Lenders and except for the Permitted Liens, the Liens granted to Agent, for
its benefit and the ratable benefit of Lenders, shall be first and prior on
the Collateral and as to the Accounts and proceeds, including insurance
proceeds, resulting from the sale, disposition, or loss thereof. No
further action need be taken in respect to Collateral located in the United
States or Canada to perfect the Liens granted in the Collateral to Agent,
for its benefit and the ratable benefit of Lenders, other than the filing
of financing statements or continuation statements under the Code or other
applicable law, continued possession by Agent or Lenders of that portion of
the Collateral constituting instruments or documents, the processing of
Lien notations on motor vehicle title certificates and the recording of any
Mortgage or New Mortgage.
(C) All goods evidenced by the Collateral constituting chattel
paper, documents, or instruments, the possession of which has been given to
Agent, are owned by Borrower and the same are free and clear of any prior
Lien, except for Permitted Liens. Borrower further warrants and guarantees
the value, quantities, sound condition, grades, and qualities of the goods
and services described therein. Borrower shall pay and discharge when due
all taxes, levies, and other charges upon said Collateral and upon the
goods evidenced by any documents constituting Collateral and shall defend
Agent and Lenders against and save it harmless from all claims of any
Person with respect to the Collateral. This indemnity shall include
reasonable attorneys' fees and legal expenses.
4.4. Lien Perfection. Borrower agrees to execute the UCC-1 financing
statements provided for by the Code or otherwise together with any and all
other instruments, assignments or documents and shall take such other
action as may be required to perfect or to continue the perfection of
Agent's security interest in the Collateral, including, without limitation,
<PAGE>
the execution at Agent's request of all documents deemed necessary by Agent
to cause Agent's Lien to be noted on any motor vehicle title certificates
for motor vehicles forming a part of the Collateral. Unless prohibited by
applicable law, Borrower hereby authorizes Agent to execute and file any
such financing statement on Borrower's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. Without limiting the generality of the foregoing,
Borrower agrees to name Agent, for its benefit and the ratable benefit of
Lenders, as the assignee or secured party on all UCC-1 financing statements
filed on or after the Closing Date in respect to any Lien of Borrower on
products and/or inventory sold to its dealers.
4.5. Location of Collateral. All Collateral, other than Inventory in
transit and motor vehicles, or Collateral in the possession of Agent or
Lenders, will at all times be kept by Borrower at one or more of the
business locations set forth in Exhibit B and shall not, without the prior
written approval of Agent, be moved therefrom except, prior to an Event of
Default and the acceleration of the maturity of the Obligations in
consequence thereof, for (A) sales of Inventory in the ordinary course of
business; (B) the storage of Inventory at locations within the continental
United States other than those shown on Exhibit B if (i) Borrower gives
Agent written notice of the new storage location at least thirty (30) days
prior to storing Inventory at such location, (ii) Agent's security interest
in such Inventory is and continues to be a duly perfected, first priority
Lien thereon, subject only to Permitted Liens (iii) neither Borrower's nor
Agent's right of entry upon the premises where such Inventory is stored, or
its right to remove the Inventory therefrom, is restricted, other than by
applicable law, in any material respect, (iv) the owner of such premises
agrees with Agent not to assert any landlord's, bailee's or other Lien in
respect of the Inventory for unpaid rent or storage charges and (v) all
negotiable documents and receipts in respect of any Collateral maintained
at such premises are promptly delivered to Agent; (C) transfers of
Equipment from a location set forth on Exhibit B to another location set
forth on Exhibit B and (D) removals in connection with dispositions of
Equipment that are permitted by Section 9.2(O) hereof.
4.6. Insurance of Collateral. Borrower agrees to maintain and pay for
insurance upon all Inventory and Equipment wherever located, in storage or
in transit in vehicles, including goods evidenced by documents, covering
casualty, hazard, public liability and such other risks and in such amounts
and with such insurance companies as shall be reasonably satisfactory to
Agent to insure Agent's interest in the Collateral. In respect to casualty
and hazard insurance policies, Borrower shall deliver the originals or
certified copies of such policies to Agent with satisfactory lender's loss
payable endorsements naming Agent loss payee, for the ratable benefit of
Lenders. In respect to public liability and other insurance policies,
Borrower shall deliver a certificate of insurance in respect to each such
policy. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than thirty (30) days prior written
notice to Agent in the event of cancellation of the policy for any reason
whatsoever and a clause that the interest of Agent shall not be impaired or
invalidated by any act or neglect of Borrower or owner of the Property nor
by the occupation of the premises for purposes more hazardous than are
permitted by said policy. If Borrower fails to provide and pay for such
insurance, Agent may, at Borrower's expense, procure the same, but shall
<PAGE>
not be required to do so. Borrower agrees to deliver to Agent, true copies
of all reports (which relate to any matter which could reasonably by
expected to involve $25,000 or more) made in any reporting forms to
casualty and hazard insurance companies. Borrower will maintain, with
financially sound and reputable insurers, insurance with respect to its
Properties and business against such casualties and contingencies of such
type (including public liability, product liability, larceny, embezzlement,
or other criminal misappropriation insurance) and in such amounts as is
customary in the business or as otherwise reasonably required by Agent.
The foregoing, notwithstanding, the provisions of this Section 4.6 shall
not apply to the life insurance policies the Borrower maintains on the
lives of certain of its highly compensated employees in connection with
deferred compensation obligations owed to such employees.
4.7. Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling,
maintaining and shipping the Collateral, any and all excise, property,
sales, and use taxes imposed by any state, federal, or local authority on
any of the Collateral or in respect of the sale thereof shall be borne and
paid by Borrower. If Borrower fails to promptly pay any portion thereof
when due, Agent may, at its option, but shall not be required to, pay the
same and charge the Loan Account therefor. Borrower agrees to reimburse
Agent promptly therefor with interest accruing thereon daily at the Default
Rate provided in this Agreement. All sums so paid or incurred by Agent for
any of the foregoing and all costs and expenses (including reasonable
attorneys' fees, legal expenses, and court costs) which Agent may incur in
enforcing or protecting its Lien on or rights and interest in the
Collateral or any of its rights or remedies under this or any other
agreement between the parties hereto or in respect of any of the
transactions to be had hereunder until paid by Borrower to Agent with
interest at the Default Rate, shall be considered Obligations owing by
Borrower to Agent hereunder. Such Obligations shall be secured by all
Collateral and by any and all other collateral, security, assets, reserves,
or funds of Borrower in or coming into the hands or inuring to the benefit
of Agent or any Lender. Agent shall not be liable or responsible in any
way for the safekeeping of any of the Collateral or for any loss or damage
thereto (except for reasonable care in the custody thereof while any
Collateral is in Agent's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
4.8. Release. Upon full and final payment of all of the Obligations,
the Agent shall execute all releases and termination statements necessary
to evidence the termination of its Liens in the assets of the Borrower.
SECTION 5. PROVISIONS RELATING TO ACCOUNTS
5.1. Representations, Warranties and Covenants. With respect to all
Accounts, Borrower represents and warrants to Agent and Lenders that Agent
may rely, in determining which Accounts are Eligible Accounts, on all
statements and representations made by Borrower with respect to any Account
or Accounts, and, unless otherwise indicated in writing to Agent, that with
respect to each Account:
<PAGE>
(A) It is genuine and in all respects what it purports to be,
and it is not evidenced by a judgment;
(B) It arises out of a completed, bona fide sale and delivery of
goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part of
the contract between Borrower and the Account Debtor (it being understood
that contingent liabilities to repurchase equipment pursuant to floor plan
and retail consumer financing arrangements do not affect the nature of
completed, bona fide sales to dealers);
(C) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy of
which, if requested by Agent, has been furnished or is available to Agent;
(D) To the best of Borrower's knowledge, such Account, and
Agent's security interest therein, is not, and will not be in the future,
subject to any offset, Lien, deduction, defense, dispute, counterclaim or
any other adverse condition except for disputes resulting in returned goods
where the amount in controversy is deemed by Agent to be immaterial, and
each such Account is absolutely owing to Borrower and is not contingent in
any respect or for any reason;
(E) Borrower has made no agreement with any Account Debtor
thereunder for any deduction therefrom, except for discounts and allowances
which are granted by Borrower in the ordinary course of its business and
which are reflected in the calculation of the net amount of each respective
invoice related thereto or in the Borrowing Certificate;
(F) To the best of Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or
enforceability thereof or tend to reduce the amount payable thereunder from
the face amount of the invoice and statements evidencing such Accounts;
(G) To the best of Borrower's knowledge, the Account Debtor
thereunder (i) had the capacity to contract at the time any contract or
other document giving rise to the Account was executed and (ii) such
Account Debtor is Solvent; and
(H) Borrower has no knowledge of any fact or circumstance which
would impair the validity or collectability of the Account, and to the best
of Borrower's knowledge there are no proceedings or actions which are
threatened or pending against any Account Debtor thereunder which might
result in any material adverse change in such Account Debtor's financial
condition or the collectability of such Account.
5.2. Borrowing Base Certificates, Assignments, Records and Schedules
of Accounts. Borrower shall execute and deliver to Agent a Borrowing Base
Certificate, in the form attached hereto as Exhibit C, monthly, on the 16th
day of each fiscal month of Borrower, or if requested by Agent, more
frequently or, at Borrower's option, semi-monthly. Said Borrowing Base
Certificate shall include, among other things, formal written assignments
of all Accounts including all Accounts that have been created since the
date of the last Borrowing Base Certificate. Additionally, if separately
requested by Agent, there shall be attached to the Borrowing Base copies of
<PAGE>
invoices or invoice registers related the newly created Accounts. Borrower
shall keep accurate and complete records of its Accounts and all payments
and collections thereon and, if requested by Agent, shall submit to Agent a
sales and collections report for the preceding day, in form satisfactory to
Agent. On or before the fifteenth day of each month from and after the
date hereof, Borrower shall deliver to Agent, in form acceptable to Agent,
a detailed aged trial balance of all Accounts existing as of the last day
of the preceding month, specifying the names, face value and due dates for
the Account Debtor obligated on an Account so listed ("Schedule of
Accounts"). Upon Agent's request therefor, Borrower shall deliver to Agent
such other matters and information relating to the status of the existing
Accounts as Agent shall reasonably request.
5.3. Administration of Accounts.
(A) Upon the granting of any discounts, allowances or credits by
Borrower that are not shown on the face of the invoice for the Account
involved (other than what would be considered in the normal course of its
business), Borrower shall promptly report such discounts, allowances or
credits, as the case may be, to Agent and in no event later than the time
of its submission to Agent of the next Schedule of Accounts as provided in
Section 5.2. After the occurrence of an Event of Default and during the
continuation thereof, Agent shall have the right to settle or adjust all
disputes and claims directly with the Account Debtor and to compromise the
amount or extend the time for payment of the Accounts upon such terms and
conditions as Agent may deem advisable, and to charge the deficiencies,
costs and expenses thereof, including reasonable attorney's fees, to
Borrower.
(B) If an Account includes a charge for any tax payable to any
governmental taxing authority, Agent is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
Borrower and to cause Borrower's Loan Account hereunder to be charged
therefor. Borrower shall notify Agent if any Account includes any tax due
to any governmental taxing authority and, in the absence of such notice,
Agent shall have the right to apply the full proceeds of the Account to the
Obligations and shall not be liable for any taxes to any governmental
taxing authority that may be due by Borrower by reason of the sale and
delivery creating the Account.
(C) Whether or not a Default or an Event of Default has
occurred, any of Agent's officers, employees or agents shall have the
right, at any time or times hereafter, in the name of Agent, any designee
of Agent or Borrower, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone, telegraph or otherwise.
Borrower shall cooperate fully with Agent in an effort to facilitate and
promptly conclude any such verification process.
5.4. Collection of Accounts.
(A) To expedite collection, Borrower shall endeavor in the first
instance to make collection of its Accounts for Agent. All remittances
received by Borrower on account of Accounts shall be held to the extent of
the Obligations as Agent's property (for its benefit and the ratable
benefit of Lenders) by Borrower as trustee of an express trust for Agent's
benefit and Borrower shall immediately deposit same in the Dominion
<PAGE>
Account. Agent retains the right at all times to notify Account Debtors
that Accounts have been assigned to Agent and to collect Accounts directly
in its own name and to charge the collection costs and expenses, including
reasonable attorneys' fees to Borrower. Agent has no duty to protect,
insure, collect or realize upon the Accounts or preserve rights in them.
For the purpose of computing interest hereunder, all items of payment
received by Agent shall be deemed applied by Agent on account of the
Obligations in accordance with Section 3.6 and the other provisions of this
Agreement (subject to final payment of such items) one (1) Business Day
after receipt by Agent of such items in immediately available funds.
(B) Borrower shall deposit all proceeds of the Collateral or
cause the same to be deposited in kind in a Dominion Account pursuant to a
lockbox arrangement with such banks as may be selected by Borrower and be
acceptable to Agent. Borrower shall issue to any such banks, an
irrevocable letter of instruction directing such banks to deposit all
payments or other remittances received in the lockbox to the Dominion
Account for application by the Agent on account of the Obligations in
accordance with Section 3.6 and the other provisions of this Agreement.
All funds deposited in the Dominion Account shall immediately become the
property of Agent (for its benefit and the ratable benefit of Lenders), to
the extent of the Obligations, and Borrower shall obtain the agreement by
such banks to waive any offset rights against the funds so deposited.
Agent assumes no responsibility for such lockbox arrangement, including,
without limitation, any claim of accord and satisfaction or release with
respect to deposits accepted by any bank thereunder other than to account
for any amounts withdrawn therefrom.
5.5. Notice Regarding Disputed Accounts. In the event of any dispute
between Borrower and any Account Debtor involving disputed amounts of One
Hundred Thousand Dollars ($100,000) or more, Borrower shall provide Agent
with written notice thereof at the time of submission of the next Schedule
of Accounts, explaining in detail the reason for the dispute, all claims
related thereto and the amount in controversy.
SECTION 6. PROVISIONS RELATING TO INVENTORY
6.1. Representations, Warranties and Covenants. With respect to
Inventory, Borrower represents and warrants to Agent and Lenders that Agent
may rely, in determining which items of Inventory constitute Eligible
Inventory, on all statements and representations made by Borrower with
respect to any Inventory and that, unless otherwise indicated in writing:
(A) All Inventory is presently and will continue to be located
at Borrower's places of business listed on Exhibit B and will not be
removed therefrom except as authorized by Section 4.5 of this Agreement;
(B) No Inventory is now, nor shall any Inventory at any time or
times hereafter be, stored with a bailee, warehouseman or similar party
without Agent's prior written consent and, if Agent gives such consent,
Borrower will concurrently therewith cause any such bailee, warehouseman,
or similar party to issue and deliver to Agent, in form and substance
acceptable to Agent, warehouse receipts therefor in Agent's name;
(C) Except as provided below, no Inventory is or will be
consigned to any Person without Agent's prior written consent, and, if such
<PAGE>
consent is given, Borrower shall, prior to the delivery of any Inventory on
consignment, (i) provide Agent with all consignment agreements to be used
in connection with such consignment, all of which shall be acceptable to
Agent, (ii) prepare, execute and file appropriate financing statements with
respect to any consigned Inventory, showing Agent as assignee, for its
benefit and the ratable benefit of Lenders, (iii) conduct a search of all
filings made against the consignee in all jurisdictions in which any
consigned Inventory is to be located and deliver to Agent copies of the
results of all such searches and (iv) notify, in writing, all the creditors
of the consignee which are or may be holders of Liens in the Inventory to
be consigned that Borrower expects to deliver certain Inventory to the
consignee, all of which Inventory shall be described in such notice by item
or type. Lender consents to Borrower consigning Inventory to certain of
its customers provided that the amount of such consigned Inventory shall
not exceed, at any time, Five Hundred Thousand Dollars ($500,000); and
(D) No Inventory is or will be produced in violation of the Fair
Labor Standards Act.
6.2. Inventory Reports. Borrower agrees to furnish Agent with
Inventory reports at such times as Agent may request, but at least once
each month, on the 21st day of each fiscal month of Borrower. Such reports
shall be in form and detail satisfactory to Agent. Borrower shall conduct
a physical inventory no less frequently than annually and shall provide to
Agent a report based on each such physical inventory promptly thereafter,
together with such supporting information as Agent shall in its reasonable
discretion request.
6.3. Returns of Inventory. If at any time or times hereafter any
Account Debtor returns any Inventory to Borrower, which returned Inventory
had a sales price of One Hundred Thousand Dollars ($100,000) or more,
Borrower shall notify Agent of the same immediately, specifying the reason
for such return and the location and condition of the returned Inventory.
After the occurrence of an Event of Default and during the continuation
thereof, Borrower shall hold all returned Inventory in trust for Agent, for
its benefit and the ratable benefit of Lenders, shall segregate all
returned Inventory from all other Property owned by Borrower or in its
possession and shall conspicuously label such Inventory as the Property of
Agent, for its benefit and the ratable benefit of Lenders.
SECTION 7. PROVISIONS RELATING TO EQUIPMENT
7.1. Representations, Warranties and Covenants. With respect to the
Equipment, Borrower represents, warrants and covenants to and with Agent
and Lenders that:
(A) The Equipment is in good operating condition and repair, and
all necessary replacements of and repairs thereto shall be made so that the
value and operating efficiency of the Equipment shall be maintained and
preserved, reasonable wear and tear and insured theft and casualty losses
excepted; and
(B) After the Closing Date, Borrower will not permit any of the
Equipment (other than Equipment located at a Distribution Center or at
Borrower's facility in Oshkosh, Wisconsin) to become affixed to any real
Property leased to Borrower so that an interest arises therein under the
<PAGE>
real estate laws of the applicable jurisdiction unless the landlord of such
real Property has executed a landlord waiver or leasehold mortgage in favor
of Agent, for its benefit and the ratable benefit of Lenders, and Borrower
will not permit any of the Equipment to become an accession to any personal
Property other than Equipment subject to first priority Liens in favor of
Agent, for its benefit and the ratable benefit of Lenders, or subject to
Permitted Liens.
7.2. Evidence of Ownership of Equipment. Promptly on request therefor
by Agent, Borrower shall deliver to Agent any and all evidence of
ownership, if any, of any of the Equipment which constitutes Collateral
(including, without limitation, certificates of title and applications for
title).
7.3. Records and Schedules of Equipment. Borrower shall maintain
accurate records itemizing and describing the kind, type, quality, quantity
and value of its Equipment and all dispositions thereof and, if requested
by Agent or Required Lenders, shall furnish Agent with a current schedule
containing the foregoing information on at least an annual basis and more
often if requested by Agent or Required Lenders.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. General Representations and Warranties. To induce Agent and
Lenders to enter into this Agreement and to make advances hereunder,
Borrower warrants and represents to Agent and Lenders that:
(A) Organization and Qualification. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Borrower has duly qualified and is authorized to do
business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Exhibit D attached hereto and made a part hereof and
in all other states and jurisdictions where the character of its Properties
or the nature of its activities make such qualification necessary, and in
which the failure of Borrower to be so qualified would have a material
adverse effect on the financial condition, business or Properties of
Borrower.
(B) Corporate Names. During the preceding five (5) years,
Borrower has not been known as or used any corporate, fictitious or trade
names except as disclosed on Exhibit E attached hereto and made a part
hereof. Except as set forth on Exhibit E, Borrower has not, during the
preceding five (5) years, been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any
Person.
(C) Corporate Power and Authority. Borrower has the legal right
and power and is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and each of the other Loan Documents to
which it is a party. The execution, delivery and performance of this
Agreement and each of the other Loan Documents have been duly authorized by
all necessary corporate action and do not and will not (i) require any
consent or approval of the shareholders of Borrower; (ii) contravene
Borrower's certificate or articles of incorporation or by-laws; (iii)
violate, or cause Borrower to be in default under, any provision or any
law, rule, regulation, order, writ, judgment, injunction, decree,
<PAGE>
determination or award in effect having applicability to Borrower; (iv)
result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which
Borrower is a party or by which it or its Properties may be bound or
affected; or (v) result in, or require, the creation or imposition of a
Lien (other than Permitted Liens) upon or with respect to any of the
Properties now owned or hereafter acquired by Borrower.
(D) Legally Enforceable Agreement. This Agreement is, and each
of the other Loan Documents when delivered under this Agreement will be,
legal, valid and binding obligations of Borrower enforceable against it in
accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally or by principles of
equity pertaining to the availability of equitable remedies.
(E) Use of Proceeds. Borrower's uses of the proceeds of any
Loans made pursuant to this Agreement are, and will continue to be, legal
and proper corporate uses, duly authorized by its Board of Directors where
necessary, and such uses will not violate any applicable laws, including,
without limitation, the Foreign Assets Control Regulations, the Foreign
Funds Control Regulations and the Transaction Control Regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended).
(F) Margin Stock. Borrower is not engaged principally, or as
one of its important activities, in the business of purchasing or carrying
"margin stock" (within the meaning of Regulation G, T or U of the Board of
Governors of the Federal Reserve System), and no part of any Loans to
Borrower will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock
or be used for any purpose which violates or is inconsistent with the
provisions of Regulation G, T, U or X of said Board of Governors.
(G) Governmental Consents. Borrower has, and is in good
standing with respect to, all governmental consents, approvals,
authorizations, permits, certificates, inspections, and franchises
necessary to continue to conduct its business as heretofore or proposed to
be conducted by it and to own or lease and operate its Properties as now
owned or leased by it except where the failure to obtain such approval or
consent or make such filing would not have any material adverse effect on
the Borrower and would not have any adverse effect on the enforceability of
any of the Loan Documents.
(H) Patents, Trademarks, Copyrights and Licenses. Borrower owns
or possesses all the patents, trademarks, service marks, trade names,
copyrights, licenses, and rights with respect to the foregoing necessary
for the present and planned future conduct of its business without any
known conflict with the rights of others. All such patents, trademarks,
service marks, tradenames, copyrights, licenses and other similar rights
are listed on Exhibit F attached hereto and made a part hereof.
(I) Capital Structure. Exhibit G attached hereto and made a
part hereof states (a) the correct name of each of the Subsidiaries of
Borrower, the jurisdiction of incorporation and the percentage of its
Voting Stock owned by Borrower, (b) the name of Borrower's corporate or
<PAGE>
joint venture Affiliates and the nature of the affiliation, (c) the number
and nature of all outstanding Securities of Borrower and the number, nature
and holder of all outstanding Securities of each Subsidiary of Borrower and
(d) the number of authorized, issued and treasury shares of Borrower and
each Subsidiary of Borrower. Borrower has good and marketable title to all
of the shares it purports to own of the stock of each Subsidiary, free and
clear in each case of any Lien other than Permitted Liens. Except as set
forth on Exhibit G, as of the date hereof, there are not outstanding any
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or
obligations convertible into, or any powers of attorney relating to, shares
of the capital stock of Borrower. Except as set forth on Exhibit G, as of
the date hereof, there are not outstanding any agreements or instruments
binding upon any of Borrower's shareholders relating to the ownership of
its shares of capital stock.
(J) Solvent Financial Condition. Borrower is now and, after
giving effect to initial Loans to be made hereunder, at all times will be,
Solvent.
(K) Restrictions. Borrower is not a party or subject to any
contract, agreement, or charter or other corporate restriction, which
materially and adversely affect its business or the use or ownership of any
of its Properties. Borrower is not a party or subject to any contract or
agreement which restricts its right or ability to incur Indebtedness, other
than as set forth on Exhibit H attached hereto, none of which prohibit the
execution of or compliance with this Agreement by Borrower. Neither
Borrower nor any of its Subsidiaries has agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise) any
of its Property, whether now owned or hereafter acquired, to be subject to
a Lien that is not a Permitted Lien.
(L) Litigation. Except as set forth on Exhibit I attached
hereto and made a part hereof or in respect to matters which could not be
reasonably expected to have an adverse effect on Borrower in the amount of
One Hundred Thousand Dollars ($100,000) or more individually or One Million
Dollars ($1,000,000) or more in the aggregate, as of the date hereof, there
are no actions, suits, proceedings or investigations pending, or to the
knowledge of Borrower, threatened, against or affecting Borrower or any of
its Subsidiaries, or the business, operations, Properties, prospects,
profits or condition of Borrower or any of its Subsidiaries, in any court
or before any governmental authority or arbitration board or tribunal.
Except as otherwise specifically disclosed on Exhibit I, as of the date
hereof no action, suit, proceeding or investigation shown on Exhibit I
involves the possibility of materially and adversely affecting the
Properties, business, prospects, profits or condition (financial or
otherwise) of Borrower or the ability of any Borrower to perform this
Agreement. Neither Borrower nor any of its Subsidiaries is in default with
respect to any order, writ, injunction, judgment, decree or rule of any
court, governmental authority or arbitration board or tribunal.
(M) Title to Properties. Borrower and its Subsidiaries each has
good, indefeasible and marketable title to and fee simple ownership of, or
valid and subsisting leasehold interests in, all of its real Property, and
good title to all of its other Property, including all of the Collateral,
in each case, free and clear of all Liens except Permitted Liens.
<PAGE>
(N) Financial Statements; Fiscal Year. The Consolidated balance
sheets of Borrower and its Subsidiaries as of December 31, 1993, and the
related statements of income, changes in stockholder's equity, and changes
in financial position for the periods ended on such dates, have been
prepared in accordance with GAAP (except for changes in application in
which Borrower's independent certified public accountants concur), and
present fairly the financial position of Borrower and its Subsidiaries at
such date and the results of Borrower's operations for such periods. Since
April 30, 1994, there has been no material change in the condition,
financial or otherwise, of Borrower and its Subsidiaries as shown on the
Consolidated balance sheet as of such date and no change in the aggregate
value of Equipment and real Property owned by Borrower and its
Subsidiaries, except for the restructuring changes taken in respect to
Morgan Manufacturing and for other changes in the ordinary course of
business, none of which individually or in the aggregate has been
materially adverse. The fiscal year of Borrower and each of its
Subsidiaries ends on December 31 of each year.
(O) Full Disclosure. The financial statements referred to in
Section 8.1(N) above, do not, nor does this Agreement or any other written
statement of Borrower to Agent or any Lender (including, without
limitation, Borrower's filings, if any, with the Securities and Exchange
Commission), when taken together as a whole, contain any untrue statement
of a material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact which
Borrower has failed to disclose to Agent or any Lender in writing which
materially affects adversely or, so far as Borrower can now foresee, will
materially affect adversely the Properties, business, profits, or condition
(financial or otherwise) of Borrower or could reasonably be expected to
adversely affect, in any material respect, its Properties, business,
profits or condition or the ability of Borrower to perform this Agreement.
(P) Pension Plans. Except as disclosed on Exhibit J attached
hereto and made a part hereof, neither Borrower nor any of its Subsidiaries
has any Plan. Except as set forth on Exhibit J, neither Borrower nor any
of its Subsidiaries has received any notice from the Department of Labor to
the effect that it is not in compliance, in all material respects, with any
of the requirements of ERISA and the regulations promulgated thereunder.
No fact or situation that could lead to a material adverse change in the
financial condition of Borrower, including, but not limited to, any
Reportable Event, or Prohibited Transaction, which is not exempt under
ERISA, exists in connection with any Plan. Except as set forth on Exhibit
J, neither Borrower nor any of its Subsidiaries has any withdrawal
liability in connection with a Multiemployer Plan.
(Q) Taxes. The federal tax identification number of Borrower is
06-1095650. Borrower and its Subsidiaries each have filed all federal,
state and local tax returns and other reports it is required by law to file
and has paid, or made provision for the payment of, all taxes, assessments,
fees and other governmental, charges that are due and payable, except where
the failure to so file, pay or make provision would not have a material
adverse effect on Borrower or its business or operations or where any such
taxes, assessments or charges are being contested in good faith and by
appropriate proceedings and where Borrower maintains reasonable reserves on
its books therefor. The provision for taxes on the books of Borrower and
<PAGE>
its Subsidiaries are adequate for all years not closed by applicable
statutes, and for its current fiscal year.
(R) Labor Relations. Except as described on Exhibit K attached
hereto and made a part hereof, neither Borrower nor any of its Subsidiaries
is a party to any collective bargaining agreement, and there are no
material grievances, disputes or controversies with any union or any other
organization of Borrower's employees, or threats of strikes, work stoppages
or any asserted pending demands for collective bargaining by any union or
organization.
(S) Compliance With Laws. Except as disclosed on Exhibit L, (i)
Borrower has duly complied with, and its Properties, business operations
and leaseholds are in compliance with, the provisions of all federal, state
and local laws, rules and regulations applicable to Borrower, its
Properties or the conduct of its business, including, without limitation,
OSHA and all Environmental Laws, except where the failure to so comply
would not have a material adverse effect on Borrower or its business or
operations and (ii) there have been no citations, notices or orders of
noncompliance issued to Borrower or any of its Subsidiaries under any such
law, rule or regulation.
(T) Surety Obligations. Except as disclosed on Exhibit M,
Borrower is not obligated as surety or indemnitor under any surety or
similar bond or other contract issued or entered into any agreement to
assure payment, performance or completion of performance of any undertaking
or obligation of any Person.
(U) No Defaults. No event has occurred and no condition exists
which would, upon the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of
Default. Neither Borrower nor any of its Subsidiaries is in default, and
no event has occurred and no condition exists which constitutes, or which
with the passage of time or the giving of notice or both would constitute,
a default in the payment of any Indebtedness to any Person for Money
Borrowed.
(V) Brokers. Except as otherwise disclosed in writing to Agent
prior to the Closing, there are no claims for brokerage commissions,
finder's fees or investment banking fees in connection with the
transactions contemplated by this Agreement.
(W) Business Locations. During the preceding five (5) year
period, Borrower has had no office or place of business located in any
state or county other than as shown on Exhibit B.
(X) Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change
in, the business relationship between Borrower and any customer or any
group of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier, and
there exists no present condition or state of facts or circumstances which
would materially affect adversely Borrower or prevent Borrower from
conducting such business after the consummation of the transaction
contemplated by this Agreement in substantially the same manner in which it
has heretofore been conducted.
<PAGE>
(Y) Leases. Exhibit N attached hereto is a complete listing of
all capitalized leases of Borrower as of the date hereof and Exhibit O
attached hereto is a complete listing of all operating leases involving
annual Rentals of $50,000 or more of Borrower as of the date hereof.
(Z) Investment Company Act. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
8.2. Reaffirmation. Each request for a Loan made by Borrower pursuant
to this Agreement or any of the other Loan Documents shall constitute (i)
an automatic representation and warranty by Borrower to Agent and Lenders
that there does not then exist any Default or Event of Default; (ii) a
reaffirmation as of the date of said request that the representations and
warranties of Borrower as to the completeness and accuracy of any Exhibit
were true and correct as of the date thereof; (iii) a reaffirmation as of
the date of such request that any representation and warranty relating to a
specific time was true in all material respects as of such time; and (iv) a
reaffirmation as of the date of said request that all of the other
representations and warranties of Borrower contained in this Agreement and
the other Loan Documents are true in all material respects except for
changes in Borrower's business or operations that would render the
information in any Exhibit attached hereto either inaccurate or incomplete,
in any material respect, so long as Required Lenders has consented to such
changes or such changes are not prohibited by this Agreement.
8.3. Survival of Representations and Warranties. Borrower covenants,
warrants and represents to Agent and Lenders that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this
Agreement and the other Loan Documents, and shall survive the execution,
delivery and acceptance thereof by Agent and Lenders and the parties
thereto and the closing of the transactions described therein or related
thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or any Lender,
Borrower covenants that, unless otherwise consented to by Required Lenders
in writing, it shall:
(A) Taxes and Liens. Pay and discharge, and cause each
Subsidiary to pay and discharge, all taxes, assessments and governmental
charges upon it, its income and Properties as and when such taxes,
assessments and charges are due and payable, unless and to the extent only
that such taxes, assessments and charges are being contested in good faith
and by appropriate proceedings and Borrower maintains reasonable reserves
on its books therefor, and except for taxes in immaterial amounts which are
inadvertently not paid. Borrower shall also pay and discharge any lawful
claims which, if unpaid, might become a Lien against any of Borrower's
Properties except for Permitted Liens and any Lien which would, as a matter
of law, exist notwithstanding such contest and late payment.
(B) Tax Returns. File, and cause each Subsidiary to file, all
federal, state and local tax returns and other reports Borrower or such
<PAGE>
Subsidiary is required by law to file, except where the failure to so file
would not have a material adverse effect on Borrower or its business or
operations and maintain adequate reserves for the payment of all taxes,
assessments, governmental charges, and levies imposed upon it, its income,
or its profits, or upon any Property belonging to it.
(C) Payment of Bank Charges. Pay to Agent, on demand, any and
all reasonable and customary fees, costs or expenses which Agent or any
Lender pays to a bank or other similar institution (including, without
limitation, any fees paid by the Agent to any Lender) arising out of or in
connection with (i) the forwarding to Borrower or any other Person on
behalf of Borrower, by Agent or any Lender, proceeds of loans made by
Lenders to Borrower pursuant to this Agreement and (ii) the depositing for
collection, by Agent or any Lender, of any check or item of payment
received or delivered to Agent or any Lender on account of the Obligations.
(D) Business and Existence. Preserve and maintain, and cause
each Subsidiary to preserve and maintain, its separate corporate existence
and all rights, privileges, and franchises in connection therewith except
where not necessary to the conduct of its business, and maintain, and cause
each Subsidiary to maintain, its qualification and good standing in all
states in which such qualification is necessary in order for Borrower or
such Subsidiary to conduct its business in such states.
(E) Maintain Properties. Maintain, and cause each Subsidiary to
maintain, its Properties (ordinary wear and tear excepted) in good
condition and make, and cause each Subsidiary to make, all necessary
renewals, repairs, replacements, additions and improvements thereto
consistent with past practices.
(F) Compliance with Laws. Comply, and cause each Subsidiary to
comply, with all laws, ordinances, governmental rules and regulations to
which it is subject, and obtain and keep in force any and all licenses,
permits, franchises, or other governmental authorizations necessary to the
ownership of its Properties or to the conduct of its business, except where
such violation or failure to obtain could not reasonably be expected to
materially and adversely affect the business, prospects, profits,
Properties, or condition (financial or otherwise) of Borrower.
(G) ERISA Compliance. (i) At all times make prompt payment of
contributions required to meet the minimum funding standards set forth in
ERISA with respect to each Plan; (ii) if requested by Agent, promptly after
the filing thereof, furnish to Agent copies of any annual report (Form
5500) required to be filed pursuant to ERISA in connection with each Plan
and any other employee benefit plan of it and its Affiliates subject to
ERISA; (iii) notify Agent as soon as practicable of any Reportable Event
and of any additional act or condition arising in connection with any Plan
which Borrower believes might constitute grounds for the termination
thereof by the Pension Benefit Guaranty Corporation or for the appointment
by the appropriate United States district court of a trustee to administer
the Plan; and (iv) furnish to Agent, promptly upon Agent's request
therefor, such additional information concerning any Plan or any other such
employee benefit plan as may be reasonably requested.
(H) Business Records. Keep, and cause each Subsidiary to keep,
adequate records and books of account with respect to its business
<PAGE>
activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions.
(I) Visits and Inspections. Permit representatives of Agent or
any Lender, from time to time, as often as may be reasonably requested, but
only during normal business hours, to visit and inspect the Properties of
Borrower, inspect and make extracts from its books and records, and discuss
with its officers, its employees and its independent accountants,
Borrower's business, assets, liabilities, financial condition, business
prospects and results of operations.
(J) Financial Statements. Cause to be prepared and furnished to
Agent the following (all to be kept and prepared in accordance with GAAP
applied on a consistent basis, unless Borrower's certified public
accountants concur with any change therein and such change is disclosed to
Agent and Lenders and is consistent with GAAP):
(i) as soon as possible, but not later than ninety (90)
days after the close of each fiscal year of Borrower, unqualified audited
financial statements of Borrower and its Subsidiaries as of the end of such
year, on a Consolidated basis, certified by a firm of independent certified
public accountants of recognized standing selected by Borrower but
acceptable to Agent (except for a qualification for a change in accounting
principles with which the accountant concurs);
(ii) as soon as possible, but not later than thirty (30)
days after the end of each fiscal month hereafter which is not the end of
any fiscal quarter, unaudited interim Consolidated financial statements of
Borrower and its Subsidiaries as of the end of such month and of the
portion of Borrower's fiscal year then elapsed, on a Consolidated basis,
certified by the principal financial officer of Borrower as prepared in
accordance with GAAP and fairly presenting the Consolidated financial
position and results of operations of Borrower and its Subsidiaries for
such month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes;
(iii) as soon as possible, but not later than forty-five
(45) days (ninety (90) days in respect to the last fiscal quarter of each
fiscal year) after the end of each fiscal quarter hereafter, unaudited
interim Consolidated financial statements of Borrower and its Subsidiaries
as of the end of such fiscal quarter and of the portion of Borrower's
financial year then elapsed, on a Consolidated basis, certified by the
principal financial officer of Borrower as prepared in accordance with GAAP
and fairly presenting the Consolidated financial position and results of
operations of Borrower and its Subsidiaries for such fiscal quarter and
period subject only to changes from audit and year-end adjustments and
except that such statements need not contain notes;
(iv) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and copies of
any regular, periodic and special reports or registration statements which
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange; and
<PAGE>
(v) such other data and information (financial and
otherwise) as Agent or Required Lenders, from time to time, may reasonably
request, bearing upon or related to the Collateral, Borrower's financial
condition or results of operations, including, without limitation, federal
income tax returns of Borrower, accounts payable ledgers, and bank
statements.
Concurrently with the delivery of the financial statements described
in clause (i) of this Section 9.1(J), Borrower shall forward to Agent a
copy of the accountants' letter to Borrower's management that is prepared
in connection with such financial statements and also shall cause to be
prepared and shall furnish to Agent a certificate of the aforesaid
certified public accountants certifying to Agent and Lenders that, based
upon their examination of the financial statements of Borrower and its
Subsidiaries performed in connection with their examination of said
financial statements, they are not aware of any Default or Event of
Default, or, if they are aware of such Default or Event of Default,
specifying the nature thereof. Concurrently with the delivery of the
financial statements described in clauses (i), (ii) and (iii) of this
Section 9.1(J), Borrower shall cause to be prepared and furnished to Agent
a Compliance Certificate in the form of Exhibit P attached hereto, with
appropriate insertions, from the Chief Financial Officer of Borrower
certifying to Agent and Lenders that to the best of his knowledge, Borrower
has kept, observed, performed and fulfilled each and every covenant,
obligation and agreement binding upon Borrower in this Agreement and the
other Loan Documents and that no Default or Event of Default has occurred
and is continuing, or, if such Default or Event of Default has occurred and
is continuing, specifying the nature thereof. Borrower authorizes Agent or
its designated representatives to communicate directly with its independent
certified public accountants and authorizes those accountants to disclose
to Agent any and all financial statements and other supporting financial
documents and schedules. At or before the initial Closing Date, Borrower
shall deliver a letter addressed to such accountants instructing them to
comply with the provisions of this Section 9.1(J). Further within five (5)
days after the earlier of the last day of each fiscal year of Borrower and
the date Borrower engaged independent certified public accountants to audit
Borrower's financial statements, Borrower shall deliver to such independent
certified public accountants a letter from Borrower addressed to such
independent certified public accountants indicating that it is a primary
intention of Borrower in engaging such accountants that Agent and Lenders
rely upon such financial statements of Borrower and its Subsidiaries.
Agent shall promptly forward to Lenders all financial statements,
certificates, reports, and other information received by it from Borrower
or any other Person pursuant to this Section 9.1(J).
(K) Notices to Agent and Lenders. Notify Agent and Lenders in
writing: (i) promptly after Borrower's learning thereof, of the
commencement of any litigation affecting Borrower or any of its Properties,
whether or not the claim is considered by Borrower to be covered by
insurance, and of the institution of any administrative proceeding, which
litigation or proceeding could reasonably be expected to materially and
adversely affect Borrower's operations, financial condition, Properties or
business or Agent's Lien upon any of the Collateral; (ii) at least thirty
(30) days prior thereto, of Borrower's opening of any new office or place
of business or Borrower's closing of any existing office or place of
business; (iii) promptly after Borrower's learning thereof, of any labor
<PAGE>
dispute to which Borrower may become a party which could reasonably be
expected to have a materially adverse effect on Borrower, any strikes or
walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which it is a party or by which it is
bound; (iv) promptly after Borrower's learning thereof, of any material
default by Borrower under any note, indenture, loan agreement, mortgage,
lease, deed, guaranty or other similar agreement relating to any
Indebtedness of Borrower exceeding One Hundred Thousand Dollars ($100,000);
(v) promptly after the occurrence thereof, any Default or Event of Default;
(vi) promptly after the occurrence thereof, of any default by any obligor
under any note or other evidence of Indebtedness in excess of $100,000
payable to Borrower, and (vii) promptly after the rendition thereof, of any
judgment in excess of $50,000 rendered against Borrower or any of its
Subsidiaries.
(L) Landlord and Storage Agreements. Provide Agent with copies
of all agreements between Borrower and any landlord or warehouseman which
owns any premises at which any Inventory may, from time to time, be kept.
(M) Further Assurances. At Agent's request, promptly execute or
cause to be executed and deliver to Agent any and all documents,
instruments and agreements deemed necessary by Agent or Required Lenders to
give effect to or carry out the terms or intent of this Agreement or any of
the other Loan Documents. Without limiting the generality of the
foregoing, if any of the Accounts, the face value of which exceeds One
Thousand Dollars ($1,000) arises out of a contract with the United States
of America, or any department, agency, subdivision or instrumentality
thereof, Borrower shall notify Agent thereof in writing after the end of
each month and shall execute any instruments and take any other action
required or requested by Agent to comply with the provisions of the Federal
Assignment of Claims Act.
(N) Book Entry System. Borrower shall maintain, if requested by
Agent, a book entry system with respect to the Notes, and any transfers
thereof, in accordance with the requirements set forth in temporary
Treasury Regulation Section 5f.103-1(c).
(O) Projections. As soon as available, and in any event no
later than thirty (30) days after the end of each fiscal year of Borrower,
deliver to Agent Projections of Borrower for the forthcoming year, quarter
by quarter. Agent, in turn shall promptly deliver such Projections to
Lenders.
(P) Environmental Matters. (i) Borrower shall and shall cause
each of its Subsidiaries to (a) comply strictly and in all material
respects with all applicable Environmental Laws, (b) take promptly any
remediation and/or corrective action necessary to cure any violation of
Environmental Laws of which Borrower has knowledge, (c) notify the proper
governmental agency promptly in the event of any Release of any Hazardous
Substance reportable under 42 USC 9603, 42 USC 11044, 33 USC 1321(b)(5)
or any counterpart or similar state or local requirement, (d) promptly
forward to Agent, upon its request, a copy of any order, notice, permit,
application, or any other communication or report in connection with any
such Release of any Hazardous Substance or any other matter relating to the
Environmental Laws as they may affect its premises, and (e) promptly
forward to Agent a copy of any order, notice, permit, application or other
<PAGE>
communication or report in connection with any material Release of any
Hazardous Substance or any other material matter relating to the
Environmental Laws as they may affect its premises.
(ii) Borrower shall indemnify Lenders and Agent and hold
Lenders and Agent harmless from and against any loss, liability, damage or
expense, including reasonable attorneys' fees, suffered or incurred by
Lender and Agent, whether as mortgagee pursuant to any New Mortgage, as
mortgagee in possession, or as successor in interest to Borrower or any of
its Subsidiaries as owner or lessee of any premises by virtue of
foreclosure or acceptance of deed in lieu of foreclosure (a) under or on
account of the Environmental Laws, including the assertion of any Lien
thereunder; (b) with respect to any Release of any Hazardous Substance
reportable under 42 USC 9603, 42 USC 11044, 33 USC 1321(b)(5) or any
counterpart or similar state or local requirement, affecting such premises
or the premises of any other place, including any loss of value of such
premises as a result of a Release of any Hazardous Substance; and (c) with
respect to any other environmental matter within the jurisdiction of any
federal, state, or municipal official administering the Environmental Laws;
provided, however, that Borrower will not be liable for such
indemnification to Lenders and/or Agent to the extent that any such loss,
liability, damage or expense results from the gross negligence or willful
misconduct of the Person who would otherwise be entitled to be indemnified
pursuant to this Section 9.1(P)(ii). The procedures to be followed as to
any indemnity pursuant to this Section shall be as set forth in Sections
13.2 and 13.4 hereof.
(iii) Borrower shall provide Agent with such evidence,
reports and/or other documentation as reasonably requested by Agent or
Required Lenders to insure that Borrower is in compliance with the terms of
this Section 9.1(P).
9.2. Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or any Lender,
Borrower covenants that, unless Required Lenders have first consented
thereto in writing, it will not:
(A) Mergers; Consolidations; Acquisitions. Merge or
consolidate, or permit any Subsidiary to merge or consolidate, with any
Person, except a consolidation or merger involving only (i) Borrower and
one or more wholly owned Subsidiaries or (ii) two or more wholly owned
Subsidiaries; nor acquire all or any substantial part of the Properties of
any Person.
(B) Loans. Make, or permit any Subsidiary to make, any loans or
other advances of money (other than for salary, travel advances, advances
against commissions, loans to employees for the purchase of personal
computers and other similar advances in the ordinary course of business and
employee relocation loans provided that the aggregate amount of all
employee relocation loans shall not exceed at any time One Million Dollars
($1,000,000)) to any Person, including, without limitation, any of
Borrower's Affiliates, officers or employees other than any Permitted
Investment.
(C) Total Indebtedness. Create, incur, assume, or suffer to
exist, or permit any Subsidiary to create, incur or suffer to exist, any
<PAGE>
Indebtedness, except: (i) Obligations owing to Agent and Lenders; (ii)
Indebtedness of any Subsidiary to Borrower; or (iii) accounts payable to
trade creditors which are not more than thirty (30) days past due and
current operating expenses (other than for Money Borrowed) which are not
more than thirty (30) days past due, in each case incurred in the ordinary
course of business and paid within such time period, unless the same are
actively being contested in good faith and, if appropriate, and lawful
proceedings and the Borrower shall have set aside such reserves, if any,
with respect thereto as are required by GAAP and deemed adequate by
Borrower and, in respect to reserves contained on year-end statements, its
independent accountants; (iv) obligations to pay Rentals permitted by
Section 9.2(X); (v) Permitted Purchase Money Indebtedness; (vi) contingent
liabilities arising out of endorsements of checks and other negotiable
instruments for deposit or collection in the ordinary course of business;
(vii) Indebtedness to Agent, any Lender or any Affiliate of either under
any interest rate hedging, swap, cap or similar agreement between Borrower
and such Person; (viii) obligations under Capitalized Leases to the extent
not prohibited by any other section of this Section 9.2; (ix) Indebtedness
for deferred compensation owed by Borrower to its highly compensated
employees; (x) Indebtedness arising in connection with employee benefit
plans entered into or incurred in the ordinary course of business; (xi)
Indebtedness for Money Borrowed arising out of or in connection with the
existing Industrial Revenue Bonds secured by a Lien on Borrower's facility
in Oshkosh, Wisconsin and by certain Equipment of Borrower located in
Oshkosh, Wisconsin and Borrower's Distribution Centers; (xii) Indebtedness
for deferred taxes; and (xiii) Indebtedness not included in paragraphs (i)
through (xiii) above which does not exceed at any time, in the aggregate,
the sum of Five Hundred Thousand Dollars ($500,000).
(D) Affiliate Transactions. Except as provided below, enter
into, or be a party to, or permit any Subsidiary to enter into or be a
party to, any transaction with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of Borrower's or such
Subsidiary's business and upon fair and reasonable terms which are fully
disclosed to Agent and are no less favorable to Borrower than would be
obtainable in a comparable arm's length transaction with a Person not an
Affiliate of Borrower or such Subsidiary. The foregoing notwithstanding,
Borrower may pay management fees to Sagatuck Capital Company Limited
Partnership in a per annum amount not to exceed $125,000 pursuant to the
terms of that certain Management Agreement dated as of January 13, 1984, by
and between Borrower and Sagatuck Capital Company Limited Partnership.
(E) Partnership or Joint Ventures. Become or agree to become a
general or limited partner in any general or limited partnership or a joint
venturer in any joint venture.
(F) Adverse Transactions. Enter into any transaction, or permit
any Subsidiary to enter into any transaction, which materially and
adversely affects or could reasonably be expected to materially and
adversely affect the Collateral or Borrower's ability to repay the
Obligations.
(G) Guaranties. Guarantee, assume, endorse or otherwise, in any
way, become directly or contingently liable with respect to the
Indebtedness of any Person except by endorsement of instruments or items of
payment for deposit or collection.
<PAGE>
(H) Limitation on Liens. Create or suffer to exist, or permit
any Subsidiary to create or suffer to exist, any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired,
except: (i) Liens at any time granted in favor of Agent, for its benefit
and the ratable benefit of Lenders; (ii) Liens for taxes (excluding any
Lien imposed pursuant to any of the provisions of ERISA) not yet due or
which are being contested as permitted by Section 9.1(A) hereof other than
any Lien which would, as a matter of law, exist notwithstanding such
contest and late payment, but only if in Agent's judgment such Lien does
not affect adversely Agent's or Lenders' rights or the priority of Agent's
Lien in Collateral; (iii) Liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons for labor, materials, supplies or rentals incurred in the ordinary
course of Borrower's business, but only if the payment thereof is not at
the time required or if the aggregate amount of such payments does not
exceed Two Hundred Fifty Thousand Dollars ($250,000); (iv) deposits made in
the ordinary course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws; (v)
attachment, judgment and other similar non-tax Liens arising in connection
with court proceedings, but only if and for so long as the execution or
other enforcement of such Liens is and continues to be effectively stayed
and bonded on appeal, the validity and amount of the claims secured thereby
are being actively contested in good faith and by appropriate lawful
proceedings and such Liens do not, in the aggregate, materially detract
from the value of the Property of Borrower or materially impair the use
thereof in the operation of Borrower's business; (vi) Purchase Money Liens
securing Permitted Purchase Money Indebtedness which is not incurred in
violation of Section 9.2(C) of this Agreement; (vii) reservations,
exceptions, easements, rights of way, and other similar encumbrances
affecting real Property, provided that, in Agent's sole judgment, they do
not in the aggregate materially detract from the value of said Properties
or materially interfere with their use in the ordinary conduct of
Borrower's business and, if said real Property constitutes Collateral, such
Liens existed as of the Closing Date or Agent has consented thereto; (viii)
Liens securing Indebtedness of a Subsidiary to Borrower or another
Subsidiary; (ix) such other Liens as appear on Exhibit N attached hereto;
or (x) such other Liens as Required Lenders may hereafter approve in
writing.
(I) Subordinated Debt. Make, or permit any Subsidiary to make,
any payment of any part or all of the principal amount of any Subordinated
Debt, or otherwise repurchase, redeem or retire any instrument evidencing
any such Subordinated Debt; or enter into any agreement (oral or written)
amending, modifying, altering or terminating any one or more of the
instruments or agreements evidencing or relating to any such Subordinated
Debt which materially and adversely affects the interests of Lenders and
Agent or of Borrower.
(J) Distributions. Declare or make, or permit any Subsidiary to
declare or make, any Distributions, except for Distributions from a
Subsidiary to Borrower.
(K) Subsidiaries. Hereafter create any Subsidiary or divest
itself of any material assets by transferring them to any Subsidiary.
<PAGE>
(L) Capital Expenditures. Make Capital Expenditures which, in
the aggregate, as to Borrower and its Subsidiaries, exceed, during any
fiscal year of Borrower Five Million Dollars ($5,000,000).
(M) Business Locations. Transfer its principal place of
business or chief executive office, or open new manufacturing plants, or
transfer existing manufacturing plants, or maintain warehouses or records
with respect to Accounts or Inventory, to or at any locations other than
those at which the same are presently kept or maintained, as set forth on
Exhibit B hereto, except upon at least thirty (30) days prior written
notice to Agent and after the delivery to Agent of financing statements, if
required by Agent, in form satisfactory to Agent to perfect or continue the
perfection of Agent's Lien, for its benefit and the ratable benefit of
Lenders, and security interest hereunder.
(N) Change of Business. Enter into any new business or make any
material change in any of Borrower's business objectives, purposes and
operations.
(O) Disposition of Assets. Sell, lease or otherwise dispose of
any of its Properties, including any disposition of Property as part of a
sale and leaseback transaction, to or in favor of any Person, except (i)
sales of Inventory in the ordinary course of Borrower's business or sales
of slow-moving, obsolete or other Inventory which is not Eligible
Inventory, in either case for so long as no Event of Default exists
hereunder, (ii) a transfer of Property to Borrower by a Subsidiary, (iii)
dispositions expressly authorized by this Agreement, or (iv) sales or
dispositions of Equipment and/or real Property which would not alone or in
conjunction with other sales or dispositions materially and adversely
affect Borrowers business operations or ability to repay the Obligations.
(P) Name of Borrower. Except upon thirty (30) days prior
written notice to Agent, use any corporate name (other than its own) or any
fictitious name, tradestyle or "d/b/a" except for the names disclosed on
Exhibit E attached hereto.
(Q) Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or
consignment basis, or any sale on a repurchase or return basis (it being
understood that contingent liabilities to repurchase equipment pursuant to
floor plan and retail consumer financing arrangements do not violate the
provisions of this Section).
(R) Use of Agent's or any Lender's Name. Without the prior
written consent of Agent or the applicable Lender, use the name of Agent or
any Lender or the name of any Affiliates of Agent or any Lender in
connection with any of Borrower's business or activities, except in
connection with internal business matters, as required in dealings with
governmental agencies and financial institutions and to trade creditors of
Borrower solely for credit reference purposes and in financial statements
and SEC Reports and similar reports.
(S) Margin Securities. Own, purchase or acquire (or enter into
any contract to purchase or acquire) any "margin security" as defined by
any regulation of the Federal Reserve Board as now in effect or as the same
may hereafter be in effect unless, prior to any such purchase or
<PAGE>
acquisition or entering into any such contract, Agent shall have received
an opinion of counsel satisfactory to Agent to the effect that such
purchase or acquisition will not cause this Agreement to violate
Regulations G, T or U or any other regulation of the Federal Reserve Board
then in effect.
(T) Restricted Investment. Make or have, or permit any
Subsidiary to make or have, any Restricted Investment.
(U) Fiscal Year. Change, or permit any Subsidiary to change,
its fiscal year, or permit any Subsidiary to have a fiscal year different
from that of Borrower.
(V) Stock of Subsidiary, Etc. Sell or otherwise dispose of any
shares of capital stock of any Subsidiary, except in connection with a
transaction permitted under Section 9.2(A), or permit any Subsidiary to
issue any additional shares of its capital stock except director's
qualifying shares.
(W) Leases. Become a lessee under any operating lease of
Property if the aggregate Rentals payable during any current or future
period of twelve (12) consecutive months during the Term hereof under the
lease in question and all other leases under which Borrower is then lessee
would exceed Eight Million Dollars ($8,000,000). The term "Rentals" means,
as of the date of determination, all payments which the lessee is required
to make by the terms of any lease, exclusive of payments for taxes,
insurance, common area maintenance and the like.
(X) Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.
9.3. Specific Financial Covenants. During the Term of this Agreement,
and thereafter for so long as there are any Obligations to Agent or any
Lender, Borrower covenants that, unless otherwise consented to by Required
Lenders in writing, it shall:
(A) Minimum Net Worth. Maintain at the end of each fiscal
quarter within the term hereof a Tangible Net Worth of not less than the
amount shown below for the fiscal quarter corresponding thereto:
Fiscal Quarter Ending Amount
September 30, 1994 $46,500,000
December 31, 1994 $46,600,000
March 31, 1995 $46,200,000
June 30, 1995 $46,800,000
September 30, 1995 $48,500,000
December 31, 1995 $48,600,000
March 31, 1996 $48,200,000
June 30, 1996 $48,800,000
September 30, 1996 $50,500,000
December 31, 1996 $50,600,000
March 31, 1997 $50,200,000
June 30, 1997 and the last day
of each fiscal quarter thereafter $50,800,000
<PAGE>
(B) Total Liabilities to Tangible Net Worth Ratio. Have at the
end of each month within the Term hereof, a ratio of Indebtedness (computed
in accordance with GAAP) to Tangible Net Worth of (i) 1.85 to 1 or less for
each month within fiscal year 1994, and 1.50 to 1 or less for each month
within fiscal year 1995 and each subsequent fiscal year.
(C) Interest Coverage Ratio. Have at the end of each fiscal
quarter of Borrower within the Term hereof, commencing with the fiscal
quarter ending September 30, 1994, an Interest Coverage Ratio for the
twelve consecutive months then ended of 1.30 to 1 or more.
SECTION 10. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of
Agent or Lenders under the other Sections of this Agreement, it is
understood and agreed that Lenders will not make any Loans or be required
to issue any Letters of Credit or LC Guaranties under Section 2 of this
Agreement unless and until each of the following conditions has been and
continues to be satisfied or has been waived in writing by Required
Lenders, all in form and substance satisfactory to Lenders, Agent and
Agent's and Lender's counsel:
10.1. Documentation. Agent shall have received the following
documents, each to be in form and substance satisfactory to Agent and its
counsel:
(A) Certified copies of Borrower's casualty insurance policies,
together with loss payable endorsements on Agent's standard form of Loss
Payee Endorsement naming Agent, for its benefit and the ratable benefit of
Lenders, as loss payee, and certificates of insurance in respect to
Borrower's liability insurance policies together with endorsements naming
Agent, for its benefit and the ratable benefit of Lenders, as a co-insured;
(B) Copies of all filing receipts or acknowledgments issued by
any governmental authority to evidence any filing or recordation necessary
to perfect the Liens of Agent in the Collateral and evidence in a form
acceptable to Agent that such Liens constitute valid and perfected security
interests and Liens, having the Lien priority specified in Section 4.3(B)
hereof;
(C) Landlord or warehouseman waivers or agreements with respect
to those premises leased by Borrower and which are disclosed on Exhibit R
attached hereto in respect to which Agent has required such agreements;
(D) A copy of the Certificate of Incorporation of Borrower, and
all amendments thereto, certified by the Secretary of State or other
appropriate official of its jurisdiction of incorporation;
(E) Good standing certificates for Borrower, issued by the
Secretary of State or other appropriate official of Borrower's jurisdiction
of incorporation and each jurisdiction where the conduct of Borrower's
business activities or the ownership of its Properties necessitates
qualification and in which the failure to qualify would have a material
adverse effect on Borrower or its business or operations;
<PAGE>
(F) A Certificate of the Secretary of Borrower, together with
true and correct copies of the Certificate of Incorporation and Bylaws of
Borrower, and all amendments thereto, true and correct copies of the
resolutions of the Board of Directors of Borrower authorizing or ratifying
the execution, delivery and performance of this Agreement, the Notes, the
Security Documents and the Other Agreements and the names of the officer or
officers of each Borrower authorized to sign this Agreement, the Notes, the
Security Documents and the Other Agreements together with a sample of the
true signature of each such officer;
(G) The Security Documents duly executed, accepted and
acknowledged by or on behalf of each of the signatories thereto;
(H) The Other Agreements duly executed and delivered by
Borrower;
(I) The favorable, written opinion of McDermott Will & Emery,
counsel to Borrower, as to the transactions contemplated by this Agreement
and any of the other Loan Documents, to be substantially in the form of
Exhibit S attached hereto;
(J) Written instructions from Borrower directing the application
of proceeds of the initial Loan made pursuant to this Agreement, and an
initial Borrowing Base Certificate from Borrower reflecting that Borrower
has Eligible Accounts and Eligible Inventory in amounts sufficient in value
and amount to support Loans in the amount requested by Borrower on the date
of such certificate;
(K) Duly executed agreement establishing the Dominion Account
with a financial institution acceptable to Agent for the collection or
servicing of the Accounts;
(L) Pay-off statements, releases and UCC-3 termination
statements from Borrower's existing senior lenders;
(M) An executed copy of the accountant's letter referenced in
Section 9.1(J);
(N) Fully paid mortgagee title insurance policies (or binding
commitments to issue title insurance policies, marked to Agent's
satisfaction to evidence the form of such policies to be delivered after
the Closing Date), in standard ALTA form, issued by a title insurance
company satisfactory to Agent, in an amount equal to not less than the fair
market value of the real Property located in Lexington, North Carolina,
insuring that the Mortgage on the real Property located in Lexington, North
Carolina creates a valid Lien on all real Property described therein with
no exceptions which Agent shall not have approved in writing and no survey
exceptions. Borrower covenants (i) to deliver, on or prior to the date
which is ninety (90) days after the Closing Date, to Agent and Lenders a
fully paid mortgagee title policy, in standard ALTA form, issued by a title
insurance company satisfactory to Agent, in an amount equal to not less
than the fair market value of the real Property located in Springfield,
Oregon insuring that the Mortgage on the real Property located in
Springfield, Oregon creates a valid Lien on all real Property described
therein with no exception which Agent shall not have approved in writing
and no survey exception and (ii) to make such amendments or modifications
<PAGE>
to the Mortgage on the real Property located in Springfield, Oregon as
reasonably requested by Oregon local counsel; Agent and Lenders agree to
waive these requirements if such real Property is sold on or prior to
ninety (90) days after the Closing Date;
(O) ALTA Survey in respect to each parcel of real Property
subject to the Mortgages; and
(P) Such other documents, instruments and agreements as Agent
shall reasonably request in connection with the foregoing matters.
10.2. Other Conditions. The following conditions have been and
shall continue to be satisfied:
(A) No Default or Event of Default shall exist;
(B) Each of the conditions precedent set forth in the other Loan
Documents shall have been satisfied;
(C) Since April 30, 1994, there shall not have occurred any
material adverse change in the business, financial condition or results of
operations of Borrower, or the existence or value of any Collateral, or any
event, condition or state of facts which would reasonably be expected
materially and adversely to affect the business, financial condition or
results of operations of Borrower;
(D) Agent shall have determined, in its sole discretion, that
immediately after the Closing Lenders have made the loans and advances to
Borrower contemplated hereby, the sum of Excess Revolving Credit Loan
Availability plus Borrower's Cash and Cash Equivalents, minus Borrower's
closing costs incurred in connection with this Agreement, as estimated by
Agent, will not be less than Ten Million Dollars ($10,000,000).
(E) No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or
arises out of this Agreement or the consummation of the transactions
contemplated hereby or which, in Lenders' sole discretion, would make it
inadvisable to make the Initial Loan; and
(F) Agent and Lenders shall have received such certificates and
documents reflecting the Solvency of Borrower, after giving effect to the
transactions contemplated by this Agreement, as Agent and Lenders shall
find acceptable, including, without limitation, pro-forma balance sheets,
forecasted financial statements consisting of balance sheets, income
statements and cash flow statements for Borrower covering at least the
three-year period commencing on the Closing Date, prepared by Borrower and
a fair valuation balance sheet for Borrower showing that Borrower is
Solvent.
SECTION 11. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON
DEFAULT
11.1. Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default":
<PAGE>
(A) Payment of Notes. Borrower shall fail to pay any
installment of principal, interest or premium, if any, owing on the Notes
on the due date of such installment.
(B) Payment of Obligations. Borrower shall fail to pay any of
the Obligations that are not evidenced by the Notes on the due date thereof
(whether due at stated maturity, on demand, upon acceleration or otherwise)
and such failure shall continue for five (5) days.
(C) Misrepresentations. Any warranty, representation, or other
statement made or furnished to Agent or any Lender by or on behalf of
Borrower or in any instrument, certificate or financial statement furnished
in compliance with or in reference to this Agreement or any of the other
Loan Documents when taken together as a whole proves to have been false or
misleading in any material respect when made or furnished.
(D) Breach of Covenants. Borrower shall fail or neglect to
perform, keep or observe (i) any covenant contained in Sections 4.3, 4.4,
4.5, 4.6, 5.4(B), 9.1(A), 9.1(F), 9.1(O), 9.2 or 9.3 of this Agreement or
(ii) any other covenant contained in this Agreement (other than a covenant
default in the performance or observance of which is dealt with
specifically elsewhere in this Section 11.1) and the breach of such other
covenant is not cured to Required Lenders' satisfaction within twenty (20)
days (five (5) days in respect to Section 5.2 and 9.1(J)) after the sooner
to occur of Borrower's receipt of notice of such breach from Agent or any
Lender or the date on which such failure or neglect becomes known to any
officer of Borrower.
(E) Default Under Other Agreements. Any event of default shall
occur under, or Borrower shall default in any material respect in the
performance or observance of any term, covenant, condition or agreement
contained in, any of the Other Agreements and Borrower shall have received
any required notice of such default and such default shall continue beyond
any applicable period of grace.
(F) Default Under Security Documents. Any event of default
shall occur under, or Borrower shall default in the performance or
observance of any term, covenant, condition or agreement contained in, any
of the Security Documents, in either case in any material respect, and
such default shall continue beyond any applicable period of grace.
(G) Other Defaults. There shall occur any default or event of
default on the part of Borrower (including specifically, but without
limitation, due to non-payment) under any agreement, document or instrument
to which Borrower is a party or by which Borrower or any of its Property is
bound, creating or relating to any Indebtedness in the aggregate principal
amount of One Million Dollars ($1,000,000) or more (other than the
Obligations) if the payment or maturity of such Indebtedness is accelerated
(or in the case of Indebtedness due on demand, demanded) in consequence of
such event of default.
(H) Uninsured Losses; Unauthorized Dispositions. Any material
loss, theft, damage or destruction not covered by insurance (to the extent
required by this Agreement), or sale, lease or encumbrance of any of the
Collateral by Borrower or the making of any levy, seizure, or attachment
<PAGE>
thereof or thereon except in all cases as may be specifically permitted by
other provisions of this Agreement.
(I) Adverse Changes. There shall occur any material adverse
change in the financial condition or business prospects of Borrower.
(J) Insolvency, etc. Borrower shall cease to be Solvent or
shall suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or any
petition for an order for relief shall be filed by or against Borrower
under the Bankruptcy Code (if against Borrower, the continuation of such
proceeding for more than thirty (30) days), or Borrower shall make any
offer of settlement, extension or composition to their respective unsecured
creditors generally.
(K) Business Disruption; Condemnation. There shall occur a
cessation of a substantial part of the business of Borrower for a period
which significantly affects Borrower's capacity to continue its business,
on a profitable basis; or Borrower shall suffer the loss or revocation of
any license or permit now held or hereafter acquired by Borrower which is
necessary to the continued or lawful operation of all or a substantial part
of its business; or Borrower shall be enjoined, restrained or in any way
prevented by court, governmental or administrative order from conducting
all or a substantial part of its business affairs; or any material lease or
agreement pursuant to which Borrower leases, uses or occupies any Property
shall be canceled or terminated prior to the expiration of its stated term
other than by the exercise of a purchase option; or any material portion of
the Collateral shall be taken through condemnation or the value of such
Property shall be impaired through condemnation.
(L) Change of Ownership. There shall have occurred a "Change in
Control." "Change of Control" shall mean the occurrence of any of the
foregoing: (1) any Person, or any group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations promulgated thereunder, shall have
acquired after the date hereof beneficial ownership (within the meaning of
Rule 13d-3 of the Exchange Act), directly or indirectly, of Securities (or
other Securities convertible into such Securities) representing fifty
percent (50%) of the combined voting power of all Securities of Borrower
entitled to vote in the election of directors, other than Securities having
such power only by reason of the happening of a contingency (hereinafter
called a "Controlling Person"); or (2) a majority of the Board of Directors
of Borrower shall cease for any reason to consist of (A) individuals who on
the date hereof were serving as directors of Borrower and (B) individuals
who subsequently become members of the Board if such individuals'
nomination for election or election to the Board is recommended or approved
by a majority of the Board of Directors or Stockholders of Borrower. For
purposes of clause (1) above, a person or group shall not be a Controlling
Person if such Person or group holds voting power in good faith and not for
the purposes of circumventing this provision as an agent, bank, broker,
nominee, trustee, or holder of revocable proxies given in response to a
solicitation pursuant to the Exchange Act, for one or more beneficial
owners who do not individually, or, if they are a group acting in concert,
as a group, have the voting power specified in clause (1).
<PAGE>
(M) ERISA. A Reportable Event shall occur which Required
Lenders, in their sole discretion, shall determine in good faith
constitutes reasonable grounds for the termination by the Pension Benefit
Guaranty Corporation of any Plan or for the appointment by the appropriate
United States district court of a trustee for any Plan, or if any Plan
shall be terminated other than in a standard termination or any such
trustee shall be requested or appointed, or if Borrower is in "default" (as
defined in Section 4219(c) (5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from Borrower's complete or partial withdrawal
from such Plan aggregating Five Hundred Thousand Dollars ($500,000) or
more.
(N) Litigation. Borrower, or any Affiliate of Borrower, shall
challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement, or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Agent, for its benefit and the ratable
benefit of Lenders.
(O) Criminal Forfeiture. Borrower shall be criminally indicted
or convicted under any law that could lead to a forfeiture of any Property
of Borrower having an aggregate book value of $25,000 or more.
(P) Judgments. Final judgment or judgments (after the
expiration of all times to appeal therefrom) for the payment of money in
excess of Twenty-Five Thousand Dollars ($25,000) in the aggregate shall be
rendered against Borrower and the same shall not (i) be fully covered by
insurance, or (ii) within thirty (30) days after the entry thereof, have
been discharged or execution thereof stayed pending appeal or other post-
trial motion, or shall not have been discharged within ten (10) days after
the expiration of any such stay.
11.2. Acceleration of the Obligations. Upon the occurrence of an
Event of Default and during the continuance thereof, Agent shall, at
request of the Required Lenders, without notice, (i) terminate this
facility with respect to further Revolving Credit Loans, whereupon no
Revolving Credit Loans may be made hereunder, and/or (ii) declare all
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be due and payable, without presentment, demand, protest
or further notice of any kind, all of which are expressly waived by
Borrower; provided, however, that upon the occurrence of an Event of
Default specified in Section 11.1(J) hereof, the Obligations shall become
due and payable without declaration, notice or demand by Agent.
Agent shall take such action with respect to any Default or Event of
Default as shall be directed by the Required Lenders; provided that, unless
and until Agent shall have received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable
in the best interests of Agent and Lenders holding Revolving Credit Notes
taken as a whole, including any action (or the failure to act) pursuant to
the Loan Documents.
11.3. Remedies. After the occurrence of an Event of Default and
during the continuance thereof, Agent and/or Lenders shall have and may
exercise from time to time the following rights and remedies:
<PAGE>
(A) All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable
rights to which Agent or any Lender may be entitled, all of which rights
and remedies shall be cumulative, and none of which shall be exclusive, and
shall be in addition to any other rights or remedies contained in this
Agreement or any of the other Loan Documents.
(B) The right to take immediate possession of the Collateral,
and (i) to require Borrower to assemble the Collateral, at Borrower's
expense, and make it available to Agent at a place designated by Agent
which is reasonably convenient to both parties, and (ii) to enter any of
the premises of Borrower or wherever any of the Collateral shall be
located, and to keep and store the same on said premises until sold (and if
said premises be the Property of Borrower, Borrower agrees not to charge
Agent for storage thereof).
(C) The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as
may be required by law, in lots or in bulk, for cash or on credit, all as
Agent, in its sole discretion, may deem advisable. Borrower agrees that
ten (10) days written notice to Borrower of any public or private sale or
other disposition of Collateral shall be reasonable notice thereof, and
such sale shall be at such locations as Agent may designate in said
notice. Agent shall have the right to conduct such sales on Borrower's
premises, without charge therefor, and such sales may be adjourned from
time to time in accordance with applicable law. Agent shall have the
right to sell, lease or otherwise dispose of the Collateral, or any part
thereof, for cash, credit or any combination thereof, and Agent or any
Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against the
Obligations.
(D) Except as otherwise limited by any applicable contract,
Agent is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, tradenames, trademarks and advertising matter, or any Property of
a similar nature, as it pertains to the Collateral, in advertising for sale
and selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Agent's benefit and the ratable benefit
of Lenders.
(E) The proceeds realized from the sale of any Collateral may be
applied, after allowing one (1) Business Day for collection, first to the
costs, expenses and reasonable attorneys' fees incurred by Agent or any
Lender in collecting the Obligations, in enforcing the rights of Agent and
Lenders under the Loan Documents and in collecting, retaking, completing,
protecting, removing, storing, advertising for sale, selling and delivering
any Collateral, secondly to the interest due upon any of the Obligations;
and thirdly, to the principal of the Obligations. If any deficiency shall
arise, Borrower shall remain liable to Agent and Lenders therefor.
(F) With respect to the face amount of all LC Guaranties and
Letters of Credit issued by Agent, Bank or any Lender then outstanding,
Agent or Lenders may, at its or their option, require Borrower to deposit
with Agent funds equal to such face amount, and if Borrower fails to
<PAGE>
promptly make such deposit, Lenders may advance such amount as a Revolving
Credit Loan (whether or not an Overadvance is created thereby). Any such
deposit or advance shall be held by Agent as a reserve to fund future
payments on such LC Guaranties and future drawings against such Letters of
Credit. At such time as all LC Guaranties have been paid or terminated and
all Letters of Credit have been drawn upon or expired, any amounts
remaining in such reserve shall be applied against any outstanding
Obligations, or to the extent all Obligations have been indefeasibly paid
in full, returned to Borrower.
11.4. Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in
any document referred to herein or contained in any agreement supplementary
hereto or in any schedule given to Agent or any Lender or contained in any
other agreement between Agent or any Lender and Borrower, heretofore,
concurrently, or hereafter entered into, shall be deemed cumulative to and
not in derogation or substitution of any of the terms, covenants,
conditions, or agreements of Borrower herein contained. The failure or
delay of Agent or any Lender to exercise or enforce any rights, Liens,
powers, or remedies hereunder or under any of the aforesaid agreements or
other documents or security or Collateral shall not operate as a waiver of
such Liens, rights, powers and remedies, but all such Liens, rights,
powers, and remedies shall continue in full force and effect until all
Loans and all other Obligations owing or to become owing from Borrower to
Agent or any Lender shall have been fully satisfied and Lenders shall have
no further obligations to make Loans or issue Letters of Credit or LC
Guaranties, and all Liens, rights, powers, and remedies herein provided for
are cumulative and none are exclusive.
SECTION 12. THE AGENT
12.1. Authorization and Action. Each Lender hereby appoints and
authorizes Agent to take such action on its behalf and to exercise such
powers under this Agreement, and the other Loan documents as are delegated
to Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided
for by this Agreement and the other Loan Documents (including, without
limitation, enforcement or collection of the Notes), Agent shall not be
required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding upon all Lenders;
provided, however, that Agent shall not be required to take any action
which exposes Agent to personal liability or which is contrary to this
Agreement or the other Loan Documents or applicable law. Agent agrees to
give each Lender promptly a copy of each notice given to it by Borrower
pursuant to the terms of this Agreement and the other Loan Documents.
12.2. Agent's Reliance, Etc. Neither Agent nor any of its
directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement or the other Loan Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of
the foregoing, Agent: (i) may treat the payee of any Note as the holder
thereof until Agent receives written notice of the assignment or transfer
<PAGE>
thereof signed by such payee and in form satisfactory to Agent; (ii) may
consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts, (iii) makes no warranty or
representations to any Lender and shall not be responsible to any Lender
for any statements, warranties or representations made in or in connection
with this Agreement or the other Loan Documents; (iv) shall not have any
duty beyond Agent's customary practices to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions
of this Agreement or the other Loan Documents on the part of Borrower or to
inspect the property (including the books and records) of Borrower; (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (vi) shall incur no liability
under or in respect of this Agreement or the other Loan Documents by acting
upon any notice, consent, certificate or other instrument or writing (which
may be by telecopy, telegram, cable or telex) believed in good faith by it
to be genuine and signed or sent by the proper party or parties.
12.3. BCI and Affiliates. With respect to its commitment
hereunder to make Revolving Credit Loans made by it, BCI shall have the
same rights and powers under this Agreement and the other Loan Documents as
any other Lender and may exercise the same as though it were not Agent; and
the term "Lender" or "Lenders" shall, unless otherwise expressly indicated,
include BCI in its individual capacity. BCI and its Affiliates may lend
money to, and generally engage in any kind of business with, Borrower, any
of its Subsidiaries and any Person who may do business with or own
securities of Borrower or any such Subsidiary, all as if BCI were not Agent
and without any duty to account therefor to Lenders.
12.4. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon Agent or any other Lender and
based on the financial statements referred to in Section 8.1(N) and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement.
12.5. Indemnification. Lenders agree to indemnify Agent (to the
extent not reimbursed by Borrower), ratably according to the respective
principal amounts of the Notes then held by each of them, from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against Agent
in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by Agent under this Agreement,
provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent's gross
negligence or wilful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse Agent promptly upon demand for its ratable
shares of any out-of-pocket expenses (including reasonable counsel fees)
<PAGE>
incurred by Agent 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 and each other
Loan Document, to the extent that Agent is not reimbursed for such expenses
by Borrower.
12.6. Successor Agent. Agent may resign at any time by giving
written notice thereof to Lenders and Borrower. Upon any such resignation,
the Required Lenders shall have the right to appoint a successor Agent
which shall be reasonably acceptable to Borrower. If no successor Agent
shall have been so appointed by the Required Lenders, and shall have
accepted such appointment, within 30 days after the retiring Agent's giving
notice of resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank or
financial institution organized under the laws of the United States of
America or of any State thereof and having a combined capital and surplus
of at least One Hundred Million and No/100 Dollars ($100,000,000) and which
shall be reasonably acceptable to Borrower. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall
be discharged from its duties and obligations under this Agreement and the
other Loan Documents. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Section 12 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under
this Agreement and the other Loan Documents.
SECTION 13. MISCELLANEOUS
13.1. Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Agent (and all Persons designated by Agent)
as Borrower's true and lawful attorney (and agent-in-fact) and Agent, or
agent of Agent, may, without notice to Borrower and in either Borrower's or
Agent's name, but at the cost and expense of Borrower:
(A) At such time or times hereafter as Agent or said agent, in
its sole discretion, may determine, endorse Borrower's name on any checks,
notes, acceptances, drafts, money orders or any other evidence of payment
or proceeds of the Collateral which come into the possession of Agent or
under Agent's control; and
(B) At such time or times upon or after the occurrence of an
Event of Default and during the continuance thereof as Agent or its agent
in its sole discretion may determine: (i) demand payment of the Accounts
from the Account Debtors, enforce payment of the Accounts by legal
proceedings or otherwise, and generally exercise all of Borrower's rights
and remedies with respect to the collection of the Accounts; (ii) settle,
adjust, compromise, discharge or release any of the Accounts or other
Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as
Agent or Required Lenders deems or deem advisable; (iv) take control, in
any manner, of any item of payment or proceeds relating to any Collateral;
(v) prepare, file and sign Borrower's name to a proof of claim in
bankruptcy or similar document against any Account Debtor or to any notice
<PAGE>
of lien, assignment or satisfaction of lien or similar document in
connection with any of the Collateral; (vi) receive, open and dispose of
all mail addressed to Borrower and to notify postal authorities to change
the address for delivery thereof to such address as Agent may designate;
(vii) endorse the name of Borrower upon any of the items of payment or
proceeds relating to any Collateral and deposit the same to the account of
Agent on account of the Obligations; (viii) endorse the name of Borrower
upon any chattel paper, document, instrument, invoice, freight bill, bill
of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (ix) use Borrower's stationery and sign
the name of Borrower to verifications of the Accounts and notices thereof
to Account Debtors; (x) use the information recorded on or contained in any
data processing equipment and computer hardware and software relating to
the Accounts, Inventory, Equipment and any other Collateral and to which
Borrower has access; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary, in Agent's
determination, to fulfill Borrower's obligations under this Agreement.
13.2. Indemnity. Borrower hereby agrees to indemnify Agent and
each Lender and hold Agent and each Lender harmless from and against any
liability, loss, damage, suit, action or proceeding ever suffered or
incurred by Agent or any Lender as the result of Borrower's failure to
observe, perform or discharge Borrower's duties hereunder. This indemnity
shall extend to any claims asserted against Agent or any Lender by any
Person under any Environmental Laws or similar laws by reason of Borrower's
failure to comply with laws applicable to solid or hazardous waste
materials or other toxic substances. Notwithstanding any contrary
provision in this Agreement, the obligation of Borrower under this Section
13.2 shall survive the payment in full of the Obligations and the
termination of this Agreement, but shall not thereafter be secured by the
Collateral.
13.3. Complete Agreement; Modification of Agreement; Sale of
Interest. (a) The Loan Documents constitute the complete agreement between
the parties with respect to the subject matter hereof and may not be
modified, altered or amended except by an agreement in writing signed by
Borrower, Agent and Required Lenders. Borrower may not sell, assign or
transfer any of the Loan Documents or any portion thereof, including
without limitation, Borrower's rights, title, interests, remedies, powers
and duties hereunder or thereunder. Borrower hereby consents to Agent's
and any Lender's sale of participation, assignment, transfer or other
disposition, at any time or times, of any of the Loan Documents or of any
portion thereof or interest therein, including, without limitation, Agent's
and any Lender's rights, title, interests, remedies, powers or duties
thereunder, whether evidenced by a writing or not; Borrower agrees that it
will use commercially reasonable efforts to assist and cooperate with Agent
and any Lender in any manner reasonably requested by Agent or such Lender
to effect the sale of participation in or assignment of any of the Loan
Documents or of any portion thereof or interest therein, including, without
limitation, assistance in the preparation of appropriate disclosure
documents or placement memoranda and executing appropriate amendments to
the signature pages hereto to reflect the addition of any Lenders and such
Lender's respective commitments. The foregoing notwithstanding, except
with respect to sales, assignments or transfers to Affiliates under common
control pursuant to which the selling, assigning or transferring Lender
retains its voting rights, no Lender shall sell participation or assign,
<PAGE>
transfer or otherwise dispose of any of the Loan Documents or any portion
thereof or interest therein, without the prior written consent of Agent,
which shall not be unreasonably withheld.
(b) In respect to any assignment by a Lender of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Revolving Loan Commitments, the Revolving Credit Loans owed
to it and the Revolving Credit Note(s) held by it) (i) each such assignment
shall be of a uniform, and not a varying, percentage of all rights and
obligations, (ii) except in the case of an assignment of all of a Lender's
rights and obligations under this Agreement, (A) the amount of the
Revolving Loan Commitment of the assigning Lender being assigned pursuant
to each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$5,000,000, and in integral multiples of $1,000,000 thereafter, or such
lesser amount as to which the Borrower and the Agent may consent to and (B)
after giving effect to each such assignment, the amount of the Commitment
of the assigning Lender shall in no event be less than $5,000,000, (iii)
the parties to each such assignment shall execute and deliver to the Agent,
for its acceptance, an Assignment and Acceptance in the form of Exhibit T
hereto (an "Assignment and Acceptance"), together with any Revolving Credit
Note(s) subject to such assignment and a processing and recordation fee of
$2,500, and (iv) any Lender may without the consent of the Borrower or the
Agent, and without paying any fee, assign to any Affiliate of such Lender
that is a bank or financial institution all of its rights and obligations
under this Agreement. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such Assignment
and Acceptance (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto). If, pursuant to this Section 13.4, any
interest in this Agreement or any Revolving Credit Loan, Letter of Credit,
Note or LC Guaranty is transferred to any transferee which is organized
under the laws of any jurisdiction other than the United States or any
state thereof, the transferor Lender shall cause such transferee (other
than any participant), and may cause any participant, concurrently with the
effectiveness of such transfer, (a) to represent to the transferor Lender
(for the benefit of the transferor Lender, the Agent, and the Borrower)
that under applicable law and treaties no Taxes will be required to be
withheld by Agent, Borrower or the transferor Lender with respect to any
payments to be made to such transferee in respect of the Revolving Credit
Loans, Notes, Letters of Credit or LC Guaranties, (b) to furnish to the
transferor Lender, Agent and Borrower either U.S. Internal Revenue Service
Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such transfer
claims entitlement to complete exemption form U.S. federal withholding tax
on all interest payments hereunder), and (c) to agree (for the benefit of
the transferor Lender, Agent and Borrower) to provide the transferor
Lender, Agent and Borrower a new Form 4224 or Form 1001 upon the
obsolescence of any previously delivered form and comparable statements in
accordance with applicable U.S. laws and regulations and amendments duly
<PAGE>
executed and completed by such transferee, and to comply from time to time
with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
(c) In addition to, and not in limitation of the foregoing, Borrower
acknowledges that BCI intends to sell, assign or participate at least
Twenty-Five Million Dollars ($25,000,000) of its Revolving Loan
Commitments. Borrower agrees to use its best efforts to assist BCI in any
respect to any such sale, assignment or participation.
(d) In the event any Lender assigns or otherwise transfers all or any
part of the Revolving Credit Note, any such Lender shall so notify Borrower
and Borrower shall record the assignment pursuant to Section 9.1(N) hereof,
and shall, upon the request of such Lender, issue new Revolving Credit
Notes in exchange for the old Revolving Credit Notes.
(e) No amendment or waiver of any provision of this Agreement or the
Notes or any other Loan Document, nor consent to any departure by Borrower
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given; provided, however: (a) that no amendment, waiver
or consent shall, unless in writing and signed by each Lender affected
thereby do any of the following: (i) increase the Maximum Revolving Credit
Loan or subject any Lender to any additional obligations, (ii) reduce the
principal of, or rate of interest on, the Notes or other amount payable
hereunder other than those payable only to BCI in its capacity as Agent
which may be reduced by BCI unilaterally, (iii) postpone any date fixed for
any payment of principal of, or interest on, the Notes or other amounts
payable hereunder, other than those payable only to BCI in its capacity as
Agent which may be postponed by BCI unilaterally, (iv) change the aggregate
unpaid principal amount of the Notes, or the number of Lenders which shall
be required for the Lenders or any of them to take any action hereunder,
(v) release or discharge any Person liable for the performance of any
obligations of Borrower hereunder or under any of the Loan Documents, (vi)
increase the advance rates contained in the definition of the Borrowing
Base, (vii) to the extent Agent's or Lenders' consent is required by the
terms hereof, release all or substantially all of the Collateral (other
than that portion of the Collateral consisting of Equipment and real
Property) (viii) amend this Section 13.3; (b) that no amendment, waiver or
consent shall be effective unless in writing and signed by Agent and either
Required Lenders or all Lenders, as required by the terms hereof.
13.4. Reimbursement of Expenses. If, at any time or times prior
or subsequent to the date hereof, regardless of whether or not an Event of
Default then exists or any of the transactions contemplated hereunder are
concluded, Agent, Lender or any Participating Lender employs counsel for
advice or other representation, or incurs legal expenses or other costs or
out-of-pocket expenses in connection with: (A) the negotiation and
preparation of this Agreement or any of the other Loan Documents, any
amendment of or modification of this Agreement or any of the other Loan
Documents, or, except as provided below, any sale or attempted sale of any
interest herein to a Lender or Participating Lender; or (B) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (C) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by Agent, any
<PAGE>
Lender, Borrower or any other Person) in any way relating to the
Collateral, this Agreement or any of the other Loan Documents or Borrower's
affairs; (D) any attempt to enforce any rights of Agent or any Lender or
any Participating Lender against Borrower or any other Person which may be
obligated to Agent or any Lender by virtue of this Agreement or any of the
other Loan Documents, including, without limitation, the Account Debtors;
or (E) any attempt to inspect, verify, protect, preserve, restore, collect,
sell, liquidate or otherwise dispose of or realize upon the Collateral;
then in any such event, the reasonable attorneys' fees arising from such
services and all reasonable expenses, costs, charges and other fees of such
counsel or of Agent or any Lender or relating to any of the events or
actions described in this Section shall be payable, on demand, by Borrower
to Agent, any Lender or to such Participating Lender, as the case may be,
and shall be additional Obligations hereunder secured by the Collateral.
Without limiting the generality of the foregoing, such expenses, costs,
charges and fees may include reasonable accountants' fees, costs and
expenses; court costs and expenses; reasonable photocopying and duplicating
expenses; reasonable court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges; reasonable
secretarial over-time charges; and reasonable expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal
services. Additionally, if any taxes (excluding taxes imposed upon or
measured by the net income of Agent or any Lender) shall be payable on
account of the execution or delivery of this Agreement, or the execution,
delivery, issuance or recording of any of the other Loan Documents, or the
creation of any of the Obligations hereunder, by reason of any existing or
hereafter enacted federal or state statute, Borrower will pay all such
taxes, including, but not limited to, any interest and penalties thereon,
and will indemnify and hold Agent and any Lender harmless from and against
liability in connection therewith. Borrower's obligations pursuant to this
Section 13.4 shall survive the termination of this Agreement. The
foregoing notwithstanding, Borrower's obligation to reimburse a Lender
(other than BCI) or Participating Lender for its attorneys' fees in
connection with the sale or attempted sale of any interest herein shall be
limited to $2,500.
13.5. Indulgences Not Waivers. Agent's or Required Lenders'
failure, at any time or times hereafter, to require strict performance by
Borrower of any provision of this Agreement shall not waive, affect or
diminish any right of Agent or Required Lenders thereafter to demand strict
compliance and performance therewith. Any suspension or waiver by Agent or
Required Lenders of an Event of Default by Borrower under this Agreement or
any of the other Loan Documents shall not suspend, waive or affect any
other Event of Default by Borrower under this Agreement or any of the other
Loan Documents, whether the same is prior or subsequent thereto and whether
of the same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of Borrower contained in this
Agreement or any of the other Loan Documents and no Event of Default by
Borrower under this Agreement or any of the other Loan Documents shall be
deemed to have been suspended or waived by Agent or Required Lenders,
unless such suspension or waiver is by an instrument in writing specifying
such suspension or waiver and is signed by a duly authorized representative
of Agent and Required Lenders and directed to Borrower.
13.6. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
<PAGE>
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
13.7. Successors and Assigns. This Agreement, the Other
Agreements and the Security Documents shall be binding upon and inure to
the benefit of the successors and assigns of Borrower, Agent and Lenders.
This provision, however, shall not be deemed to modify Section 13.3 hereof.
13.8. Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with
the provisions of this Agreement. Except as otherwise provided in Section
3.5 of this Agreement and except as otherwise provided in any of the other
Loan Documents by specific reference to the applicable provision of this
Agreement, if any provision contained in this Agreement is in direct
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and
control.
13.9. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which counterparts taken together shall
constitute but one and the same instrument.
13.10. Notice. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by another, or whenever any of the parties desires to
give or serve upon another any communication with respect to this
Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing shall be delivered
in person (by personal delivery, delivery service or overnight courier
service) with receipt acknowledged, or telecopied with receipt
acknowledged, or sent by certified mail, return receipt requested, postage
prepaid, addressed as hereafter set forth, or mailed by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
(A) If to Agent: Barclays Business Credit, Inc.
2300 N. Mayfair Road
Wauwatosa, Wisconsin 53226
Attention: Sandra Evans
Telecopier No.: (414) 774-1063
With a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601
Attention: John T. McEnroe
Telecopier No.: (312) 609-5005
<PAGE>
(B) If to Borrower: Morgan Products Ltd.
75 Tri-State International
Suite 222
Lincolnshire, Illinois 60069
Attention: Douglas H. MacMillan,
Vice President and Chief Financial Officer
Telecopier No.: (708) 317-1900
With a copy to:
McDermott Will & Emery
227 W. Monroe Street
Chicago, Illinois 60606
Attention: William J. McGrath
Telecopier No.: (312) 984-7700
(C) If to any Lender, at its address indicated on the signature pages
hereof or in a Notice to Borrower of assignment of a Note,
or to such other address as each party may designate for itself by like
notice given in accordance with this Section 13.10;
The foregoing notwithstanding, any notice, request or demand to or
upon Agent and Lenders pursuant to Section 3.3 or 3.4 shall not be
effective until received by Agent and Lenders.
13.11. Agent's or Required Lenders' Consent. Except as otherwise
specifically provided for herein whenever Agent's or Required Lenders'
consent is required to be obtained under this Agreement, any of the Other
Agreements or any of the Security Documents as a condition to any action,
inaction, condition or event, Agent or Required Lenders shall be authorized
to give or withhold such consent in its or their sole and absolute
discretion and to condition its or their consent upon the giving of
additional collateral security for the Obligations, the payment of money or
any other matter.
13.12. Demand Obligations. Nothing in this Agreement shall affect
or abrogate the demand nature of any portion of the Obligations expressly
made payable on demand by this Agreement or by any instrument evidencing or
securing same, and the occurrence of an Event of Default shall not be a
prerequisite for Agent or any Lender requiring payment of such Obligations.
13.13. Time of Essence. Time is of the essence of this Agreement,
the Other Agreements and the Security Documents.
13.14. Entire Agreement. This Agreement and the other Loan
Documents, together with all other instruments, agreements and certificates
executed by the parties in connection therewith or with reference thereto,
embody the entire understanding and agreement between the parties hereto
and thereto with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and inducements, whether
express or implied, oral or written.
13.15. Interpretation. No provision of this Agreement or any of
the other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
<PAGE>
judicial authority by reason of such party having or being deemed to have
structured or dictated such provision.
13.16. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE
IN CHICAGO, ILLINOIS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS; PROVIDED, HOWEVER, THAT
IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
ILLINOIS, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF AGENT'S LIEN UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF AGENT'S OR LENDERS' OTHER REMEDIES IN RESPECT OF SUCH
COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT
FROM OR INCONSISTENT WITH THE LAWS OF ILLINOIS. AS PART OF THE CONSIDERA-
TION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE
DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER, AGENT OR ANY LENDER,
BORROWER, AGENT AND LENDERS HEREBY CONSENT AND AGREE THAT THE CIRCUIT COURT
OF COOK COUNTY, ILLINOIS, OR, AT REQUIRED LENDERS' OPTION, THE UNITED
STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF ILLINOIS, EASTERN
DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND AGENT AND LENDERS PERTAINING TO
THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT. BORROWER, AGENT AND LENDERS EXPRESSLY SUBMIT AND CONSENT IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH
COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY
SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF AGENT OR LENDERS TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OR LENDERS
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
13.17. WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL
BY JURY (WHICH AGENT AND LENDERS HEREBY ALSO WAIVE) IN ANY ACTION, SUIT,
PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF
THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT,
DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON
PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF
ANY OR ALL ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER
AND GUARANTIES AT ANY TIME HELD BY AGENT OR LENDERS ON WHICH BORROWER MAY
IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR
LENDERS MAY DO IN THIS REGARD; (iii) EXCEPT AS OTHERWISE EXPLICITLY
PROVIDED HEREIN OR IN THE UCC, NOTICE PRIOR TO TAKING POSSESSION OR CONTROL
OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY
COURT PRIOR TO ALLOWING AGENT OR ANY LENDER TO EXERCISE ANY OF AGENT'S OR
LENDERS' REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS; (v) ANY RIGHT BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE
OBLIGATIONS TO REQUIRE AGENT TO TERMINATE ITS SECURITY INTEREST IN THE
<PAGE>
COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER UNTIL TERMINATION OF THIS
AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND
BY ANY PERSON WHOSE SECURED LOANS TO BORROWER ARE USED IN WHOLE OR IN PART
TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING AGENT AND LENDERS
FROM ANY LOSS OR DAMAGE AGENT OR ANY LENDER MAY INCUR AS THE RESULT OF
DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY AGENT OR ANY LENDER
FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS; AND
(vi) NOTICE OF ACCEPTANCE HEREOF AND BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO AGENT'S AND LENDERS'
ENTERING INTO THIS AGREEMENT AND THAT AGENT AND LENDERS ARE RELYING UPON
THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE COURT.
13.18 Publicity. Borrower hereby consents to Agent's use of the
name or tradestyle of Borrower in any announcements or advertisements
relating to the completion of the transactions contemplated hereby and the
role played by Agent in providing financing to Borrower hereunder in such
media and in such manner as Agent, in its sole discretion, determines.
IN WITNESS WHEREOF, this Agreement has been duly executed in Chicago,
Illinois, on the day and year specified at the beginning hereof.
BORROWER:
MORGAN PRODUCTS LTD. BARCLAYS BUSINESS CREDIT, INC.
("Agent" and "Lender")
By: _____________________________ By: _________________________________
Name: Douglas H. MacMillan Name: Brian L. Tornow
Title: Vice President and Title: Group Vice President
Chief Financial Officer
Revolving Loan Commitment: $65,000,000
<PAGE>
EXHIBIT B
BORROWER'S BUSINESS LOCATIONS
(1) Borrower currently has the following business locations, and no
others:
(2) Borrower maintains its books and records relating to Accounts and
General Intangibles at:
(3) During the preceding five-year period, Borrower has had no office,
place of business or agent for process located in any county other than as
set forth above, except:
(4) The following are Borrower's Distribution Centers as of July __,
1994:
<PAGE>
EXHIBIT D
JURISDICTION IN WHICH BORROWER
IS AUTHORIZED TO DO BUSINESS
(1)
(2)
<PAGE>
EXHIBIT E
CORPORATE NAMES
(1) Each Borrower's correct corporate name, as registered with the
Secretary of State (Commonwealth) of its State (Commonwealth) of
incorporation is:
Name State (Commonwealth) of Incorporation
(a)
(b)
(c)
(d)
(2) During the preceding five-year period, Borrower has used the
following names:
<PAGE>
EXHIBIT F
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
(1) Borrower has no patents [, except].
(2) Borrower has no trademarks [, except].
(3) Borrower has no copyrights [, except].
(4) Borrower has no licenses, other than routine business licenses,
authorizing them to transact business in local jurisdictions [and the
following:].
<PAGE>
EXHIBIT G
CAPITAL STRUCTURE
(1) The number of authorized shares of common stock of Borrower is
_____________. The number of issued shares of common stock of Borrower is
__________. Borrower has no treasury stock.
(2) All of the issued shares of Borrower are fully paid and
non-assessable and are owned by the following Persons:
(3) Borrower has no Subsidiaries [, except the following:]
State of Percent of Voting
Name Incorporation Stock Borrower Owns
<PAGE>
EXHIBIT H
CONTRACTS RESTRICTING BORROWER'S RIGHT TO INCUR DEBTS
There are no contracts that restrict the right of Borrower to incur
Indebtedness, except the following:
(1)
(2)
None of the foregoing contracts restricts or prohibits Borrower from
executing, delivering and performing this Agreement, the Other Agreements
or the Security Documents or incurring any Obligations to Lender in
accordance with this Agreement.
<PAGE>
EXHIBIT I
LITIGATION
(1) There are no proceedings pending against Borrower in any court,
except as follows:
______________________
______________________
(2) The only threatened litigation of which Borrower is aware is as
follows:
______________________
______________________
<PAGE>
EXHIBIT J
PENSION PLANS
<PAGE>
EXHIBIT K
LABOR CONTRACTS
Borrower has no agreements with any organization of its employees [,
except the following:]
<PAGE>
EXHIBIT L
EXCEPTIONS TO COMPLIANCE WITH LAWS
<PAGE>
EXHIBIT M
SURETY OBLIGATIONS
<PAGE>
EXHIBIT N
CAPITALIZED LEASES
Borrower has the following capitalized leases:
<PAGE>
EXHIBIT O
OPERATING LEASES
Borrower has the following operating leases:
<PAGE>
EXHIBIT P
COMPLIANCE CERTIFICATE
[LETTERHEAD OF BORROWER]
__________, 19__
TO: _________________________
_________________________
_________________________
The undersigned, in his capacity as the chief financial officer of
Morgan Products Ltd. ("Borrower"), a Delaware corporation, gives this
certificate to Barclays Business Credit, Inc. ("Agent") in accordance with
the requirements of Section 9.1(J) of that certain Loan and Security
Agreement dated July 14, 1994, among Borrower, the "Lenders" (as defined
therein) and Barclays Business Credit, Inc., as agent for said Lenders (the
"Loan Agreement"). Capitalized terms used in this Certificate, unless
otherwise defined herein, shall have the meanings ascribed to them in the
Loan Agreement:
(1) Based upon my review of the balance sheets and statements of
income of Borrower for the [fiscal year] [fiscal quarter] [fiscal month]
ending ____________, 19__, copies of which are attached hereto, I hereby
certify that:
(a) Tangible Net Worth as of ____________, 19__, is
$___________;
(b) The Ratio of Indebtedness to Tangible Net Worth as of
__________________, 199___ is ________ to 1;
(c) The Interest Coverage Ratio for twelve month period ending
______________ is ______________ to 1;
(d) Capital Expenditures during the fiscal year total
$__________.
(2) No Default exists on the date hereof, other than:
__________________________ (if none, so state); and
(3) No Event of Default exists on the date hereof, other than:
__________________________ (If none, so state).
Very truly yours,
______________________________
Chief Financial Officer
<PAGE>
EXHIBIT Q
PERMITTED LIENS
<PAGE>
EXHIBIT R
Landlord or Warehouse Locations
<PAGE>
EXHIBIT 10.8
Morgan Products Ltd.
25 Tri-State International
Suite 325
Lincolnshire, IL 60069
May 31, 1994
Mr. Arthur L. Knight, Jr.
President
Morgan Products, Ltd.
25 Tri-State International
Suite 325
Lincolnshire, IL 60069
Dear Arthur:
This letter will confirm in writing the mutual agreement reached
between you and Morgan Products Ltd. (the "Company") regarding the
termination of your employment with the Company.
1. Effective upon the date of the appointment of your successor
(the "Resignation Date"), you hereby resign as President and Chief
Executive Officer of the Company and as an officer and director of the
Company's subsidiaries. You agree to continue to serve as a Director of
the Company (at no further expense to the Company other than reimbursement
of your out-of-pocket expenses) for the term beginning with the May 18,
1994 annual meeting of the Company, but to tender your resignation after
the date hereof if requested to do so by the Chairman of the Board of the
Company.
2. In consideration of your resignations set forth in paragraph
1 above, and of your covenant not to compete and your release set forth in
paragraphs 5 and 10, respectively, below, the Company will provide you with
the following severance package:
(a) The Company will pay you severance in the form of the
continuation of your base salary at its current annual rate of
$350,000 per year from the Resignation Date through May 31, 1996 (the
"Severance Period"). Such severance will be paid at the same interval
at which your base salary is currently paid, subject to applicable
withholdings and deductions. Such severance will be reduced by the
amount of your earnings from personal services for others (whether as
an employee, consultant, director or otherwise) during the Severance
Period; provided, however, there shall be no such reduction for up to
an aggregate total of $35,000 per calendar year (pro-rated for any
portion of a calendar year) earned from part-time employment or
consulting assignments or from outside directors' fees.
<PAGE>
(b) During the Severance Period, the Company will continue
to carry you in its group medical and term life insurance plans at the
Company's sole expense except for any generally applicable employee
contribution requirements. Thereafter, you may continue in the
Company's group medical plan at your own expense to the extent
provided under COBRA. In any event, coverage under these plans will
terminate at such time as you obtain substantially comparable coverage
from a subsequent employer.
(c) During the Severance Period, you will have continued
use of your current Company automobile at no charge to you, except
that you shall be responsible for all operating expenses of the
vehicle, including maintenance, but excluding insurance. In
connection with the latter, the Company shall carry the same insurance
coverages as are currently carried and you will be named as an
additional insured. At your option, exercisable by notice to the
Company not later than the Resignation Date, the Company will
transfer, or cause to be transferred, to you for $1.00 such Company
automobile. You acknowledge that such a transfer will be taxable to
you to the extent of the fair market value of such automobile and that
the Company may take a tax deduction therefor.
You acknowledge that the severance package set forth in this paragraph 2
will be in lieu of any other severance benefit which might otherwise be
available to you pursuant to any Company plan, policy or agreement. You
also acknowledge that continued observance by you of your obligations in
paragraph 5 below will be a condition precedent to the Company's obligation
to continue its payments under such severance package.
3. The Company will also pay you your accrued vacation pay
through the Resignation Date and will reimburse you for your out-of-pocket
business expenses incurred through the Resignation Date, and for out-of-
pocket expenses incurred after the Resignation Date in connection with your
position as director of the Company, all in accordance with Company policy.
4. In accordance with the Company's Incentive Stock Option
Plan, all unexercised options held by you will expire on the Resignation
Date. Pursuant to the terms of the Company's Capital Appreciation Rights
Plan, all rights under that Plan will automatically terminate on the
Resignation Date. The terms of the Company's 401(k) plan will apply with
respect to your rights thereunder.
5. You agree that, during the Severance Period, you shall not,
directly or indirectly:
(a) use, attempt to use, disclose, or otherwise make known
to any person or entity (other than the Board of Directors of the
Company or otherwise in the course of the business of the Company and
its affiliates):
(i) any knowledge or information including, without
limitation, lists of customers or suppliers, trade secrets, know-
how, inventions, discoveries, and processes, as well as any data
and records pertaining thereto, which you may have acquired in
the course of your employment; provided, however, such
restriction shall not apply to any such knowledge or information
<PAGE>
which is already in the public domain through no fault of your
own; or
(ii) any knowledge or information of a confidential
nature (including all unpublished matters) relating to, without
limitation, the business, properties, accounting, books and
records, trade secrets, or memoranda of the Company or its
affiliates;
(b) engage or become interested (whether as an owner,
general partner, officer, employee, consultant, or otherwise) in the
business of selling, leasing, manufacturing, designing, or otherwise
producing or distributing, building products or systems of the kind
which are competitive with those manufactured and/or sold by the
Company, or any other business or businesses then conducted by the
Company or its subsidiaries in the United States of America, except
that nothing in this subparagraph shall be deemed to prohibit the
acquisition or holding of not more than two percent (2%) of the shares
or other securities of a publicly owned corporation if such securities
are regularly traded on a national securities exchange or over the
counter; or
(c) employ, retain, or arrange to have any other person,
firm, or other entity employ, retain, or otherwise participate in the
employment or retention of, any person who is an employee or
consultant of the Company or its affiliates.
As used in this paragraph 5, the term "affiliate" shall mean any
corporation, partnership, or business enterprise owned or controlled by the
Company or by a corporation, partnership or business enterprise which,
directly or indirectly, owns or controls the Company. You acknowledge
that, given your unique position with, and knowledge of, the Company and
its business, monetary damages may not be an adequate remedy for any breach
of this paragraph 5 and, accordingly, the Company may sue for and obtain
injunctive relief in connection with any breach or alleged breach hereof.
6. The Company's directors' and officers' liability insurance
policy (or any replacement thereof) will, so long as it is in effect,
continue to cover you for the period during which you were an officer and a
director, it being understood that this paragraph shall not require the
Company to carry directors' and officers' insurance of any amount, or at
all.
7. In the event that either you or the Company shall
successfully enforce its rights under this agreement by judicial process,
the non-prevailing party shall be obligated to bear the reasonable
attorneys' fees and expenses of the prevailing party.
8. The Company may assign its rights and obligations under this
letter to any person, it being understood that no such assignment shall
release the Company of any obligations hereunder without your prior written
consent.
9. Effective upon the Resignation Date, the employment letter
agreement dated February 19, 1992 between you and the Company will be
terminated and of no further effect.
<PAGE>
10. You hereby release and discharge the Company and its
affiliates, and their respective directors, officers, partners,
stockholders, employees and agents, from any and all claims you may have
against any of them arising out of or based upon your employment with the
Company and its termination, and any claims of discrimination (including
claims under the Age Discrimination in Employment Act) or wrongful
discharge. You acknowledge that (a) you have been advised in writing to
consult with an attorney prior to signing this letter, (b) the Company has
given you at least 21 days to consider the agreement set forth in this
letter before you must either sign this letter or reject it, and (c) you
understand that you may revoke this release for a period of 7 days from the
date of your signature below, and that such revocation can only be
exercised in a writing addressed to Frank J. Hawley, Jr., Chairman of the
Board, c/o Saugatuck Associates, Inc., One Canterbury Green, Stamford, CT
06901, and must be actually received within the 7-day period to be
effective.
11. Except as required by law or the applicable rules of any
securities exchange, neither party hereto shall make any public disclosure
of the terms of this letter without the consent of the other party hereto.
12. The effectiveness of the agreement set forth in this letter
is subject to the approval of this letter by the Company's Board of
Directors.
If the terms of this letter accurately set forth our agreement,
please countersign a copy of this letter in the space indicated and return
it to the undersigned.
Sincerely,
MORGAN PRODUCTS LTD.
By ________________________________
Frank J. Hawley, Jr.
Chairman of the Board
Accepted and Agreed:
____________________________
Arthur L. Knight, Jr.
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this 19th
day of August, 1994, between Morgan Products Ltd. (the "Company"), and
Larry R. Robinette (the "Executive").
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to accept employment with the Company, but only on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and the Executive hereby
agree as follows:
1. The Company shall employ the Executive, and the Executive
shall serve the Company, for the period (the "term") beginning on September
6, 1994 and expiring on December 31, 1997, subject to earlier termination
as hereinafter provided. After the expiration of the initial term of the
Executive's employment under this Agreement and subject to earlier
termination as hereinafter provided, the term of the Executive's employment
hereunder shall be automatically renewed for successive one (1) year terms,
unless either party delivers to the other party at least one hundred eighty
(180) days prior to the expiration of the initial term or any renewal term,
as the case may be, written notice of its desire not to renew the term of
the Executive's employment hereunder. In the event that the Company elects
not to renew the term of the Executive's employment hereunder at the end of
the initial term or any renewal term, as the case may be, in accordance
with the preceding sentence, for a period of one year beginning at the end
of such initial term or renewal term, as the case may be (the "Severance
Period"), and provided that the Executive at all times complies with
paragraphs 5, 6, 7 and 8 hereof, the Company shall (i) pay to the Executive
as severance (the "Severance Amount") an amount equal to the base salary
that the Executive had been paid for the prior year, which Severance Amount
shall be payable in equal installments over the Severance Period in
accordance with the Company's then prevailing payroll practices, and (ii)
continue to provide to the Executive, at the expense of the Company, the
health and welfare benefits provided to the Executive during the
immediately preceding twelve month period. Except as expressly set forth
in the preceding sentence and except as expressly set forth in the "Rabbi
Trust" agreement contemplated by paragraph 3(d) hereof, the Company shall
have no further obligation to the Executive of any kind under this
Agreement in the event that the Company so elects not to renew the term of
the Executive's employment hereunder at the end of such initial term or
renewal term, as the case may be, including any obligation to pay the
Executive any further amounts of any kind under this Agreement. From the
date of this Agreement until the beginning of the term, the Executive shall
also be an employee of the Company, but shall perform only such duties and
shall receive only such remuneration therefor as provided in this Agreement
or as the Company and the Executive shall mutually agree.
2. During the term of this Agreement, the Executive shall serve
the Company as its President and Chief Executive Officer. During the term
of this Agreement, the Executive shall, except during vacation or sick
<PAGE>
leave, devote the whole of his time, attention and skill during usual
business hours (and outside those hours when reasonably necessary to his
duties hereunder) to his duties hereunder; faithfully and diligently
perform such duties and exercise such powers as may be from time to time
assigned to or vested in him by the Company's Board of Directors (the
"Board") or by the Chairman of the Board; implement the decisions of the
Board (of which the Executive is to be a member) and the Chairman of the
Board; and use his best efforts to promote the interests of the Company.
The Executive may be required in pursuance of his duties hereunder to
perform services for any company controlling, controlled by or under common
control with the Company (such companies hereinafter collectively called
"Affiliates") and to accept such offices in any Affiliates as the Board or
the Chairman of the Board may require. The Company will elect the
Executive as a director of the Company promptly after this Agreement
becomes effective. Thereafter, during the term of this Agreement, the
Company will use its reasonable best efforts to cause the Executive to be
re-elected as a director of the Company, and the Executive agrees to serve
in such capacity if elected and re-elected.
3. (a) During the term of this Agreement, the Company shall
pay the Executive a base salary at an annual rate of $350,000, which shall
be payable periodically in accordance with the Company's then prevailing
payroll practices. In no event will the Executive's base salary be reduced
during the term of this Agreement.
(b) During the term of this Agreement, the Executive will
be eligible to receive a bonus at the end of each calendar year based upon
the Company's performance for such calendar year. Such bonus will be
determined in accordance with the Company's bonus plan for executive
officers and the Executive will receive a bonus of 50% of the Executive's
annual base salary if the Company meets its budget under the Company's
bonus plan then in effect. Such bonus eligibility will be increased to up
to 70% of the Executive's annual base salary if the Company exceeds its
budget and meets certain targets under the Company's bonus plan then in
effect.
(c) Upon execution of this Agreement, the Executive will be
entitled to receive a signing bonus of $150,000, of which $50,000 will be
payable upon the effectiveness of this Agreement and $100,000 will be
payable on January 1, 1995. Such signing bonus will be in addition to any
annual bonus to which the Executive may be entitled to under paragraph 3(b)
above.
(d) The Company will establish a "Rabbi Trust" or a
"Grantor's Trust" for the Executive's benefit and will contribute to such
trust common stock of the Company with a value of $700,000 (based upon the
closing price of the Company's common stock as reported by the New York
Stock Exchange on August 19, 1994). The trust instrument shall provide
that (i) the Company will guarantee that the value of the assets held by
such trust on August 19, 1997, or on such earlier date upon which the
Executive will fully vest in the trust as provided below, will be equal to
at least $700,000 and (ii) the trustee will distribute to the Executive or
his beneficiaries, no later than 30 days after August 19, 1997 or such
earlier date upon which the Executive will fully vest in the trust as
provided below, all of the assets of the trust in which the Executive has
vested. Attached as Exhibit A hereto is a form of trust instrument for
<PAGE>
such trust which reflects the mutual intent of the parties hereto. The
parties will use their reasonable best efforts to finalize such instrument
substantially in the form attached with such changes as may be deemed
necessary by the parties based upon the advice of their respective tax
advisors and the concerns of the Trustee thereunder and its advisors. The
trust will be granted "piggyback" registration rights with respect to the
common stock of the Company held by it, subject to underwriter's cut-back.
The Executive acknowledges that the shares of common stock of the Company
deposited into such trust will, in the absence of registration under the
Securities Act of 1933, be restricted securities and not transferable
except pursuant to an applicable exemption under such Act. The Executive
consents to placing an appropriate legend to such effect on such shares.
The Company will administer the trust, and any taxes of the trust will be
payable out of the assets of the trust. The Executive will vest in the
trust in equal percentages over the three-year period beginning on the date
of this Agreement; provided, however, that the Executive will vest in the
trust in full immediately if, prior to the end of such three-year period,
the Executive's employment with the Company is terminated by the Company
for any reason other than fraud or dishonesty, or terminated by the
Executive for Good Reason (as defined in paragraph 4(d) below), or
terminated because of the Executive's death or disability, or terminated as
a result of the acquisition by a third party of all or substantially all of
the assets of the Company or of a majority of the outstanding voting stock
of the Company (including by way of a merger of the Company with or into
another entity).
(e) Effective the date of this Agreement, the Company will
grant the Executive options under the Company's stock option plan to
purchase 250,000 shares of common stock of the Company at an exercise price
of Five Dollars ($5.00) per share. The Executive will vest in such options
on the following vesting schedule: 25% upon signing this Agreement; 25% on
August 19, 1995; 35% on August 19, 1996; and 15% on August 19, 1997. As
provided in such stock option plan, the Executive will become immediately
vested in full in such options upon an acquisition by a third party of all
or substantially all of the assets of the Company or of a majority of the
outstanding voting stock of the Company. Except as set forth above, all of
the terms of the Company's stock option plan shall apply to such options.
(f) During the term of this Agreement, the Executive shall
be entitled to: use of a Company automobile (a Cadillac or equivalent
U.S.-made automobile); reimbursement of reasonable initiation and
membership fees to one country club; reimbursement of fees paid for the
preparation of the Executive's individual income tax returns; participation
in the Company's Profit Sharing and Savings Retirement Plan (the "Plan") in
accordance with the terms of the Plan (which presently would allow the
Executive to contribute up to 6% of the Executive's base salary (currently
limited to $150,000 of the Executive's base salary) with the Company
matching 50% of the Executive's contributions (provided that the maximum
amount of the Executive's contribution would be $9,240 per year));
participation in the Company's deferred compensation plan in accordance
with the terms of such plan (which would allow the Executive to defer up to
6% of the Executive's base salary in excess of the maximum amount
recognized by law under the Plan each year, with the Company matching 50%
of such deferred compensation); and term life insurance in the aggregate of
$1,000,000 or split-dollar life insurance in such amount so long as the
<PAGE>
annual cost thereof to the Company does not exceed the cost of such term
life insurance.
(g) The Company will provide the Executive relocation
assistance in accordance with the program set forth on Exhibit B attached
hereto in connection with any relocation from his primary residence as of
the date of this Agreement.
(h) Upon the Executive's retirement from the Company and at
the Executive's expense (as provided under COBRA), the Executive will be
eligible to continue to be covered by the Company's group medical and/or
dental insurance plans until the Executive reaches 65 years of age.
(i) During the term of this Agreement, the Executive shall
be entitled to such expense accounts, vacation time, sick leave,
perquisites of office, fringe benefits, medical and dental insurance
coverage and disability insurance (with all waiting periods, if any, for
any such insurance being waived), and other terms and conditions of
employment as the Company generally provides to its employees having rank
and seniority at the Company comparable to the Executive.
4. Unless terminated in accordance with the following
provisions of this paragraph 4, the Company shall continue to employ the
Executive and the Executive shall continue to work for the Company, during
the term of this Agreement.
(a) The term of this Agreement shall terminate
automatically upon the death of the Executive.
(b) The Company may place the Executive on long term
disability and replace him as President and Chief Executive Officer if the
Executive suffers from a physical or mental disability to an extent that
renders it impracticable for the Executive to continue performing his
duties as President and Chief Executive Officer hereunder. In addition,
the Company may terminate the term of this Agreement and the Executive's
employment hereunder so long as the Executive is eligible to begin
receiving disability benefits under the Company's long term disability
policy then in effect and such termination does not affect the Executive's
eligibility to receive such benefits. The Executive shall be deemed to be
so disabled if (i) the Executive's physical or mental condition renders the
Executive unable to perform his duties for a period exceeding six
consecutive months, or (ii) due to a physical or mental condition, the
Executive has not substantially performed his duties hereunder for a period
of six consecutive months.
(c) The Company may terminate the term of this Agreement
and the Executive's employment hereunder at any time for cause; cause shall
mean (i) a default or other breach by the Executive of his obligations
under this Agreement, which default or other breach has not been cured
within thirty (30) days of written notice thereof from the Company to the
Executive, or (ii) any fraud or dishonesty on the part of the Executive.
(d) The Company may terminate the term of this Agreement
and the Executive's employment hereunder at any time during the initial
term or any renewal term without cause. In the event that the Executive is
terminated by the Company without cause, and provided that the Executive at
<PAGE>
all time complies with paragraphs 5, 6, 7 and 8 hereof, the Company shall
(i) continue to pay to the Executive during such initial term or renewal
term, as the case may be, only the base salary to which the Executive would
have been entitled to receive hereunder had the Executive's employment not
been so terminated, (ii) continue to provide to the Executive for the
remainder of the initial term or the renewal term, as the case may be, at
the expense of the Company, the same health and welfare benefits which were
being provided to the Executive prior to such termination, and (iii) pay to
the Executive the annual bonus the Executive would have been entitled to
receive under paragraph 3(b) above for the calendar year in which the
Executive's employment hereunder was terminated, pro-rated for the actual
number of days elapsed during such calendar year up until the date of such
termination (such pro rated bonus to be paid at the regularly scheduled
time). In addition, the Executive may terminate the term of this Agreement
and the Executive's employment hereunder at any time during the initial
term or any renewal term for Good Reason. Any such termination by the
Executive for Good Reason shall be deemed to be, and shall be treated as, a
termination of the term of this Agreement by the Company without cause. As
used herein, the term "Good Reason" shall have the meaning set forth in
Exhibit C attached hereto.
(e) Upon termination pursuant to paragraphs 4(a), 4(b),
4(c) or 4(d), above, and except as set forth in paragraph 4(d) above, the
Company shall pay the Executive or his estate only the Executive's base
salary earned and unpaid to the date of termination, and any outstanding
funds advanced by the Company to or on behalf of the Executive shall become
immediately due and payable, except for any equity loan which would not
otherwise be due pursuant to the Relocation Assistance Program on Exhibit B
attached hereto. Upon termination pursuant to paragraphs 4(a), 4(b), 4(c)
and 4(d) above, except as expressly set forth in paragraph 4(d) above and
in the immediately-preceding sentence of this paragraph 4(e) and except as
set forth in the "Rabbi Trust" agreement contemplated by paragraph 3(d)
hereof, the Company shall have no further obligation to the Executive of
any kind under this Agreement, including any obligation to pay the
Executive any further amounts of any kind under this Agreement.
(f) Upon termination pursuant to paragraphs 4(b), 4(c) and
4(d) above or in the event that the Company elects not to renew the term of
the Executive's employment hereunder at the end of the initial term or any
renewal term, as the case may be, hereunder, the Executive shall also be
deemed to have resigned from the Board, if elected as a director, effective
upon the date of termination of the Executive's employment.
5. The Executive shall not divulge or communicate to any person
(except in performing his duties under this Agreement) or use for his own
purposes trade secrets, confidential commercial information, or any other
information, knowledge or data of the Company or of any of its Affiliates
which is not generally known to the public and shall use his best efforts
to prevent the publication or disclosure by any other person of any such
secret, information, knowledge or data. All documents and objects made,
compiled, received, held or used by the Executive while employed by the
Company in connection with the business of the Company shall be and remain
the Company's property and shall be delivered by the Executive to the
Company upon the termination of the Executive's employment or at any
earlier time requested by the Company.
<PAGE>
6. The Executive agrees that during his employment at the
Company and for a period of two years after the termination of his
employment hereunder, he will not directly or indirectly, whether or not
for compensation and whether or not as an employee, be engaged in or have
any financial interest in any business competing with or which may compete
with the business of the Company (or with any business of any Affiliate for
which the Executive performed services hereunder) within any state, region
or locality in which the Company or such Affiliate is then doing business
or marketing its products, as the business of the Company or such Affiliate
may then be constituted. For purposes of this Agreement, the Executive
shall be deemed to be engaged in or to have a financial interest in such a
business if he is an employee, officer, director, or partner of any person,
partnership, corporation, trust or other entity which is engaged in such a
business, or if he directly or indirectly performs services for such entity
or if he or any member of his immediate family beneficially owns an equity
interest, or interest convertible into equity, in any such entity;
provided, however, that the foregoing shall not prohibit the Executive or a
member of his immediate family from owning, for the purpose of passive
investment, less than 5% of any class of securities of a publicly held
corporation. The Executive recognizes that a breach or threatened breach
by him of his obligations under this paragraph 6 would cause irreparable
injury to the Company, and the Company shall be entitled to preliminary and
permanent injunctions enjoining him from violating this paragraph 6 in
addition to any other remedies which may be available.
7. The Executive agrees that he shall not, for a period of two
years after the termination of his employment hereunder, employ any person
who was employed by the Company or any of its Affiliates or induce such
person to accept employment other than with the Company and its Affiliates.
8. The Executive hereby agrees that any and all improvements,
inventions, discoveries, formulae, processes, methods, know-how,
confidential data, trade secrets and other proprietary information
(collectively, "Work Products") within the scope of any business of the
Company or any Affiliate which the Executive may conceive or make or have
conceived or made during his employment with the Company shall be and are
the sole and exclusive property of the Company, and that the Executive
shall, whenever requested to do so by the Company, at its expense, execute
and sign any and all applications, assignments or other instruments and do
all other things which the Company may deem necessary or appropriate (i) in
order to apply for, obtain, maintain, enforce or defend letters patent of
the United States or any foreign country for any Work Product, or (ii) in
order to assign, transfer, convey or otherwise make available to the
Company the sole and exclusive right, title and interest in and to any Work
Product.
9. In the event of any dispute between the parties hereto
arising out of or relating to this Agreement or the employment relationship
between the Company and the Executive (except any dispute with respect to
paragraphs 5, 6 or 7 hereof), such dispute shall be settled by arbitration
in Stamford, Connecticut in accordance with the commercial arbitration
rules then in effect of the American Arbitration Association. Judgment
upon the award rendered may be entered in any court having jurisdiction
thereof. Notwithstanding anything herein to the contrary, if any dispute
arises between the parties under paragraphs 5, 6 or 7 the Company shall not
be required to arbitrate such dispute or claim but shall have the right to
<PAGE>
institute judicial proceedings in any court of competent jurisdiction with
respect to such dispute or claim. If such judicial proceedings are
instituted, the parties agree that such proceedings shall not be stayed or
delayed pending the outcome of any arbitration proceeding hereunder.
10. Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and
delivered personally or sent by registered or certified mail, postage
prepaid, addressed as follows:
If to the Company:
Morgan Products Ltd.
c/o Saugatuck Associates, Inc.
One Canterbury Green
Stamford, CT 06901
If to the Executive:
Mr. Larry R. Robinette
7109 Ravens Run
Cincinnati, OH 45244
or to such other address as either party may designate by notice to the
other, which notice shall be deemed to have been given upon receipt.
11. This Agreement (including the documents referenced herein)
constitutes the entire agreement between the parties hereto with respect to
the Executive's employment by the Company, and supersedes and is in full
substitution for any and all prior understandings or agreements with
respect to the Executive's employment.
12. This Agreement may be amended only by an instrument in
writing signed by the parties hereto, and any provision hereof may be
waived only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The failure of
either party hereto at any time to require the performance by the other
party hereto of any provision hereof shall in no way affect the full right
to require such performance at any time thereafter, nor shall the waiver by
either party hereto of a breach of any provision hereof be taken or held to
be a waiver of any succeeding breach of such provision or a waiver of the
provision itself or a waiver of any other provision of this Agreement.
13. This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this Agreement nor
any right or obligation hereunder may be assigned by the Company (except to
an Affiliate) or by the Executive.
14. If any provision of this Agreement, or portion thereof, is
so broad, in scope or duration, so as to be unenforceable, such provision
or portion thereof shall be interpreted to be only so broad as is
enforceable.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
<PAGE>
16. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
17. The Executive represents and warrants that he is not party
to any agreement which would prohibit him from entering into this Agreement
or performing fully his obligations hereunder.
IN WITNESS WHEREOF, the Company and the Executive have executed
this Agreement as of the date first written above.
MORGAN PRODUCTS LTD.
_________________________ By:__________________________
LARRY R. ROBINETTE Chairman of the Board
Exhibits
A - Rabbi Trust Instrument
B - Relocation Assistance Program
C - Definition of Good Reason
<PAGE>
Exhibit A
TRUST UNDER EMPLOYMENT AGREEMENT
BETWEEN MORGAN PRODUCTS LTD.
AND LARRY R. ROBINETTE
This Agreement made as of the 19th day of August, 1994, by and
between Morgan Products Ltd. (the "Company") and Harris Trust and Savings
Bank, an Illinois banking corporation (the "Trustee");
WHEREAS, the Company has incurred liability under the terms of
the Employment Agreement between the Company and Larry R. Robinette (the
"Executive") dated August 19, 1994 (the "Employment Agreement") with
respect to the grant of certain common stock of the Company to the
Executive under said Employment Agreement;
WHEREAS, the Company wishes to establish a trust (hereinafter
called, the "Trust") and to contribute to the Trust assets that shall be
held therein, subject to the claims of the Company's creditors in the event
of the Company's Insolvency, as herein defined, until paid to the Executive
or his beneficiaries in such manner and at such times as specified in this
Trust instrument;
WHEREAS, it is the intention of the Company to make contributions
to the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under said Employment Agreement with the
Executive;
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of the Trust.
(a) The Company hereby deposits with the Trustee shares of
common stock of the Company valued at $700,000 (based upon the closing
price of the Company's common stock as reported by the New York Stock
Exchange on August 19, 1994), which shall become the principal of the
Trust to be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust shall become irrevocable upon approval by the
Board of Directors of the Company.
(c) The Trust is intended to be a grantor trust, of which
the Company is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code of
1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust and any earnings thereon
shall be held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of the Executive
and general creditors as herein set forth. The Executive and his
beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created
under the Employment Agreement and this Trust Agreement shall be mere
unsecured contractual rights of the Executive and his beneficiaries
<PAGE>
against the Company. Any assets held by the Trust will be subject to
the claims of the Company's general creditors under federal and state
law in the event of Insolvency, as defined in Section 3(a).
(e) The Company, in its sole discretion, may at any time,
or from time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to be
held, administered and disposed of by the Trustee as provided in this
Trust Agreement. Except as provided in (f) below, neither the Trustee
nor the Executive or any beneficiary shall have any right to compel
such additional deposits.
(f) The Company shall make such contributions to the Trust
as shall be necessary to ensure that the assets of the Trust (valued
on August 19, 1997 or on such earlier date upon which the Executive's
employment is terminated (i) due to death or disability, (ii) due to
termination by the Company for any reason other than fraud or
dishonesty, (iii) due to termination by the Executive for Good Reason
(as defined in the Employment Agreement), or (iv) as a result of the
acquisition by a third party of all or substantially all of the assets
of the Company or of a majority of the outstanding voting stock of the
Company (including by way of a merger of the Company with or into
another entity)) are equal to at least $700,000. For purposes of this
Trust instrument, the date upon which the assets of the Trust are
valued, as aforesaid, is called the "Valuation Date."
Section 2. Payments to the Executive and His Beneficiaries.
(a) The Company shall deliver to the Trustee a schedule
(the "Payment Schedule") that indicates the amounts payable the
Executive (and his beneficiaries) whose benefits are to be funded
through the Trust, that provides a formula or other instructions
acceptable to the Trustee for determining the amounts so payable, the
form in which such amount is to be paid, and the time of commencement
for payment of such amounts. Except as otherwise provided herein, the
Trustee shall make payments to the Executive and his beneficiaries in
accordance with such Payment Schedule. The Trustee shall make
provisions for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Payment Schedule and
shall pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid by
the Company.
(b) The entitlement of the Executive or his beneficiaries
to benefits under the Employment Agreement shall be determined by the
Company, and any claim for such benefits shall be considered and
reviewed under the procedures set out in the Employment Agreement.
(c) The Company may make payment of benefits directly to
the Executive or his beneficiaries as they become due under the terms
of the Employment Agreement. The Company shall notify the Trustee of
its decision to make payment of benefits directly prior to the time
amounts are payable to the Executive or his beneficiaries.
<PAGE>
Section 3. Trustee Responsibility Regarding Payments To Trust
Beneficiary When the Company Is Insolvent.
(a) The Trustee shall cease payment of benefits to the
Executive and his beneficiaries if the Company is Insolvent. The
Company shall be considered "Insolvent" for purposes of this Trust
Agreement if (i) the Company is unable to pay its debts as they become
due or (ii) the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company under
federal and state law as set forth below;
(1) The Board of Directors and the Chief Executive
Officer or Chief Financial Officer of the Company shall have the
duty to inform the Trustee in writing of the Company's
Insolvency.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the Company
that the Company is Insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may in all
events rely on such evidence concerning the Company's solvency as
may be furnished to the Trustee and that provides the Trustee
with a reasonable basis for making a determination concerning the
Company's solvency.
(3) If at any time the Trustee has actual knowledge of
the Company's Insolvency, or the Trustee has been informed by the
Board of Directors or Chief Executive Officer or Chief Financial
Officer of the Company that the Company is Insolvent, the Trustee
shall discontinue payments to the Executive or his beneficiaries
and shall hold the assets of the Trust for the benefit of the
Company's general creditors. Nothing in this Trust Agreement
shall in any way diminish any right of the Executive or his
beneficiaries to pursue their rights as general creditors of the
Company with respect to benefits due under the Employment
Agreement.
(4) The Trustee shall resume the payment of benefits
to the Executive or his beneficiaries in accordance with Section
2 of this Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the
Trustee discontinues the payments of benefits from the Trust pursuant
to this Section 3 and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate
amount of all payments due to the Executive or his beneficiaries under
the terms of the Employment Agreement for the period of such
discontinuance, less the aggregate amount of any payments made to the
Executive or his beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
<PAGE>
Section 4. Payments to the Company.
Except as provided in Section 3 hereof, after the Trust has
become irrevocable, the Company shall have no right or power to direct
the Trustee to return to the Company or to divert to others any of the
Trust assets before all payments of benefits have been made to the
Executive and his beneficiaries in accordance with the Payment
Schedule referred to in Section 2 hereof.
Section 5. Investment Authority.
(a) The Trustee may invest in securities (including stock
or rights to acquire stock) or obligations issued by the Company. All
rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in no event
be exercisable by or rest with the Executive. The Trustee
acknowledges that the objective of the Executive is to grow the asset
value of the Trust and that the Trustee should, therefore, give
consideration to selling all or a portion of the shares of Company
common stock (to the extent legally possible) when, in the judgment of
the Trustee, market conditions warrant such sale. Thereafter, the
Trustee should reinvest the proceeds of any such sale of Company
common stock in conservative instruments bearing minimal market risk,
such as treasury securities, money market funds and common trust funds
of the Trustee.
(b) The Company shall have the right at any time in its
sole discretion, to substitute assets of equal fair market value for
any assets held by the Trust; provided, however, if the Company shall
have substituted other assets (the "Substituted Assets") for a number
of shares of common stock of the Company (the "Removed Shares") and if
on the Valuation Date the value of that number of shares of Company
common stock equal to the Removed Shares is greater than the value of
the Substituted Assets, the Company shall make a contribution to the
Trust of additional assets having a value as of the Valuation Date
equal to the difference between the Removed Shares and the Substituted
Assets. This right is exercisable by the Company in a nonfiduciary
capacity without the approval or consent of any person in a fiduciary
capacity.
Section 6. Disposition of Income.
During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested;
provided, however, no dividends on Company common stock shall be
reinvested in any further shares of Company common stock.
Section 7. Accounting by Trustee.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be
agreed upon in writing between the Company and the Trustee. Within
sixty (60) days following the close of each calendar year and within
sixty (60) days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its
<PAGE>
administration of the Trust during such year or during the period from
the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements
and other transactions effected by it, including a description of all
securities and investments purchased and sold with the cost or net
proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash, securities
and other property held in Trust at the end of such year or as of the
date of such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like
aims, provided, however, that the Trustee shall incur no liability to
any person for any action taken pursuant to a direction, request or
approval given by the Company which is contemplated by, and in
conformity with, the terms of the Employment Agreement or this Trust
and is given in writing by the Company. In the event of a dispute
between the Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation
arising in connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and liabilities
(including, without limitation, reasonable attorneys' fees and
expenses) relating thereto and to be primarily liable for such
payments. If the Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee may obtain
payment from the Trust. In such event the Company shall promptly
reimburse the Trust for the amount of such payment.
(c) The Trustee may consult with legal counsel (who may
also be counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to
assist it in performing any of its duties or obligations hereunder.
Section 9. Compensation and Expenses of the Trustee.
The Company shall pay all administrative and Trustee's fees
and expenses. If not so paid, the fees and expenses shall be paid
from the Trust. In such event the Company shall promptly reimburse
the Trust for the amount of such payment.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to
the Company, which shall be effective sixty (60) days after receipt of
such notice unless Company and Trustee agree otherwise.
<PAGE>
(b) The Trustee may be removed by Company on sixty (60)
days notice or upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be completed
within sixty (60) days after receipt of notice of resignation, removal
or transfer, unless the Company extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall
be appointed, in accordance with Section 11, by the effective date of
resignation or removal under paragraph (a) or (b) of this Section. If
no such appointment has been made, the Trustee may apply to a court of
competent jurisdiction for appointment of a successor or for
instructions. All expenses of the Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
To the extent such administrative expenses are paid by the Trust, the
Company shall promptly reimburse the Trust for the amount of such
expenses.
Section 11. Appointment of Successor.
(a) If Trustee resigns or is removed in accordance with
Section 10(a) or (b), the Company may appoint any third party, such as
a bank trust department or other party that may be granted corporate
trustee powers under state law, as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective when
accepted in writing by the new Trustee, who shall have all of the
rights and powers of the former Trustee, including ownership rights in
the Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by Company or the successor Trustee
to evidence the transfer.
(b) The successor Trustee need not examine the records and acts
of any prior Trustee and may retain or dispose of existing Trust
assets, subject to Section 7 and 8. The successor Trustee shall not
be responsible for and the Company shall indemnify and defend the
successor Trustee from any claim or liability resulting from any
action or inaction of any prior Trustee or from any other past event,
or any condition existing at the time it becomes successor Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company. Notwithstanding
the foregoing, no such amendment shall conflict with the terms of the
Employment Agreement or shall make the Trust revocable after it has
become irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which
the Executive and his beneficiaries are no longer entitled to benefits
pursuant to the terms of the Employment Agreement and Payment
Schedule. Upon termination of the Trust any assets remaining in the
Trust shall be returned to the Company.
<PAGE>
(c) Notwithstanding any other provisions of this Trust
Agreement, upon written approval of the Executive entitled to payment
of benefits pursuant to the terms of the Employment Agreement, the
Company may terminate this Trust prior to the time all benefit
payments under the Employment Agreement have been made. All assets in
the Trust at termination shall be returned to Company.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to the Executive and his beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable
process.
(c) This Trust Agreement shall be governed by and
construed, administered and enforced in accordance with the
substantive internal laws (and not the conflict of laws provisions) of
the State of Illinois.
Section 15. Effective Date.
The effective date of this Trust Agreement shall be as of
August 19, 1994.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of this 19th day of August, 1994.
COMPANY:
MORGAN PRODUCTS LTD.
By_________________________
Name:________________________
Attest:
Title:_______________________
_________________________
Name:____________________
Title:___________________
TRUSTEE:
HARRIS TRUST AND SAVINGS BANK
By _________________________
Name:________________________
Attest:
Title:_______________________
_________________________
Name:____________________
Title:___________________
<PAGE>
Payment Schedule
Vesting
Subject to Sections 1(c) and (d) of the Trust, the Executive
shall vest in the Trust 33 1/3% for each full year beginning on August 19,
1994. Notwithstanding the foregoing and subject to Sections 1(c) and (d)
of the Trust, the Executive shall be 100% vested in the Trust if, prior to
August 19, 1997, the Executive's employment with the Company is (a)
terminated by the Company for any reason other than fraud or dishonesty or
by the Executive for Good Reason (as defined in the Employment Agreement),
(b) terminated by reason of the Executive's death or disability or (c)
terminated as a result of the acquisition by a third party of all or
substantially all of the assets of the Company or of a majority of the
outstanding voting stock of the Company (including, by way of a merger of
the Company with or into another entity). Should the Executive's
employment with the Company be terminated by the Executive for any reason
(other than Good Reason) prior to August 19, 1997, the Executive shall
forfeit all right title and interest in the assets of the Trust. The
Company shall inform the Trustee in writing as to any employment
termination of the Executive and the extent, if any, to which the Executive
is vested as of such employment termination.
Distributions
Any distribution to which the Executive (or his beneficiaries in
the case of his death) becomes entitled under this Trust instrument and the
Employment Agreement shall be made by the Trustee as soon as practicable
(but in no event more than 30 days) after August 19, 1997 or such earlier
date upon which the Executive shall be fully vested in the Trust as
provided above. Such distribution shall be made in whole shares of common
stock of the Company (with cash for any fractional share), except where the
Trustee shall have sold such shares and reinvested the proceeds and except
where the Company shall have substituted other assets for such shares as
provided in the Trust instrument, and shall be made in a single payment.
<PAGE>
Exhibit B
Relocation Assistance Program
- Company to pay to the Executive any shortfall between sale price of
old (existing) primary residence and Executive's tax basis on such
residence; such payment to be grossed up for tax purposes
- Company controls marketing and sale of old primary residence<F1>, and,
from the time the Executive vacates the old primary residence until
the old primary residence is sold, the Company will bear the
Executive's carrying costs of such residence; such costs to be grossed
up for tax purposes
- Equity loan by Company for purchase of new primary residence
- loan equal to tax basis on old primary residence minus
outstanding mortgage principal
- loan is interest free
- loan to be repaid in full on sale of old primary residence or
earlier if Executive terminates employment other than for Good
Reason
- Reimbursement of mortgage loan origination fees and/or points in
connection with purchase of new primary residence up to a maximum of
two percent (2%) of mortgage principal; reimbursement of customary
closing costs (attorneys fees, inspection fees, title insurance fees,
transfer taxes and recording and notary fees, and the like) up to one
percent (1%) of price of new residence; these reimbursements to be
grossed up for tax purposes
- Company to pay the Executive the difference between the interest
expense on the mortgage of the new residence over the interest expense
on the mortgage of the old residence for a period of three years;
relates only to mortgage principal on new residence equal to mortgage
principal on old residence; payment to be grossed up for tax purposes
- Miscellaneous relocation allowance of one month's base salary; not
grossed up for tax purposes
- Reasonable expenses of moving household effects and household members
- Reasonable temporary living expenses pending move to new residence
____________________
<F1> Company may turn such marketing and sale function over to a
real estate relocation firm such as Prudential
<PAGE>
Exhibit C
Definition of Good Reason
"Good Reason" shall mean, without the express written consent of
the Executive:
(a) the assignment to him of any duties inconsistent with
and inferior to his positions, duties, responsibilities and status with the
Company during the preceding six (6) month period, or a change which makes
his reporting responsibilities, titles, or offices inferior to his
reporting responsibilities, titles and offices during the preceding six (6)
month period, or any removal of him from any of his positions or offices
held during the preceding six (6) month period, except in connection with
the termination of his employment by the Company for cause, disability or
retirement or as a result of his death or by the Executive for other than
Good Reason; or
(b) the failure by the Company to continue in effect any
company-sponsored benefit or compensation plan, program or policy in which
the Executive participated during the preceding six (6) month period (or
plans, programs or policies providing him with substantially similar
benefits), except where such action applies generally to senior officers of
the Company.
<PAGE>
EXHIBIT 10.12
Special Severance/Retention Plan
For Executive Officers
Morgan Products Ltd.
March 1994
<PAGE>
Morgan Products Ltd.
Special Severance/Retention Plan for Executive Officers
Article 1. Establishment of the Plan
1.1 ESTABLISHMENT OF THE PLAN. Morgan Products Ltd. (the "Company")
hereby establishes a severance plan to be known as the Morgan Products Ltd.
Special Severance/Retention Plan for Executive Officers" (the "Plan"), as
set forth in this document. Upon approval by the Board of Directors, the
Plan shall become effective as of March 30, 1994 (the "Effective Date"), or
on such other date as the Board shall designate, and shall remain in
effect, until the earlier to occur of: (a) March 29, 1999; or (b) the
effective date of a Change in Control. The capitalized terms used herein
shall have the meanings ascribed to them in Appendix A, attached hereto.
1.2 PURPOSE OF THE PLAN. The purpose of this Plan is to advance the
interests of the Company by encouraging executives to remain with the
Company and to continue to devote full attention to the Company's business
during a period of substantial uncertainty and potential change in the
structure of the Company.
Article 2. Eligibility and Participation
2.1 ELIGIBILITY. Individuals eligible to participate in this Plan
include the Chief Executive Officer of the Company, and those officers of
the Company who report directly to the Chief Executive Officer.
2.2 ACTUAL PARTICIPATION. Actual participation in this Plan shall be
determined by the Committee in accordance with the eligibility criteria set
forth in the Plan.
Article 3. Severance Benefits
3.1 RIGHT TO SEVERANCE BENEFITS. Subject to the provisions herein,
each Participant shall be entitled to receive from the Company Severance
Benefits as described in Section 3.3 herein, if, during the Retention
Period, the Participant's employment with the Company shall end for any
reason specified in Section 3.2 herein as being a Qualifying Termination.
A Participant shall not be entitled to receive Severance Benefits if
he or she is terminated for Cause, or if his or her employment with the
Company ends due to death, Disability, Retirement, or due to a voluntary
termination of employment by the Participant without Good Reason.
Notwithstanding the terms and provisions of any other plan or
agreement providing for the payment of benefits to a Participant upon
employment termination, Severance Benefits provided under this Plan shall
only be paid in lieu of any other severance-related payment to which a
Participant may otherwise be entitled. This specifically includes, but is
not limited to, payments pursuant to the Morgan Products Ltd. Severance
Policy other than Acquisition (providing for severance payments upon a
qualifying employment termination absent a Change in Control), and the
Morgan Products Ltd. Change-in-Control Severance Policy (providing for
payments upon a qualifying termination following a Change in Control).
<PAGE>
3.2 QUALIFYING TERMINATION. Subject to the provisions herein, the
occurrence of any one or more of the following events during the Retention
Period shall entitle a Participant to be paid the Severance Benefits under
this Plan:
(a) A voluntary termination of the Participant's employment for Good
Reason; or
(b) An involuntary termination of the Participant's employment
without Cause.
Except as provided in Section 3.5 herein, a Qualifying Termination
shall not include a termination of employment by reason of death,
Disability, or Retirement, voluntary termination without Good Reason, an
involuntary termination for Cause, or any termination occurring outside the
Retention Period.
Any involuntary termination of a Participant's employment without
Cause must be preceded by notice from the Company at least sixty (60) days
prior to the date on which such termination shall become effective. Upon
issuance of such notice, all vesting and other restrictions on any long-
term incentive awards (including, but not limited to, stock options and
Convertible Appreciation Rights) shall immediately terminate.
3.3 DESCRIPTION OF SEVERANCE BENEFITS. In the event that a
Participant becomes entitled to receive Severance Benefits, as provided in
Sections 3.1 and 3.2 herein, the Participant shall receive the following
Severance Benefits:
(a) BASE SALARY AND AVERAGE BONUS AWARDS: One and one-half (1.5),
multiplied by the sum of: (i) the Participant's Base Salary; and
(ii) the average of the bonus awards earned by the Participant in
the three (3) fiscal years prior to the fiscal year in which the
Effective Date of Termination occurs.
(b) LONG-TERM INCENTIVES:
(i) VESTING. All unvested long-term incentive awards which are
outstanding as of the Effective Date of Termination shall
immediately vest one hundred percent (100%); and
(ii) PAYOUT OF CONVERTIBLE APPRECIATION RIGHTS. The Accrued Value
(as defined in the Convertible Appreciation Rights Plan) of
all outstanding Convertible Appreciation Rights shall be
paid to Participants in cash, in one (1) lump sum, within
forty-five (45) days after the Effective Date of
Termination. For this purpose, the Accrued Value shall be
determined as of the Effective Date of Termination.
(c) UNPAID VACATION AND FRINGE BENEFITS. All vacation earned in the
fiscal year prior to the fiscal year in which the Effective Date
of Termination occurs, but not taken by the Participant, and all
vacation accrued by the Participant in the fiscal year in which
the Effective Date of Termination occurs, will be paid in cash,
within forty-five (45) days following the Effective Date of
Termination.
<PAGE>
In addition, the full fringe benefit program the Company had been
providing the Participant will continue for the eighteen (18)
month period after termination, except that: (i) group medical
benefits will continue beyond the time at which the Participant
becomes gainfully employed by and covered under the group
insurance program of another firm only to the extent of
preexisting conditions not covered by the successor employer's
group medical program and only for such eighteen (18) month
period; and (ii) salary continuation insurance, under the terms
of the Company's insurance policy, will terminate on the last day
a Participant shall work.
(d) PAYOUT. All cash payments set forth in this Section 3.3 shall be
made in one (1) lump sum, within forty-five (45) days after the
Effective Date of Termination.
3.4 TERMINATION DUE TO DISABILITY. If a Participant's employment is
terminated due to Disability during the term of this Plan, the Participant
shall receive his or her Base Salary through the date of termination, at
which point in time the Participant's benefits shall be determined in
accordance with the Company's retirement, insurance, and other applicable
plans and programs then in effect.
3.5 TERMINATION DUE TO RETIREMENT OR DEATH. If a Participant's
employment is terminated by reason of Retirement or death, the
Participant's benefits shall be determined in accordance with the Company's
retirement, survivor's benefits, insurance, and other applicable programs
of the Company then in effect; provided, however, that the Committee, at
its sole discretion, shall have the authority to provide for full or
partial payout in connection with a termination of employment by reason of
Retirement or death.
3.6 TERMINATION FOR CAUSE OR BY A PARTICIPANT OTHER THAN FOR GOOD
REASON. If a Participant's employment is terminated either: (a) by the
Company for Cause; or (b) by the Participant other than for Good Reason,
the Company shall pay the Participant his or her unpaid Base Salary and
vacation through the date of termination, at the rate then in effect, plus
all other amounts to which the Participant is entitled under any
compensation and/or severance plans of the Company, at the time such
payments are due, and the Company shall have no further obligations to the
Participant under this Plan.
Article 4. The Company's Payment Obligation
4.1 PAYMENT OBLIGATIONS ABSOLUTE. Subject to the terms and provisions
of this Plan, the Company's obligations to make the payments and the
arrangements provided for herein shall be absolute and unconditional.
Participants shall not be obligated to seek other employment in mitigation
of the amounts payable or arrangements made under any provisions of this
Plan, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make the payments and
arrangements required to be made under this Plan, except to the extent
provided in Article 3 herein.
4.2 CONTRACTUAL RIGHTS TO BENEFITS. This Plan establishes in each
Participant a contractual right to any benefits to which he or she may
<PAGE>
become entitled hereunder. However, nothing herein contained shall require
or be deemed to require, or prohibit or be deemed to prohibit, the Company
to segregate, earmark, or otherwise set aside any funds or other assets, in
trust or otherwise, to provide for any payments to be made or required
hereunder.
Article 5. Outplacement Assistance
Each Participant shall be entitled to obtain outplacement assistance
of his or her choice following a Qualifying Termination, and shall be
reimbursed for the full cost of such outplacement assistance; provided,
however, that the maximum cost which shall be reimbursed by the Company is
fifteen percent (15%) of the Participant's Base Salary; and, provided
further, that such obligation by the Company to reimburse such costs shall
terminate on the second anniversary of the Effective Date of Termination.
Participants shall be required to submit fee vouchers corresponding to the
outplacement assistance, and, subject to the preceding sentence, shall be
reimbursed in cash for each qualifying voucher, within forty-five (45) days
following the submission of the voucher to the Company.
Article 6. Successors
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) of all or substantially all
of the business and/or assets of the Company or of any division or
subsidiary thereof, to expressly assume and agree to perform the Company's
obligations under this Plan in the same manner and to the same extent that
the Company would be required to perform them if no such succession had
taken place. Failure of the Company to obtain such assumption and agreement
prior to the effective date of any such succession shall be a breach of the
Plan, and shall entitle each Participant who is adversely affected thereby
to compensation from the Company or its successor in the same amount and on
the same terms as he or she would be entitled to hereunder if he or she had
terminated his or her employment with the Company voluntarily for Good
Reason on the day following the effective date of such succession.
This Plan shall inure to the benefit of and be enforceable by each
Participant's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. In the event of a
Participant's death at a time when any amount would still be payable to him
or her hereunder had he or she continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of
this Plan, to the Participant's Beneficiary.
Article 7. Legal Remedies
7.1 PAYMENT OF LEGAL FEES. To the extent permitted by law, the
Company shall pay all legal fees, costs of litigation, prejudgment
interest, and other expenses incurred in good faith by a Participant as a
result of the Company's refusal to provide the Severance Benefits to which
the Participant becomes entitled under this Plan, or as a result of the
Company's contesting the validity, enforceability, or interpretation of
this Plan, or as a result of any conflict between the parties pertaining to
this Plan.
<PAGE>
7.2 ARBITRATION. Each Participant shall have the right and option to
elect (in lieu of litigation) to have any dispute or controversy arising
under or in connection with this Plan settled by arbitration, conducted
before a panel of three (3) arbitrators sitting in a location selected by
the Participant within fifty (50) miles from the location of his or her job
with the Company, in accordance with the rules of the American Arbitration
Association then in effect.
Judgment may be entered on the award of the arbitrator in any court
having proper jurisdiction. All expenses of such arbitration, including the
fees and expenses of the counsel for the Participant, shall be borne by the
Company.
Article 8. Administration
8.1 COMPENSATION COMMITTEE. This Plan shall be administered by the
Committee, which shall have complete authority, in its sole discretion,
subject to, and consistent with the express provisions of this Plan, to
determine who shall be a Participant and the amount of Severance Benefits
payable following a Qualifying Termination, to interpret this Plan, to
prescribe, amend, and rescind rules and regulations relating to it, and to
make all other determinations necessary or advisable for the administration
of this Plan.
8.2 INTERPRETATION OF THE PLAN. All questions of any character
whatsoever arising in connection with the interpretation of this Plan or
its administration or operation shall be submitted to and settled and
determined by the Committee. Any such settlements and determinations shall
be final and conclusive, and shall bind and may be relied upon by the
Company, each of the Participants, and all other parties in interest.
8.3 DELEGATION OF DUTIES. The Committee may delegate any of its
duties hereunder to such person or persons from time to time as it may
designate.
The Committee is authorized to engage accountants, legal counsel, and
such other personnel as it deems necessary or advisable to assist it in the
performance of its duties under this Plan.
Article 9. Miscellaneous
9.1 WITHHOLDING OF TAXES. The Company shall withhold from any amounts
payable under this Plan all Federal, state, city, or other taxes as legally
shall be required.
9.2 EMPLOYMENT STATUS. Except as may be provided under any other
agreement between a Participant and the Company, the employment of each
Participant by the Company is "at will," and may be terminated by either
the Participant or the Company at any time.
9.3 BENEFICIARIES. A Participant may designate one or more persons or
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Participant under this Plan. Such designation must be
in the form of a signed writing acceptable to the Committee. The
Participant may make or change such designation at any time.
<PAGE>
9.4 ENTIRE AGREEMENT. This Plan contains the entire understanding of
the Company and each Participant with respect to each Participant's
entitlement to payments and benefits arising as a result of an employment
termination occurring during the Retention Period. No oral or written
statement may alter or modify in any manner the provisions of this Plan.
9.5 GENDER AND NUMBER. Except where otherwise indicated by the
context, and masculine term used herein also shall include the feminine;
the plural shall include the singular, and the singular shall include the
plural.
9.6 SEVERABILITY AND CAPTIONS. In the event any provision of this
Plan shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of this Plan, and the Plan
shall be construed and enforced as if the illegal or invalid provisions had
not been included; provided the Plan can continue to be administered
consistent with its purpose as stated in Section 1.2 herein. The captions
of this Plan are included as a matter of convenience only, and do not in
any way affect the terms or intent of any provisions of this Plan.
9.7 APPLICABLE LAW. To the extent not preempted by the laws of the
United States, the laws of the state of Illinois shall be the controlling
law in all matters relating to this Plan.
9.8 AMENDMENT AND TERMINATION. Except as provided in Article 8
herein, this Plan may not be amended, terminated, or discontinued on or
after the Effective Date.
<PAGE>
Contents
___________________________________________________________________________
Page
Article 1. Establishment of the Plan 1
Article 2. Eligibility and Participation 1
Article 3. Severance Benefits 1
Article 4. The Company's Payment Obligation 4
Article 5. Outplacement Assistance 4
Article 6. Successors 5
Article 7. Legal Remedies 5
Article 8. Administration 6
Article 9. Miscellaneous 6
Appendix A Definitions A-1
<PAGE>
Appendix A Definitions
Whenever used in this Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:
"BASE SALARY" means an amount equal to a Participant's base annual
salary as of the date of a Qualifying Termination. For this purpose, "Base
Salary" shall not include bonuses, long-term incentive compensation, or any
remuneration other than base annual salary.
"BENEFICIARY" means the persons or entities designated or deemed
designated by a Participant pursuant to Section 9.3 herein.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"CAUSE" shall mean the occurrence of any one or more of the following:
(a) The willful and continued failure by a Participant to
substantially perform his or her normal duties (other than any
such failure resulting from the Participant's Disability), after
a written demand for substantial performance is delivered to the
Participant that specifically identifies the manner in which the
Committee believes that the Participant has not substantially
performed his or her duties, and the Participant has failed to
remedy the situation within ten (10) business days of receiving
such notice; or
(b) The Participant's conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony; or
(c) The willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company, as
determined by the Committee. However, no act, or failure to act
on the Participant's part, shall be considered "willful" unless
done, or omitted to be done, by the Participant not in good faith
and without reasonable belief that his or her action or omission
was in the best interest of the Company.
"CHANGE IN CONTROL" shall mean the occurrence of any one or more of
the following:
(a) Any transaction or series of transactions which, within a twelve
(12) month period, constitute a change of management or control,
which shall be deemed to have occurred whenever;
(i) At least thirty-five percent (35%) of the then outstanding
shares of Common Stock of the Company are [for cash,
property (including, without limitation, stock in any
corporation), or indebtedness, or any combination thereof]
redeemed by the Company or purchased by any person(s),
firm(s) or entity(ies), or exchanged for shares in any
other corporation whether or not affiliated with the
Company, or any combination of such redemption, purchase
or exchange, or
<PAGE>
(ii) At least fifty-one percent (51%) of the Company's assets
are acquired by any person(s), firm(s) or entity(ies)
whether or not affiliated with the Company for cash,
property (including without limitation, stock in any
corporation) or indebtedness or any combination thereof,
or
(iii) During any period of two (2) consecutive years (not
including any period prior to the execution of this
severance policy), individuals who at the beginning of
such period constitute the Board (and any new Director,
whose election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the Directors
then still in office who either were Directors at the
beginning of the period or whose election or nomination
for election was so approved), cease for any reason to
constitute a majority thereof, or
(iv) The Company is merged or consolidated with another
corporation regardless of whether the Company is the
survivor.
(b) Any substantial equivalent of any such redemption, purchase,
exchange, transaction or series of transactions, acquisition,
merger or consolidation, which the Board of Directors reasonably
determines constitutes such a change of management or control.
For purposes of the foregoing definition the term "control" shall have
the meaning ascribed thereto under the Securities Exchange Act of 1934, as
amended, and the regulations thereunder, and the term "management" shall
mean both the Chief Executive Officer and the Chief Operating Officer of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Compensation Committee of the Board, or
such other committee as is appointed by the Board to administer this Plan.
"COMPANY" means Morgan Products Ltd., a Delaware corporation
(including any and all subsidiaries), or any successor thereto as provided
in Article 6 herein.
"DISABILITY" means permanent and total disability, within the meaning
of Code Section 22(e)(3), as determined by the Committee in the exercise of
good faith and reasonable judgment, upon receipt of and in reliance on
sufficient competent medical advice from one or more individuals, selected
by the Committee, who are qualified to give professional medical advice.
"EFFECTIVE DATE" means the date this Plan is approved by the Board, or
such other date as the Board shall designate in its resolution approving
this Plan.
"EFFECTIVE DATE OF TERMINATION" means the date on which a Qualifying
Termination occurs which triggers the payment of Severance Benefits
hereunder.
<PAGE>
"GOOD REASON" means, without the Participant's express written
consent, the occurrence of any one or more of the following:
(a) Any material reduction in the Participant's Base Salary below the
amount in effect as of the Effective Date (including all
increases following the Effective Date);
(b) Any significant reduction in the Participant's benefits package;
(c) Any assignment of new duties that requires the Participant to
relocate his or her domicile;
(d) Any significant reduction or diminution in the duties,
responsibilities, or position of the Participant from that in
effect as of the Effective Date (including subsequent increases
in duties, responsibilities, or position), other than a change
that results directly from a change in the organization or form
of entity of the Company; or
(e) Any dissolution or liquidation of the Company.
A Participant's right to terminate employment for Good Reason
shall not be affected by the Participant's incapacity due to
Disability. A Participant's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason herein.
"PARTICIPANT" means an executive of the Company who is named by the
Committee as a Participant in the Plan, as set forth in Article 2 herein.
"PLAN" means the Morgan Products Ltd. Special Severance/Retention Plan
for Executive Officers.
"QUALIFYING TERMINATION" means any of the events described in
Section 3.2 herein, the occurrence of which triggers the payment of
Severance Benefits described in Section 3.3 herein.
"RETENTION PERIOD" means the period of time beginning on the Effective
Date of this Plan, and ending on the earlier to occur of: (a) March 29,
1999; or (b) the effective date of a Change in Control.
"RETIREMENT" means a voluntary termination of a Participant's
employment following the time when: (a) the Participant has attained age
sixty-two (62); or (b) the Participant has attained age fifty-five (55) and
has completed at least seven (7) full years of continuous service with the
Company.
"SEVERANCE BENEFITS" means the payment of severance compensation as
provided in Article 3 herein.
<PAGE>
April 13, 1994
Dear :
On March 30, 1994, the Board of Directors of Morgan Products Ltd. approved
a program entitled "Special Severance/Retention Plan for Executive
Officers." As an eligible participant, you have been provided a copy of
that Plan.
This is to advise you that the Board of Directors has authorized me to
modify Section 3.3 of that Plan as it applies to you as follows:
- The multiplier to be used in determining the base salary award
referred to in 3.3(a) has been changed from one and one-half (1.5) to
two(2).
- The eighteen (18) month period for continuation of benefits referred
to in 3.3(c) has been changed to a twenty-four (24) month period.
You are being provided these special enhancements to the Plan because we
and the Board recognize the key role you will play during the very
important transitional months that lie ahead for Morgan Products. In
exchange for these improvements, we are asking you to acknowledge that you
agree to make a good faith effort to provide your services to Morgan
Products for no less than the next twelve (12) month period.
Sincerely,
Frank J. Hawley, Jr. Arthur L. Knight, Jr.
Chairman of the Board President
Chief Executive Officer
Agreed and Acknowledged:
____________________________ ____________
Date
<PAGE>
EXHIBIT 10.14
EXHIBIT A
MORGAN PRODUCTS LTD.
EXECUTIVE PERFORMANCE INCENTIVE PLAN
OVERVIEW AND PURPOSE
The EXECUTIVE PERFORMANCE INCENTIVE PLAN provides opportunities to
recognize key executives of the company for extraordinary job performance.
This annual incentive plan is tied directly to improving shareholder
value. The current plan focuses on increasing shareholder value by
achieving targets that are tied to the attainment of cash flow on
investment (CFOI) goals.
PARTICIPATION AND ADMINISTRATION
The Chief Executive Officer recommends annually to the Compensation
Committee of the Board of Directors those Executive Officers who are
eligible for participation in this plan. The Committee is responsible for
administration of the plan, including approval of award payments under the
plan. The company, with approval of the Compensation Committee, reserves
the right to change, modify, or discontinue the plan at any time it deems
appropriate.
ANNUAL AWARD OPPORTUNITIES
The EXECUTIVE PERFORMANCE INCENTIVE PLAN is funded out of pre-tax and pre-
award profits.
Under the plan, participants can ear a bonus equal to 50% of their base
salary upon attainment of targeted CFOI goals. The maximum incentive which
is payable at 110% of targeted CFOI performance is 70% of base salary.
The plan begins to pay at the level of 20% of base salary for an
achievement level beginning at 80% of the targeted CFOI goals. Performance
achievement levels that fall between 80% and 110% will result in awards
that are interpolated accordingly. For example, a performance achievement
level of 105% of the target will result in an award of 60% of base salary.
MINIMUM COMPANY PERFORMANCE
Bonuses will not be paid where there are no corporate and business unit
profits except that the Chief Executive Officer may recommend to the
Compensation Committee that bonuses be paid where there are profits from
continuous operations (excluding one-time special charges, write-offs,
etc.) In addition, if a business unit makes a profit and the Corporation
in its entirety does not, an executive under this plan who is assigned to
that business unit making a profit may still be considered for a bonus
award based on the performance of the business unit.
<PAGE>
Participants in a business unit that is unprofitable, will not be eligible
for an annual incentive award. However, if the Corporation as a whole has
generated sufficient profits and the circumstances associated with the lack
of profit are clearly beyond the control of the business unit, the Chief
Executive Officer may recommend to the Compensation Committee of the Board
of Directors that awards be considered.
PAYMENT PROCEDURE
Annual incentive awards under this plan are made as soon after the close of
the calendar year as practical. A participant under the plan must be an
active employee at the time of payment to be eligible for receipt of award.
<PAGE>
EXHIBIT 10.19
Contents
Section 1. Definitions
Section 2. Purposes
Section 3. Shares Reserved for the Plan
Section 4. Administration of the Plan
Section 5. Eligibility
Section 6. Option Agreements
Section 7. Option Price
Section 8. Terms of Options
Section 9. Termination of Options
Section 10. Annual Limitation
Section 11. Exercise of Options
Section 12. Payment
Section 13. Nontransferability
Section 14. Purchase for Investment: Compliance with Securities Laws
Section 15. Adjustment of Shares
Section 16. Registration or Qualification of Shares
Section 17. Withholding Tax
Section 18. Suspension, Amendment, or Termination of Plan
Section 19. Effective Date and Duration of Plan
Section 20. Nonqualified Options
Section 21. Successors
Section 22. Governing Law
<PAGE>
Incentive Stock Option Plan
Morgan Products Ltd.
Section 1. Definitions
As used herein, the following words and phrases shall have the
following meanings:
(a) Board: The Board of Directors of the Company.
(b) Change of Control shall mean the occurrence of any one or more of
the following:
(i) Any transaction or series of transactions which, within a
twelve (12) month period, constitute a change of management
or control, which shall be deemed to have occurred whenever;
(1) At least thirty-five percent (35%) of the then
outstanding shares of Common Stock of the Company are
[for cash, property (including, without limitation,
stock in any corporation), or indebtedness, or any
combination thereof] redeemed by the Company or
purchased by any person(s), firm(s) or entity(ies), or
exchanged for shares in any other corporation whether
or not affiliated with the Company, or any combination
of such redemption, purchase or exchange, or
(2) At least fifty-one percent (51%) of the Company's
assets are acquired by any person(s), firm(s) or
entity(ies) whether or not affiliated with the Company
for cash, property (including without limitation, stock
in any corporation) or indebtedness or any combination
thereof, or
(3) During any period of two (2) consecutive years (not
including any period prior to the effective date of
this Plan), individuals who at the beginning of such
period constitute the Board (and any new Director,
whose election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
Directors then still in office who either were
Directors at the beginning of the period or whose
election or nomination for election was so approved),
cease for any reason to constitute a majority thereof,
or
(4) The Company is merged or consolidated with another
corporation regardless of whether the Company is the
survivor.
(ii) Any substantial equivalent of any such redemption, purchase,
exchange, transaction or series of transactions,
acquisition, merger or consolidation, which the Board of
Directors reasonably determines constitutes such a change of
management or control.
<PAGE>
For purposes of the foregoing definition the term "control" shall
have the meaning ascribed thereto under the Securities Exchange
Act of 1934, as amended, and the regulations thereunder, the term
"management" shall mean both the Chief Executive Officer and the
Chief Operating Officer of the Company, and the "effective date
of this Plan" shall be deemed to be the date shareholders approve
this Plan at the 1995 annual shareholders meeting.
(c) Code: The Internal Revenue Code of 1986, as amended.
(d) Committee: The Morgan Products Ltd. Compensation Committee,
which shall be appointed by the Chairman of the Board of the
Company and shall be composed of not fewer than two (2) Directors
who meet the "disinterested administration" rules of Rule 16b-3
under the Securities Exchange Act of 1934, as amended.
(e) Common Stock: The Common Stock of the Company.
(f) Company means Morgan Products Ltd., a Delaware corporation
(including any and all subsidiaries), or any successor thereto.
(g) Employee: Any employee of the Company.
(h) Incentive Stock Option: A stock option meeting the requirements
of Section 422 of the Code.
(i) Option: The right and privilege granted pursuant to this Plan to
acquire Common Stock pursuant to the terms of an Option
Agreement.
(j) Option Agreement: The agreement by which the Company grants an
Option to an Employee and which identifies the specific terms and
conditions of that Option.
(k) Optionee: An Employee holding an Option.
(l) Plan: The Morgan Products Ltd. Incentive Stock Option Plan, as
herein set forth.
Section 2. Purposes
The purposes of the Plan are:
(a) To encourage the sense of proprietorship on the part of the
Employees who will be largely responsible for the continued growth of the
Company;
(b) To furnish the Employees with further incentive to develop and
promote the business and financial success of the Company;
(c) To induce the Employees to continue in the service of the
Company, by providing a means by which such Employees may be given an
opportunity to purchase Common Stock;
(d) To give the Employees an opportunity to share in the growth of
the Company; and
<PAGE>
(e) To obtain for the Employees, in the case of Incentive Stock
Options granted hereunder, the favorable tax treatment accorded Incentive
Stock Options.
Section 3. Shares Reserved for the Plan
Subject to adjustment as provided in Section 15 herein, there is
hereby reserved for issuance to Employees under the Plan an additional one
hundred fifty thousand (150,000) shares of Common Stock (in addition to the
seven hundred fifty thousand (750,000) shares originally authorized in
1985, one hundred three thousand two hundred (103,200) of which have been
exercised since 1985). Such shares available for grants of Options shall be
increased by the number of shares available under this Section 3 which are
covered by Options which have lapsed, expired, terminated, or been
canceled. In addition, any shares originally reserved for issuance under
this Plan in 1985 (including the 1990 amendment to the Plan) (the "Original
Authorized Shares") in excess of the number of shares granted under Option
hereunder prior to the effective date of this Plan (i.e., the date of the
1995 annual shareholders meeting) plus any such shares in connection with
Options granted under the Original Authorized Shares which lapse, expire,
terminate, or are canceled, shall also be reserved and available for
issuance or reissuance under this Section 3. Any outstanding Options
covering Original Authorized Shares shall continue to remain outstanding in
accordance with the terms hereof. If any Option granted under this Plan is
canceled, terminates, expires, or lapses for any reason, any shares subject
to such Option again shall be available for the grant of an Option Award
under the Plan.
Section 4. Administration of the Plan
(a) The Plan shall be administered by the Committee. In administering
the Plan, the Committee will be subject to the provisions of the By-Laws of
the Company generally applicable to the operation of committees of the
Board.
(b) Subject to the express provisions of the Plan, the Committee
shall have full power and authority, in its discretion, to determine
initially and from time to time those Employees to whom Options are to be
granted and, subject to the limitations imposed by Section 18 hereof, the
times when such Options shall be granted, the terms and conditions of each
Option (including whether such Option shall be an Incentive Stock Option or
a nonqualified stock option), and the number and purchase price of shares
to be covered by each Option.
(c) Subject to the express provisions of the Plan, the Committee
shall also have the power and authority to construe and interpret the Plan
and the Option Agreements entered into thereunder and to make all other
determinations necessary or advisable for administering the Plan. The
determination of the Committee on all matters referred to in this section
shall be final and conclusive.
Section 5. Eligibility
Options may be granted to any Employee who is selected in accordance
with the provisions of this Plan by the Committee; provided, however, that
no Option may be granted to an Employee if the sum of the number of shares
<PAGE>
of Common Stock subject to the Option plus the number of shares owned,
directly or indirectly, within the meaning of Section 318(a) of the Code,
by the Employee as of the date the Option is granted exceeds three percent
(3%) of the issued and outstanding Common Stock as of said date.
Section 6. Option Agreements
As a condition to the granting of an Option pursuant to this Plan, the
Committee will require each Optionee to execute a written Option Agreement.
The Option Agreement shall specify terms and conditions not inconsistent
with this Plan under which the Option is granted.
Section 7. Option Price
The per share purchase price of the Common Stock under each Option
shall be stated in the Option Agreement and, in all cases, shall be at
least equal to the fair market value of one (1) share of Common Stock on
the date of grant of such Option, as determined by the Committee.
Section 8. Terms of Options
Notwithstanding any other provision of this Plan, no Incentive Stock
Option granted hereunder shall be exercisable more than ten (10) years from
the date of grant of such Option, and no other Option granted hereunder
shall be exercisable more than ten (10) years and one (1) day from the date
of grant of the Option.
Section 9. Termination of Options
Each Optionee's Option Agreement shall set forth the extent to which
the Optionee shall have the right to exercise the Option following
termination of the Optionee's employment with the Company and its
subsidiaries. Such provisions shall be determined in the sole discretion of
the Committee, shall be included in the Option Agreement entered into with
Optionees, need not be uniform among all Options issued pursuant to the
Plan, and may reflect distinctions based on the reasons for termination of
employment.
Section 10. Annual Limitation
Notwithstanding any other provision of this Plan, the aggregate fair
market value (determined as of the time the Option is granted) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any Employee in any one (1) calendar year (under all
incentive stock option plans of the Company and its parent and any
subsidiaries, including this Plan) shall not exceed one hundred thousand
dollars ($100,000). Subject to the preceding sentence, the Committee shall
have discretion in determining the number of shares of Common Stock subject
to Options granted to each Optionee; provided, however, that the maximum
number of shares subject to Options which may be granted under this Plan to
any single Employee during any calendar year is seventy-five thousand
(75,000).
<PAGE>
Section 11. Exercise of Options
(a) Subject to the terms and conditions of the Plan and of the Option
Agreements entered into hereunder, Options may be exercised only by:
(i) Delivery of notice of exercise to the Company at its
principal office, attention of the Secretary, together with
(ii) Payment for the shares of Common Stock being so acquired.
(b) Except as otherwise provided in Section 9 hereof, each Option
granted hereunder shall be exercisable during the term thereof in
accordance with such terms and conditions as the Committee shall, in its
sole discretion, impose; provided, however, that no such term or condition
shall be inconsistent with any express provision of the Plan.
(c) On the exercise of and payment for an Option, a certificate or
certificates evidencing the shares of Common Stock as to which the Option
is exercised shall be delivered to the Optionee.
(d) An Option may be exercised during the Optionee's lifetime only by
the Optionee. In the event of the death of an Optionee, the Option or
Options theretofore granted to him may be exercised by the estate of the
Optionee or by a person who is the Optionee's spouse or surviving child and
who acquired the rights under the Option or Options by bequest or
inheritance; provided, however, that such exercise may be made only to the
extent of the Optionee's right to exercise the Option or Options at the
time of his death.
(e) Notwithstanding the provisions of Section 11(b) hereof, in the
event of a Change of Control during the term of one (1) or more Options,
each such Option granted on or after February 14, 1990 and outstanding as
of the effective time of such Change of Control shall, effective as of the
effective time of such Change of Control, become exercisable with respect
to all unexercised shares thereunder for the remainder of its term;
provided, however, in the event the Optionee's employment with the Company
(or any successor company) is terminated after a Change of Control, such
Option granted on or after February 14, 1990 shall remain exercisable for a
period equal to the lesser of (i) seven (7) calendar months after such
termination of employment; or (ii) the remainder of its term. Upon exercise
of any Option subsequent to a Change of Control, the Optionee shall be
entitled to receive the securities or other such consideration he would
have been entitled to receive had he been entitled to exercise, and had he
exercised, such Option immediately prior to such Change of Control.
(f) Notwithstanding the provisions of Section 11(b) hereof, each
Option granted on or after February 14, 1990 and outstanding for at least
one hundred eighty (180) days during any fiscal year of the Company,
commencing with the fiscal year ended December 31, 1990, shall immediately
become exercisable in full by the holder thereof upon a determination that
the Company has met one hundred percent (100%) of budgeted Income Before
Income Taxes for such fiscal year. Such budgeted Income Before Income Taxes
shall be as set annually by the Board in connection with the adoption of
the Company's budget for each fiscal year, and the determination that the
Company has met one hundred percent (100%) of such budgeted Income Before
Income Taxes shall be based upon the Company's audited financial statements
<PAGE>
for such fiscal year, with the date of such determination being the date of
certification of such financial statements by the independent accountants
for the Company.
Section 12. Payment
Payment of the purchase price for shares purchased under Options must
be made in full by certified or bank cashier's check, or such other method
as is authorized by the Committee, including but not limited to, the tender
of previously held shares and broker-assisted "cashless" exercises.
Section 13. Nontransferability
An Option may not be transferred except by will or the laws of descent
and distribution. The exercise of any Option so transferred shall be
subject to the terms of this Plan.
Section 14. Purchase for Investment: Compliance with Securities Laws
Each Optionee and each other person who shall exercise an Option shall
acknowledge, represent, and agree, as the case may be, that:
(a) The Company shall not be obligated to transfer Common Stock
pursuant to the exercise of an Option unless the exercise of such
Option and the transfer of such Common Stock shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, the rules and regulations promulgated thereunder,
and applicable state securities laws;
(b) The Company shall be entitled to rely upon an opinion of counsel
selected by the Company as to whether any such transfer would be
lawful;
(c) All Common Stock purchased pursuant to an Option is being
purchased for investment and not with a view to the distribution or
resale thereof; and
(d) Common Stock purchased pursuant to an Option will not be sold,
assigned, or transferred except in compliance with applicable federal
and state securities laws.
Section 15. Adjustment of Shares
In the event of any change in corporate capitalization, such as a
stock split, or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or
property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Internal Revenue
Code Section 368) or any partial or complete liquidation of the Company,
such adjustment shall be made in the number and class of shares of Common
Stock which may be delivered under the Plan, and in the number and class of
and/or price of shares of Common Stock subject to outstanding Options
granted under the Plan, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
<PAGE>
enlargement of rights; provided, however, that the number of shares subject
to any Option shall always be a whole number.
Section 16. Registration or Qualification of Shares
Notwithstanding anything herein to the contrary, no Option granted
hereunder may be exercised, and no shares shall be issued with respect to
an Option, unless at the time of exercise either (A) (i) a registration
statement has been filed with the Securities and Exchange Commission which
has become effective with respect to the shares subject to the Option; (ii)
appropriate registration or qualification has been effected under
applicable state securities laws; (iii) the exercise of such Option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law and the requirements of any stock exchange
upon which the shares may then be listed; or (B) the Committee shall have
determined, based upon the advice of counsel, that an exemption from
registration shall be available with respect to the issuance of shares
subject to an Option, and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law. Any such
exercise of an Option and the issuance of shares with respect thereto shall
be further subject to the approval of counsel for the Company with respect
to such compliance.
Section 17. Withholding Tax
The Company may make such provisions as it may deem appropriate for
the withholding of any taxes which the Company determines it is required to
withhold in connection with the grant or exercise of any Option or the
disposition of any Common Stock acquired pursuant to the exercise of an
Option, and may authorize Optionees to satisfy such withholding obligations
by having the Company withhold the number of shares of Common Stock under
Option necessary to satisfy all or part of the withholding liability.
Section 18. Suspension, Amendment, or Termination of Plan
The Board shall have the right, at any time, to suspend, amend, or
terminate the Plan; provided, however, that unless duly approved by the
holders of a majority of the Common Stock of the Company, no amendment
shall increase the total number of shares that shall be subject to the
Plan; and, provided further, that no termination of the Plan or action by
the Board amending or suspending the Plan shall affect or impair the rights
of an Optionee under any Option previously granted and still outstanding
under the Plan, except as otherwise provided herein. No Option may be
granted under the Plan during any suspension thereof or after the
termination thereof.
Section 19. Effective Date and Duration of Plan
This Plan originally became operative and effective on its adoption by
the holders of a majority of the outstanding shares of Common Stock of the
Company at the 1985 annual shareholders meeting. The Plan was originally
scheduled to terminate on the tenth (10th) anniversary of its effective
date. As amended herein, the Plan's duration shall be extended for ten
years after the date of adoption of this amended Plan by the Company's
shareholders at the 1995 annual shareholders meeting. The termination of
this Plan shall not affect or impair the rights of an Optionee under any
<PAGE>
Option previously granted and still outstanding under the Plan, except as
otherwise provided herein.
Section 20. Nonqualified Options
Options issued under the Plan may be Incentive Stock Options or
nonqualified stock Options. Any other provision of the Plan to the contrary
notwithstanding, nonqualified stock options granted hereunder shall be
subject to such terms and conditions and be exercisable at such price as
the Committee, in its sole discretion, determines to be appropriate;
provided, however, that each such nonqualified Option shall clearly be
identified as such. No subsequent determination that an Option granted
hereunder which is intended to be an Incentive Stock Option fails to
qualify as such shall affect the validity or enforceability of such Option,
which shall be considered a validly issued nonqualified Option. To the
extent any Option granted hereunder as an Incentive Stock Option exceeds
the limit set forth in the first sentence of Section 10 hereof, such Option
shall be bifurcated, and as to the number of shares, the aggregate price of
which would not exceed such limit, the Option shall be considered an
Incentive Stock Option, and as to the excess, such Option shall be
considered a nonqualified Option.
Section 21. Successors
All obligations of the Company under the Plan with respect to Options
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all
of the business and/or assets of the Company.
Section 22. Governing Law
To the extent not preempted by Federal law, the Plan, and all
agreements hereunder, shall be construed in accordance with and governed by
the laws of the State of Delaware.
<PAGE>
EXHIBIT 13
MORGAN PRODUCTS LTD.
FIVE-YEAR SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data)
OPERATING RESULTS
Year Ended December 31,
------------------------------------------------
1994 1993 1992 1991 1990
------------------------------------------------
Net Sales.................. $358,357 $392,702 $387,393 $353,144 $413,527
Gross Profit............... 52,398 52,797 51,833 44,924 53,860
Operating Expenses......... 58,292 49,347 58,690 53,292 48,477
Operating Income (Loss).... (5,894) 3,450 (6,857) (8,368) 5,383
--------- -------- -------- -------- --------
Other Expense.............. (3,307) (2,248) (4,325) (4,141) (5,162)
--------- -------- -------- -------- --------
Income (Loss) Before Income
Taxes.................... (9,201) 1,202 (11,182) (12,509) 221
--------- -------- -------- -------- --------
Net Income (Loss).......... $ (9,401) $ 952 $(10,178) $ (8,131) $ 135
========= ======== ======== ======== ========
Earnings (Loss) Per Share.. $ (1.10) $ .11 $ (1.20) $ (.96) $ .02
========= ======== ======== ======== ========
Weighted Average
Common and
Common Equivalent
Shares Outstanding........ 8,549 8,495 8,490 8,466 8,438
BALANCE SHEET DATA
AT DECEMBER 31,
----------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------
Working Capital............ $ 61,639 $ 77,225 $ 69,534 $ 71,274 $ 72,499
Total Assets............... 113,308 133,280 130,355 136,003 156,105
Long-Term Debt, Net of Cash 27,050 43,215 40,257 38,128 32,750
Stockholders' Equity....... 55,192 64,481 63,499 73,640 81,460
Long-Term Debt, Net of Cash to
Total Capitalization...... 32.9% 40.1% 38.8% 34.1% 28.7%
Return on Stockholders'
Equity................... (15.7)% 1.5% (14.8)% (10.5)% 0.2%
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1994 vs.
Year Ended December 31, 1993
The Company's net sales for 1994 were $358.4 million, representing a
decrease of 8.7% from 1993 net sales of $392.7 million. The reduction in net
sales was primarily the result of a 13.3% decrease in sales of manufactured
products and a 7.5% decrease in sales of distributed products. Management
believes that the decline in sales of products distributed by the Company is
due to a major supplier's reallocation of sales regions among its network of
distributors, and by an anticipated up-front loss of some business as a
result of margin improvement programs, which are expected to generate
additional profit in 1995 and beyond. Management also believes part of the
decline in sales of products manufactured by the Company is due to the
ongoing weakness in demand for high quality wood doors in a very cost
conscious market. In addition, the manufacturing sales decline reflects the
loss of low margin business following the closing of the Springfield, Oregon
plant.
The Company reported a net loss of $9.4 million or $1.10 per share for
1994 compared to net income of $1.0 million or $0.11 per share, for 1993, on
average shares outstanding of 8,549,159 and 8,494,602, respectively.
Included in the 1994 results was a net restructuring charge of $11.3 million
($1.32 per share) to cover the cost of closing the Springfield plant, the
Weed, California Veneer operation and provide for other cost reductions and
consolidation within Morgan Products.
Excluding the $11.3 million restructuring charge for 1994, the Company
had income of $1.9 million. The increase in income from 1993, net of the
restructuring charge, was primarily caused by a decrease in operating
expenses partially offset by a decrease in gross profit, and an increase in
other expense.
The gross profit decrease of $0.4 million from 1993 to 1994 was
primarily the result of the aforementioned decrease in sales at both the
manufacturing and distribution divisions. Partially offsetting this was an
improvement in gross margins for products distributed and manufactured. The
Company's gross profit as a percentage of net sales improved from 13.4% in
1993 to 14.6% in 1994.
Operating expenses for 1994 were $58.3 million, or 16.3% of net sales,
compared to 1993 operating expenses of $49.3 million, or 12.6% of net sales.
Excluding the restructuring charge, 1994 operating expenses were $47.0
million, or 13.1% of net sales. Contributing to the year to year decline in
operating expenses (excluding the restructuring charge) were decreases in
employment related costs, travel and entertainment, advertising and
promotional, and bad debt expenses.
Other expense increased $1.1 million from 1993 to 1994 primarily due to
the 1993 disposition of idle assets in excess of their carrying value by
approximately $1.0 million which offset other expense. Interest expense
decreased to $3.8 million in 1994 from $4.0 in 1993 due to lower debt levels
throughout 1994. Partially offsetting this was the impact of higher
borrowing rates.
<PAGE>
The provision for income taxes in both 1994 and 1993 relates to the
recording of state taxes. There is no provision for federal taxes in either
period given the Company's net operating loss position (see Note 10 of Notes
to Consolidated Financial Statements).
During 1994, the Company adopted Statements of Financial Accounting
Standards No. 112, "Employer's Accounting for Postemployment Benefits." This
adoption had no material effect on net income.
RESULTS OF OPERATIONS
Year Ended December 31, 1993 vs
Year Ended December 31, 1992
The Company's net sales for 1993 were $392.7 million, representing an
increase of 1.4% from net sales for the same period in 1992 of $387.4
million. This increase was the result of more than an $11.1 million increase
in net sales of products distributed by the Company, offset in part by a
decline in net sales of products manufactured by the Company. Management
believes the net sales decline of manufactured products was a result of
continued weakness in the Northeast and West, key markets for fir
manufactured products, coupled with a continued escalation of raw material
costs.
For 1993 the Company reported net income of $1.0 million, or $.11 per
share compared to a net loss of $10.2 million, or $1.20 per share in the same
period in 1992, on outstanding average shares of 8,494,602 and 8,490,383,
respectively. Included in the 1992 results was a net restructuring charge of
$7.9 million for the writedown of certain idle facilities and equipment to
its estimated fair market value, certain expenses associated with the
rationalization of capacity at the Company's three main door manufacturing
facilities, and provisions related to the possible sale of part or all of its
Morgan Technologies business unit.
Excluding the $7.9 million restructuring charge from 1992 results, the
Company had a net loss of $2.3 million, or $0.27 per share for 1992.
Excluding the 1992 restructuring charge, 1993 net income improved $3.3
million or $0.38 per share. This improvement was the result of a nominal
increase in gross profit, reductions in operating expenses and an improvement
in other income items, offset, in part, by an increase in provision for
income taxes.
Gross profit increased slightly from 1992 to 1993 as a result of the
aforementioned net sales increase. There was no change in the gross profit
percentage.
Operating expenses for 1993 were $49.3 million, or 12.6% of net sales,
compared to 1992 operating expenses of $58.7 million, or 15.2% of net sales.
Excluding the provision for restructuring, 1992 operating expenses were $50.8
million, or 13.1% of net sales. The decrease in operating expenses
(excluding the restructuring charge) was primarily the result of the
elimination of operating expenses related to the Morgan Technologies business
unit and a decrease in the amount of bad debt expenses.
Other expense in 1993 was $2.2 million compared to $4.3 million in 1992.
This improvement resulted primarily from the previously mentioned gains in
1993 from the disposition of idle assets in excess of their carrying value by
$1.0 million. The carrying values recorded due to the restructuring in the
fourth quarter of 1992 were based on independent party evaluations, and the
<PAGE>
amounts realized in 1993 in excess of the carrying values occurred from
negotiations with the buyers that did not commence until April, 1993. In
addition, 1992 expenses included the holding
costs of these idle assets.
The provision for income taxes in 1993 related to the recording of state
taxes. The benefit recorded in 1992 reflects utilization of losses to the
extent of benefits realized. The 1992 results generated a net operating loss
carryforward which may be used to offset future years' taxable income when
generated (see Note 10 of Notes to Consolidated Financial Statements).
SIGNIFICANT BUSINESS TRENDS/UNCERTAINTIES
Management believes that housing starts have a significant influence on
the Company's level of business activity. According to an industry source
(F.W. Dodge), actual single family national housing starts were up 3.6% to
1.243 million in 1994 compared to 1.199 million in 1993. In the regions
where the Company has its largest market presence (New England, the Middle
Atlantic, and East North Central), starts were down 1%, 4.3% and .3%,
respectively, from 1993 levels. Starts in the South Atlantic, West South
Central and Pacific Southwest regions were up 5.1%, 10.6% and 12.2%,
respectively from 1993, however these are areas where the Company does not
have as large a market presence. Management believes that as the market
continues to move upscale, increased sales should follow. However, higher
mortgage rates may reduce sales in the housing market in the near future.
Management also believes that the Company's ability to continue to
penetrate the residential repair and remodeling markets through sales to home
center improvement chains may have a significant influence on the Company's
level of business activity. Sales to these customers as a percentage of
total sales increased slightly from 29.3% in 1993 to 29.4% in 1994. However,
overall sales to these customers declined 8.7% to $105 million in 1994
compared to $115 million in 1993. Management believes this market will
continue to be important to the Company.
Over the last several years, the cost of the Company's primary raw
material, pine and fir lumber, has increased substantially to record levels.
This, coupled with continuing competitive pricing pressure during this
period, has had an adverse impact on profits. As a result, the Company is
continuing its efforts to expand the utilization, where appropriate, of
engineered materials in wood door components and to switch to alternate wood
species. In addition, the Company has established reliable offshore material
resources. Management believes that these actions, together with aggressive
price increases where competitive factors allow, will partially offset the
impact of the high costs of raw material.
In the first quarter of 1994, Andersen Corporation announced its intent
to realign its distribution territories. This has now been substantially
completed. Management believes that this revision will not materially affect
the financial performance of the Company in the long-term. However, as
noted, there has been some reduction in sales due to this realignment. Gross
margin improvement on Andersen sales has partially offset the impact of lost
sales.
The Company announced on January 23, 1995 that its Board of Directors
approved a major investment project that will result in a new and much more
efficient approach to door manufacturing. The Company estimates that it will
invest up to $6 million in 1995 and 1996 in new machinery and equipment and
other process-related improvements associated with the new door manufacturing
<PAGE>
project. Management believes that this project will give the Company a
competitive edge and will provide the Company with opportunities for growth
in new and expanded product areas. Management believes that installation of
equipment and machinery will begin in the fourth quarter of 1995, with
production to be underway by the end of 1995 or early 1996.
In the first quarter of 1995, the Company added Morgan National Accounts
as an operating business unit which serves large home center chains,
marketing and merchandising millwork and specialty building products for
Morgan Manufacturing and Morgan Distribution.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are related to its sales
level which, because of its dependency upon housing starts and the repair and
remodeling market, is seasonal and, to a degree, weather dependent. This
seasonality affects the need for working capital inasmuch as it is necessary
to carry larger inventories and receivables during certain months of the
year.
Working capital at December 31, 1994, was $61.6 million with a ratio of
current assets to current liabilities of 3.5 to 1.0, while at December 31,
1993, working capital was $77.2 million with a current ratio of 4.5 to 1.0.
The decrease in working capital was partially the result of the provision for
restructuring, which increased current liabilities by $3.5 million and
decreased inventory by $1.6 million at year end. In addition, there was a
decrease in accounts receivable of $8.0 million and in inventory of $6.2
million, net of the restructuring reserve, related to the lower sales levels
in the fourth quarter of 1994 versus the fourth quarter of 1993.
Long-term debt, net of cash, decreased to $27.1 million at December 31,
1994 from $43.2 million at December 31, 1993. The Company's ratio of long
term debt, net of cash, to total capitalization decreased from 40.1% at
December 31, 1993 to 32.9% at December 31, 1994. This decrease is primarily
due to the lower debt levels resulting from the lower working capital
requirements mentioned above, the sale of the Springfield, Oregon facility,
and additional cash generated from operations in 1994 versus 1993.
Cash generated by operating activities amounted to $14.5 million in
1994. By comparison, the period ended December 31, 1993 reflected cash used
by operating activities of $3.0 million, mainly to support receivables and
inventory. Investing activities in 1994 used $2.8 million before the sale of
the idle Springfield facility for $3.5 million, compared to 1993 when
investing activities used $2.8 million before the proceeds received from the
disposal of various property, plant and equipment including the sale of the
Shawano, WI facility for $1.9 million. Financing activities used $13.2
million in 1994 to repay debt versus $1.4 million generated during 1993 to
finance the higher working capital requirements.
As discussed in Note 5 of Notes to Consolidated Financial Statements, on
July 14, 1994, the Company signed a new $65 million revolving credit
agreement. The new agreement should assure the Company adequate capital over
the next three years as it moves to expand its core business. At December
31, 1994, $25 million of borrowings were outstanding on the revolver. The
covenants of the new agreement are similar to prior agreements adjusted for
the one time restructuring charge. The Company was in compliance with all
covenants of the credit agreement during the year and at December 31, 1994.
RESTRUCTURING OF OPERATIONS
<PAGE>
The Company's decision to take an $11.3 million restructuring charge,
including the shutdown of the Springfield and Weed Veneer plants in May 1994,
was based on lower demand for high quality wood panel doors, as high raw
material costs increased selling prices making lower cost substitute products
more attractive. In addition, decorating fashion has also moved to a painted
versus stained finish which allows lower cost non-wood products to be used.
A review of the Morgan Manufacturing business unit was undertaken in
1992. At that time, door production capacity was rationalized through
reductions in personnel and product line variations, but leaving physical
plant available capacity unchanged. Those actions did not achieve the
desired result. In October of 1993, the Company announced that the Board of
Directors had retained Dillon, Read and Company, Inc., an investment banking
firm, to assist the Company in evaluating its strategic alternatives,
including the possible sale of Morgan Manufacturing. In the second quarter of
1994, management further announced that Dillon, Read had ended discussions
with certain parties, and that the Company had decided to retain and realign
the manufacturing business.
In early 1994, Morgan Manufacturing continued to experience order volume
of approximately 18,000-20,000 doors per week, or essentially 50% of plant
capacity. While production statistics continued to show favorable trends in
comparison to the prior year and plan on a per door basis, the three main
door plant configuration created a high fixed overhead situation. While
modestly better than 1993, the level of profitability was substantially below
an adequate return and well below the projected operating income which would
be generated by operating only two door plants. Consequently, in the second
quarter of 1994, the Company decided to shutdown the Springfield door and
Weed Veneer plants and provide for other cost reductions and consolidation
within the Company, which resulted in a restructuring charge of $11.3
million. With this decision, management expects to more fully utilize
manufacturing capacity by transferring approximately $10 million of door
volume from Springfield to the remaining two facilities. The Company is
continuing to evaluate its plans for capacity reduction and consolidation in
light of industry trends, current demand and likely growth opportunities.
This restructuring charge incorporates the costs of certain personnel
actions including severence, outplacement, relocation and future workers
compensation claims ($4.8 million), costs of moving, reworking, selling or
writing off inventory ($3.7 million), holding costs for idle facilities until
they can be sold ($1.7 million), and other revaluations of assets to net
realizable value ($1.1 million). At the end of 1994, $4.9 million of the
original $11.3 million had been used and the closing of the two plants was
substantially completed. The remaining reserve relates primarily to the
other cost reductions and consolidation within the Company.
During the third quarter of 1994, the Company reviewed the charges
reserved for in the original restructuring and determined that certain
estimated costs for closing the Weed Veneer operations would not be as high
as originally anticipated. However, certain other cost reduction and
restructuring actions were approved and provided for which offset the lower
expenses anticipated to close the Weed Veneer facility. Accordingly, $.4
million of the restructuring reserve was reallocated for the downsizing of
two distribution centers and $.5 million to cover the restructuring and
relocation of the Corporate headquarters (See Note 2 of Notes to Consolidated
Financial Statements).
SEASONAL NATURE OF BUSINESS
<PAGE>
The building products industry is seasonal, particularly in the Northeast
and Midwest regions of the United States where inclement weather during the
winter months usually reduces the level of building activity in both the
improvement, maintenance and repair market and the new construction market.
The Company's lowest sales levels generally occur during the first and fourth
quarters. However, the Company's Southeast door manufacturing facility,
which serves the more moderate climates, including the West Coast, partially
offsets the effect of seasonal influences on the Company's operations.
The table below sets forth the Company's quarterly net sales during the
years ended December 31, 1994 and 1993:
1994 1993
-------------------- --------------------
Net % of Net % of
Sales Total Sales Total
-------------------- --------------------
(millions) (millions)
First Quarter $ 82.8 23.1% $ 95.0 24.2%
Second Quarter 95.2 26.6 96.2 24.5
Third Quarter 95.2 26.6 106.5 27.1
Fourth Quarter 85.2 23.7 95.0 24.2
------- ----- ------- -----
Total Year $ 358.4 100.0% $ 392.7 100.0%
======= ===== ======= =====
See Note 13 of Notes to Consolidated Financial Statements for further
quarterly information.
<PAGE>
REPORT OF MANAGEMENT
The management of Morgan Products Ltd. is responsible for the
Consolidated Financial Statements and other information included in this
Annual Report and for ascertaining that the data fairly reflects the
Company's financial condition and results of operations. The Company
prepared the Consolidated Financial Statements in accordance with generally
accepted accounting principles appropriate in the circumstances, and such
statements necessarily include amounts that are based on best estimates and
judgments with appropriate considerations given to materiality.
The Company's system of internal control is designed to provide
reasonable assurance that Company assets are safeguarded from loss or
unauthorized use or disposition and that transactions are executed in
accordance with management's authorization and are properly recorded to
permit the preparation of financial statements in accordance with generally
accepted accounting principles. The internal control system is augmented by
careful selection and training of qualified employees, proper division of
responsibilities and the development and dissemination of written policies
and procedures.
The Audit Committee of the Board of Directors is comprised of Directors
who are not employees of the Company. The Audit Committee is responsible for
reviewing and evaluating the Company's financial reporting and accounting
practices and related matters. The Audit Committee meets periodically with
management and the independent accountants to discuss any and all matters
within the Committee's responsibilities. The independent accountants have
free access to the Committee, without the presence of management.
The Company's Consolidated Financial Statements have been audited by
Price Waterhouse LLP, independent accountants, whose report also appears on
this page.
Larry R. Robinette
President and Chief Executive Officer
Douglas H. MacMillan
Vice President and Chief Financial Officer
Lincolnshire, Illinois
January 25, 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTS
To the Board of Directors and
Stockholders of Morgan Products Ltd.
In our opinion, the statements appearing on pages 14 to 22 of this
report present fairly, in all material respects, the financial position of
Morgan Products Ltd. at December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
Milwaukee, Wisconsin
January 25, 1995
<PAGE>
CONSOLIDATED INCOME STATEMENTS
----------------------------------------------------------------------------
MORGAN PRODUCTS LTD.
(in thousands, except per share amounts)
Year Ended December 31,
------------------------------------
1994 1993 1992
------------------------------------
Net Sales.................... $358,357 $392,702 $387,393
Cost of Goods Sold........... 305,959 339,905 335,560
-------- -------- --------
Gross Profit............... 52,398 52,797 51,833
-------- -------- --------
Operating Expenses
Sales and Marketing........ 36,251 38,859 38,568
General and Administrative. 10,750 10,488 12,256
Provision for Restructuring. 11,291 -- 7,866
-------- -------- --------
(Note 2)
58,292 49,347 58,690
-------- -------- --------
Operating Income (Loss)...... (5,894) 3,450 (6,857)
-------- -------- --------
Other (Expense) Income
Interest................... (3,776) (3,968) (3,915)
Other...................... 469 1,720 (410)
-------- -------- --------
(3,307) (2,248) (4,325)
-------- -------- --------
Income (Loss) Before
Income Taxes............... (9,201) 1,202 (11,182)
Provision (Benefit) for
Income Taxes............... 200 250 (1,004)
-------- -------- --------
Net Income (Loss)............ $ (9,401) $ 952 $(10,178)
======== ======== ========
Earnings (Loss) Per Share.... $ (1.10) $ .11 $ (1.20)
======== ======== ========
Weighted Average Common
and Common Equivalent
Shares Outstanding......... 8,549 8,495 8,490
======== ======== ========
The accompanying notes are an integral
part of the financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------
MORGAN PRODUCTS LTD.
(in thousands)
AT DECEMBER 31,
-----------------------------------
1994 1993
-----------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........ $ 6,195 $ 3,454
Accounts receivable (less allowances
of $953 in 1994 and $1,448 in 1993) 24,361 32,264
Inventories (Note 3)............. 54,957 62,715
Other current assets............. 997 922
-------- --------
Total current assets........ 86,510 99,355
-------- --------
PROPERTY, PLANT AND EQUIPMENT, Net (Note 4) 20,780 27,944
OTHER ASSETS (Notes 1 and 9).......... 6,018 5,981
-------- --------
$113,308 $133,280
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt (Note 5)........ $ 1,205 $ 982
Accounts payable................ 11,510 13,492
Accrued compensation and
employee benefits............... 8,176 4,021
Income tax payable.............. 203 --
Other current liabilities....... 3,777 3,635
-------- --------
Total current liabilities.. 24,871 22,130
-------- --------
LONG-TERM DEBT (Note 5).............. 33,245 46,669
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY: (Note 7)
Common stock, $.10 par value,
8,640,713 and 8,496,521 shares
outstanding, respectively...... 864 850
Paid-in capital................. 33,733 33,021
Retained earnings............... 21,257 30,658
-------- --------
55,854 64,529
Treasury stock, 2,386 shares,
at cost........................ (48) (48)
Unearned Compensation -
restricted stock................. (614) --
-------- --------
55,192 64,481
-------- --------
<PAGE>
$113,308 $133,280
======== ========
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
----------------------------------------------------------------------------
MORGAN PRODUCTS LTD.
(in thousands)
Year Ended December 31,
---------------------------------
1994 1993 1992
---------------------------------
CASH GENERATED (USED) BY OPERATING
ACTIVITIES:
Net income (loss)................. $ (9,401) $ 952 $(10,178)
Add (deduct) noncash items
included in income:
Depreciation and amortization... 4,794 5,055 6,033
Provision for doubtful accounts. (54) 697 971
Deferred income taxes........... -- -- (3,302)
Provision for restructuring..... 11,291 -- 7,866
Loss (gain) on sale of property,
plant and equipment............ (142) (1,394) 38
Other........................... 85 6 279
Cash generated (used) by changes
in components of noncash working
capital:
Accounts receivable............ 7,957 (6,877) (32)
Inventories..................... 5,334 (2,273) (4,682)
Accounts payable................ (1,982) 2,342 1,459
Other working capital........... (3,406) (1,487) 4,109
--------- -------- --------
NET CASH GENERATED (USED) BY OPERATING
ACTIVITIES:......................... 14,476 (2,979) 2,561
--------- -------- --------
CASH GENERATED (USED) BY INVESTING
ACTIVITIES:
Acquisition of property, plant
and equipment.................. (1,173) (1,946) (3,339)
Proceeds from disposal of property,
plant and equipment............. 4,193 3,759 445
Acquisition of other assets, net. (1,581) (893) (1,694)
--------- -------- --------
NET CASH GENERATED (USED) BY INVESTING
ACTIVITIES:........................ 1,439 920 (4,588)
--------- -------- --------
CASH GENERATED (USED) BY FINANCING
ACTIVITIES:
Net change in short-term debt..... 999 (5,651) 18,228
Proceeds from long-term debt...... 25,000 11,226 18,365
Repayments of long-term debt...... (39,200) (4,250) (32,276)
Common stock issued for cash...... 27 31 37
--------- -------- --------
NET CASH GENERATED (USED) BY
FINANCING ACTIVITIES:............... (13,174) 1,356 4,354
<PAGE>
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... 2,741 (703) 2,327
CASH AND CASH EQUIVALENTS:
Beginning of period............... 3,454 4,157 1,830
--------- -------- --------
End of period..................... $ 6,195 $ 3,454 $ 4,157
========= ======== ========
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest.......................... $ 3,733 $ 3,598 $ 3,820
Income taxes...................... (9) 149 (1,362)
The accompanying notes are an integral
part of the financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------
MORGAN PRODUCTS LTD.
(in thousands)
UNEARNED
COMPENSATION-
COMMON PAID-IN RETAINED TREASURY RESTRICTED
STOCK CAPITAL EARNINGS STOCK STOCK
---------------------------------------------
Balance at December 31, 1991.. $ 849 $32,954 $39,885 $ (48) $ --
Net Loss..................... -- -- (10,178) -- --
Other........................ -- 37 -- -- --
----- ------- ------- ----- ------
Balance at December 31, 1992.. 849 32,991 29,707 (48) --
Net Income................... -- -- 952 -- --
Other........................ 1 30 (1) -- --
----- ------- ------- ------ ------
Balance at December 31, 1993.. 850 33,021 30,658 (48) --
Net Loss .................... -- -- (9,401) -- --
Issuance of Restricted Stock. 14 686 -- -- (700)
Amortization of Unearned
Compensation............... -- -- -- -- 86
Other........................ -- 26 -- -- --
----- ------- ------- ------ ------
Balance at December 31, 1994.. $ 864 $33,733 $21,257 $ (48) $(614)
===== ======= ======= ====== ======
The accompanying notes are an integral
part of the financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MORGAN PRODUCTS LTD.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------
DESCRIPTION OF BUSINESS - Morgan Products Ltd. ("Morgan" or the "Company")
manufactures and purchases products (virtually all considered to be millwork)
which are sold to the residential and light commercial building materials
industry and are used for both new construction and improvements, maintenance
and repairs. In view of the nature of its products and the method of
distribution, management believes that the Company's business constitutes a
single industry segment.
CONSOLIDATION - The consolidated financial statements include the accounts
of all business units of Morgan Products Ltd. All intercompany transactions,
profits and balances are eliminated.
EARNINGS PER SHARE AND SHARE DATA - Earnings per share are computed using
the weighted average number of common and, when applicable, common equivalent
shares outstanding during the period.
INVENTORIES - Inventories are valued at the lower of cost or market. Cost
is determined on the first-in, first-out (FIFO) method.
PROPERTIES - Property, plant and equipment are stated at cost and
depreciated on a straight line basis over the estimated useful lives of the
assets which generally range from 35 years for buildings, 10 to 20 years for
building equipment and improvements, and 5 to 10 years for machinery and
equipment. Expenditures which substantially increase value or extend useful
life are capitalized. Expenditures for maintenance and repairs are charged
against income as incurred.
OTHER ASSETS - Included in other assets are software costs which are
amortized over their estimated useful lives and deferred debt issue costs
which are amortized over the life of the related debt agreement.
STATEMENT OF CASH FLOW - The Company considers all highly liquid debt
instruments with a maturity of 91 days or less at the time of purchase to be
cash equivalents.
NOTE 2 - PROVISION FOR RESTRUCTURING
------------------------------------
In the fourth quarter of 1993, the Company announced that it had retained
the investment banking firm of Dillon, Read & Company, Inc. to help evaluate
strategic alternatives for the Company, including the possible sale of its
Morgan Manufacturing business unit. In the second quarter of 1994,
management further announced that Dillon, Read ended discussions with certain
parties, and that the Company had decided to retain and realign the
manufacturing business.
On May 28, 1994, the Company recorded an $11.3 million restructuring charge
to cover the cost of closing the Springfield, Oregon plant, the Weed,
California Veneer operation and provide for other cost reductions and
consolidation within the Company. This charge incorporates the costs of
certain personnel actions including severance, outplacement, and relocation;
costs of moving, reworking, selling, or writing off inventory; holding costs
for idle facilities until they can be sold; and the revaluation of idle
<PAGE>
assets to estimated net realizable value based on independent appraisal
information.
During the third quarter of 1994, the Company reviewed the charges with
respect to matters reserved for in the restructuring and determined that
certain estimated costs would not be as high as originally anticipated.
However, certain other cost reduction and restructuring actions were approved
and provided for during the third quarter which offset the lower expenses
originally anticipated. Accordingly, $.4 million of the restructuring
reserve was reallocated for the downsizing of two distribution centers, and
$.5 million to cover the restructuring and relocation of the Corporate
headquarters. Significant reserve components and 1994 activity are as
follows (in millions):
Reserve Utilized Reserve at
at May 28,-------------- December 31,
1994 Cash Noncash Reallocated 1994
---------------------------------------------------
Employee Benefits(1) $ 4.8 $(1.7) -- $(0.4) $ 2.7
Inventory(2) 3.7 (0.6) $(1.2) (0.1) 1.8
Fixed Assets 1.1 -- -- 0.2 1.3
Holding and Other
Costs(3) 1.7 (1.4) -- 0.3 0.6
----- ----- ----- ----- -----
$11.3 $(3.7) $(1.2) $ -- $6.4
===== ===== ===== ===== =====
(1) Costs associated with severance, outplacement and future workers
compensation claims due to the closing of the Springfield, Weed Veneer and
other facilities.
(2) Primarily costs associated with inventory that could not be utilized or
costs of reworking inventory for use in other facilities due to closing of
the Springfield, Weed Veneer and other facilities.
(3) Costs associated with continuing utility, depreciation and property tax
due to the closing of the Springfield, Weed Veneer and other facilities.
The downsizing of the distribution centers and the closing of the
Springfield and Weed Veneer facilities were substantially completed during
1994. All 158 Springfield employees, 29 Weed Veneer employees and 5 Oshkosh
employees were terminated. This represented a 25% reduction in workforce at
the Manufacturing division. The remaining reserve relates primarily to other
cost reductions and consolidation to be taken in 1995 within the Company and
the corporate headquarters relocation. By November of 1994, the sale of the
Springfield plant and Springfield and Weed Veneer machinery and equipment was
completed. The corporate headquarters is being moved to Williamsburg,
Virginia in order to reduce occupancy expense, facilitate personnel cost
reductions, and locate nearer to the Company's traditional major markets.
The Company is continuing to evaluate its plans for capacity reduction and
consolidation in light of industry trends, current demand and likely growth
opportunities.
During the fourth quarter of 1992, the Company recorded a $7.9 million
provision for restructuring. The provision for restructuring includes the
writedown of certain idle facilities and equipment to net realizable value,
certain costs associated with the rationalization of capacity at the three
main door manufacturing facilities and a provision relating to the possible
sale of a part or all of its Morgan Technologies software development
<PAGE>
business unit. During 1993 these idle assets were disposed of at or above
their carrying values.
NOTE 3 - INVENTORIES
_____________________
Inventories consisted of the following at (in thousands of dollars):
December 31,
-------------------------
1994 1993
-------------------------
Raw materials $ 9,685 $13,855
Work-in-process 5,272 6,043
Finished goods 40,000 42,817
------- -------
$54,957 $62,715
======= =======
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------
Property, plant and equipment consisted of the following at (in thousands
of dollars):
December 31,
-----------------------
1994 1993
-----------------------
Land and improvements $ 2,765 $ 2,875
Buildings and improvements 15,593 19,766
Machinery and equipment 21,948 30,238
Capitalized building and
equipment leases 5,328 5,328
Less accumulated depreciation
and amortization (24,950) (30,599)
Construction in progress 96 336
------- -------
$20,780 $27,944
======= =======
NOTE 5 - LONG-TERM DEBT
-----------------------
Long-term debt consisted of the following at (in thousands of dollars):
December 31,
-----------------------
1994 1993
-----------------------
Revolving credit facilities $25,000 $38,200
Industrial revenue bonds 2,300 1,962
Obligations under capital leases
(Note 6) 3,820 4,223
Obligations under financing leases 2,306 2,491
Other 1,024 775
<PAGE>
------- -------
34,450 47,651
Less current maturities (1,205) (982)
------- -------
Total long-term debt $33,245 $46,669
======= =======
On July 14, 1994, the Company signed a new revolving credit agreement with
Barclays Business Credit Inc. (now part of Shawmut Capital Corporation) which
provides for a revolving credit facility of up to $65 million through July
13, 1997, and includes a letter of credit facility of up to $9 million
through July 13, 1997. This credit facility is secured by certain accounts
receivable, inventories, equipment, real estate and general intangibles of
the Company. Available borrowings under the revolving credit facility bear
interest at the option of the Company at the prime rate plus an incremental
1.25 percentage points or at the LIBOR rate plus an incremental 2.75
percentage points. The Company also pays an annual commitment fee of 0.5
percent on the average unused portion of the revolving credit line and
certain additional fees.
The credit facility contains certain covenants including limitations on the
acquisition and disposition of assets, on the pledging of assets other than
those pledged under the industrial revenue bonds, and the requirement that
the Company maintain minimum tangible net worth, leverage and interest
coverage ratios. The Company was in full compliance with the restrictions and
covenants contained in the credit agreement during the year and at December
31, 1994.
As of December 31, 1994, the Company had utilized $5.8 million of its $9
million letter of credit facility and had borrowings of $25 million under the
revolving credit facility.
The industrial revenue bond outstanding at December 31, 1994 bears a
floating interest rate equal to eighty percent (80%) of the bond equivalent
yield applicable to 91-day United States Treasury Bills. There bonds are
secured by assets with a book value of $8.9 million and $2.45 million in
letters of credit.
During 1991, the Company entered into a sale-leaseback transaction which,
based upon the applicable terms, is accounted for as a financing lease. The
term of the agreement is 15 years beginning on December 31, 1991 and expiring
on December 29, 2006 with an interest rate of 9.73% annually.
Future annual maturities and sinking fund requirements of the Company's
long-term debt as of December 31, 1994 are presented below (in thousands of
dollars):
1995 $ 1,205
1996 1,023
1997 26,004
1998 942
1999 998
Later years 4,278
--------
$ 34,450
========
<PAGE>
The recorded value of the Company's debt obligations at December 31,
1994 approximates fair market value.
NOTE 6 - LEASE OBLIGATIONS
--------------------------
Certain leased equipment and distribution facilities have been capitalized
by the Company. The Company also leases certain facilities, equipment and
vehicles under noncancellable agreements which are operating leases.
Future minimum lease payments required under long-term leases in effect at
December 31, 1994 are as follows (in thousands of dollars):
------------------------------
Capital Operating Total
------------------------------
1995 $ 922 $ 4,430 $ 5,352
1996 902 3,348 4,250
1997 722 1,654 2,376
1998 722 1,294 2,016
1999 722 1,113 1,835
Later years 4,870 1,388 6,258
------- ------- -------
$ 8,860 $13,227 $22,087
======= =======
Less imputed interest (5,040)
-------
$ 3,820
=======
For 1994, 1993, and 1992, rental expense, including usage
charges on the long-haul fleet, was $6.6 million, $6.7 million and $6.7
million, respectively.
NOTE 7 - STOCKHOLDERS' EQUITY
-----------------------------
COMMON STOCK - The number of authorized shares of Common Stock is
20,000,000 shares.
PREFERRED STOCK - The number of authorized shares of Preferred Stock is
5,000,000 shares.
STOCK OPTION PLAN - In June 1985, the Company adopted a Stock Option Plan
which, as amended, provides for, (i) the issuance of incentive stock options
at a purchase price approximating the fair market value at the date of grant
and (ii) the issuance of non-qualified options at a price determined by the
Compensation Committee, a committee of the Board of Directors, which cannot
be less than 85% of the market price at the date of grant. In May 1989, the
stockholders ratified a proposal that amended the Company's Stock Option Plan
to increase from 500,000 to 750,000 the number of shares of Common Stock
reserved for issuance under the plan.
As of December 31, 1994, the Company has set aside 646,800 shares of its
Common Stock for the granting of such options. The options granted become
exercisable immediately or in two, three, four or five installments from the
<PAGE>
date of grant, and all of the options granted expire no more than ten years
from the date of grant.
The following table provides summary information regarding stock options
under the Stock Option Plan:
1994 1993
--------------------------
Options outstanding at January 1 583,200 592,200
Granted(1) 492,500 --
Exercised -- --
Cancelled(1) (461,700) (9,000)
-------- -------
Outstanding at December 31(2) 614,000 583,200
======= =======
Option price range at December 31 $5.00 - $9.625 $6.63 - $12.50
Options exercisable at December 31 327,495 435,064
Options available for grant
at December 31 32,800 63,600
(1) The 1994 amounts include 150,500 options that were repriced in August
1994 and had original grant dates of May 24, 1990, August 9, 1991 and May 20,
1992.
(2) Options outstanding at December 31, 1994 and 1993 of 614,000 and
583,200, respectively, consist solely of non-qualified options.
In May 1992, the stockholders approved the adoption of a Non-employee
Director Stock Option Plan (the "Director Plan"). The Director Plan provides
for the automatic grant of non-qualified stock options to purchase 1,000
shares of Common Stock at a purchase price equal to the fair market value at
the date of grant upon a non-employee Director's election or re-election to
the Board of Directors. An aggregate of 50,000 shares of Common Stock are
available for grant under the Director Plan. The options granted become
exercisable in three annual installments from the date of grant and all of
the options granted expire ten years from the date of grant.
The following table provides summary information regarding stock options
under the Director Plan:
1994 1993
-----------------------
Options outstanding at January 1 8,000 4,000
Granted 3,000 4,000
Exercised -- --
Cancelled (2,000) --
----- -----
Options outstanding at December 31 9,000 8,000
===== =====
Option price range at December 31 $5.75-$9.125 $7.75-$9.125
Options exercisable at December 31 2,997 1,332
Options available for grant at
December 31 41,000 42,000
On August 19, 1994, the Company issued 140,000 restricted shares of the
Company's Common Stock to the Chief Executive Officer. These shares were
<PAGE>
awarded to a trust of which the Chief Executive Officer is the beneficiary,
subject to certain restrictions and forfeiture provisions. The shares vest
ratably over a three year period ending August 19, 1997. The restrictions
limit the sale or transfer of shares during the restricted period. The trust
will immediately vest in the shares of Common Stock upon death, disability or
termination of the Chief Executive Officer as described in the plan. The
unamortized value of the Common Stock totaling $700,000 was recorded at the
date of award based upon the market value of shares as a separate component
of stockholders' equity and is being amortized to expense over the three year
vesting period.
On August 19, 1994, the Company also granted the Chief Executive Officer
options to purchase 250,000 shares of Common Stock at an exercise price of $5
per share under the Company's stock option plan. This was the fair market
value at the date of grant. Vesting in these options will be over a three
year period with 62,500 shares or 1/4 vested immediately. This grant is
included in the table.
NOTE 8 - SHARE PURCHASE RIGHTS PLAN
------------------------------------
On March 14, 1989, the Board of Directors of the Company declared a
dividend of one share purchase right for each outstanding share of Common
Stock. The dividend was payable on March 24, 1989 to shareholders of record
on that date. Once exercisable, each right entitles its holder to purchase
one share of Common Stock for $70.00 per share (subject to adjustment). The
rights are not exercisable until 10 days after an acquiror acquires or
obtains the right to acquire 20% of the outstanding Common Stock (the share
acquisition date) or 10 days after a tender offer or exchange offer is
announced which would cause the offeror to own 25% of the outstanding Common
Stock, whichever is earlier.
At any time prior to the tenth day following the share acquisition date
(unless extended), the Company's directors may redeem the rights at a cost of
$0.01 per right. Unless so redeemed, the rights will expire March 15, 1999.
The Company's directors may amend the rights plan before the rights are
exercisable, and thereafter in any manner which does not adversely affect the
interests of the rights holders.
NOTE 9 - EMPLOYEE BENEFIT PLANS
--------------------------------
The Company has a profit sharing and 401(k) savings plan for all salaried
employees and certain groups of hourly employees. The Company matches fifty
percent of participant contributions to the savings plan, in which Company
contributions are limited to three percent of the participant's compensation.
At the discretion of the Board of Directors, the Company may make an
additional contribution, which has been targeted at three percent of each
participant's compensation.
Profit sharing costs and the Company's matching contributions to the
employee savings plan charged to operations were $1.1 million, $.6 million
and $.7 million for 1994, 1993 and 1992, respectively.
The Company has pension plans which cover some of its hourly employees.
These plans generally provide a stated benefit amount for each year of
service. In addition, the Company's former Nicolai subsidiary had two
salaried pension plans which were curtailed during 1986 and one hourly
pension plan which was curtailed in 1988.
<PAGE>
For the hourly employees not covered by Company pension or profit sharing
plans, the Company makes contributions to multi-employer pension plans based
on compensable hours worked in accordance with union contracts. Under
certain conditions, principally withdrawal from such plans, the Company may
have further obligations for pensions with respect to such employees, but the
amount thereof, if any, cannot be determined at the present time.
Net pension expense for 1994, 1993 and 1992 was $119,000, $71,000 and
$75,000, respectively. The projected benefit obligations as of December 31,
1994 and December 31, 1993 were $12.0 and $13.2 million respectively. The
projected benefit obligation was determined using assumed discount rates of
8.5% and 7.5% at December 31, 1994 and 1993, respectively. The expected long
term rate of return on plan assets was 8.5% and 9.5% at December 31, 1994 and
1993, respectively. Net assets available for plan benefits, at fair market
value, as of December 31, 1994 and December 31, 1993 were $12.1 and $13.4
million, respectively. Prepaid pension expense at December 31, 1994 and 1993
was $1.9 and $1.8 million, respectively, and is included in other assets in
the accompanying consolidated balance sheet.
Plan assets consist of equity and fixed income securities and insurance
annuity contracts. It is the policy of the Company to fund at least the
minimum required amount in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.
NOTE 10 - INCOME TAXES
----------------------
Effective January 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting For Income
Taxes". FAS 109 is an asset and liability approach to accounting for
deferred income taxes, that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, FAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Previously, the Company accounted for income taxes under the FAS 96 asset and
liability approach, which gave no recognition to future events other than the
recovery of assets and settlement of liabilities at their carrying amounts.
The adoption of FAS 109 had no material effect on net income in any period.
The components of the income tax provision (benefit) consisted of the
following (in thousands of dollars):
Year Ended December 31,
---------------------------
1994 1993 1992
---------------------------
Current:
Federal $ - $ - $ -
State 200 250 192
------- ------- -------
Total Current 200 250 192
------- -------
Deferred:
Federal - - (1,196)
State - - -
------- ------- -------
<PAGE>
Total Deferred - - (1,196)
------- ------- -------
Net Income Tax Provision
(Benefit) $ 200 $ 250 $(1,004)
======= ======= =======
The reconciliation between the U.S. Federal statutory tax rate expressed as
a percentage of pre-tax income (loss) and the effective tax rate was as
follows:
Year Ended December 31,
--------------------------
1994 1993 1992
--------------------------
U.S. Federal income tax rate (34.0)% 34.0% (34.0)%
Non-utilization (utilization) of
operating loss carryforward 33.1 (33.4) 27.0
State income taxes, net of federal
benefit 1.2 5.9 1.1
Non-deductible items 1.5 2.5 1.0
Other 0.4 11.8 (4.1)
---- ---- ----
2.2% 20.8% (9.0)%
==== ==== ====
Temporary differences and carryfowards which gave rise to deferred tax
assets and liabilities consisted of the following at (in thousands of
dollars):
December 31,
----------------
1994 1993
----------------
Gross Deferred Tax Assets:
Operating loss carryforwards $ 3,601 3,921
Accrued expenses and reserves 3,818 1,770
Postretirement benefits 174 174
Other 97 60
------- ------
7,690 5,925
Valuation allowance (6,161) (3,130)
------- ------
1,529 2,795
------- ------
Gross Deferred Tax Liabilities:
Depreciation and amortization (949) (2,238)
Pensions (580) (557)
------- ------
(1,529) (2,795)
------- ------
Net Deferred Tax Asset
(Liability) $ 0 $ 0
======= =======
The 1992 deferred income tax benefit was determined under the liability
method of accounting (FAS 96). The major temporary differences which gave
<PAGE>
rise to the deferred tax balance were depreciation, amortization and certain
liabilities which were deductible only when paid. The valuation allowance
primarily reflects operating loss carryforwards for which utilization is
uncertain.
As of December 31, 1994, the Company has unused operating loss
carryforwards for tax purposes of approximately $10.6 million, which expire
in years 2002 through 2008. No benefit for the remaining operating loss
carryforwards has been recognized in the consolidated financial statements.
Should an ownership change occur, as defined under Section 382 of the
Internal Revenue Code, the Company's ability to utilize the operating loss
carryforwards would be restricted.
NOTE 11 - RELATED PARTIES
-------------------------
As of December 31, 1994, Saugatuck Capital Company Limited Partnership
("Saugatuck"), and certain members of management, in the aggregate,
beneficially owned approximately 24% of the Company's Common Stock. Under
certain circumstances Saugatuck controls the voting of these management
shares.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
---------------------------------------
Andersen Corporation ("Andersen"), whose products accounted for 39% of 1994
net sales, distributes its products only through independent distributors
such as the Company. The Company and its predecessors have distributed
Andersen products for over 39 years; however, the Company's agreement with
Andersen provides that Andersen can terminate any of the Company's
distributorships at any time upon 60 days notice. A termination or
significant modification of the distribution relationship with Andersen could
have a material adverse effect on revenues and earnings.
NOTE 13 - INTERIM FINANCIAL INFORMATION (UNAUDITED)
---------------------------------------------------
Summarized quarterly financial data for 1994 and 1993 are presented below
(in thousands, except per share data):
1st Quarter 2nd Quarter
------------------ -------------------
1994 1993 1994 1993
------------------ -------------------
Net Sales $82,803 $94,964 $95,238 $96,205
Gross Profit 12,844 14,112 13,603 13,704
Net Income (Loss) (345) 47 (10,724) 103
Earnings (Loss)
per Share $ (.04) $ -- $ (1.26) $ .01
3rd Quarter 4th Quarter
------------------ -------------------
1994 1993 1994 1993
------------------ -------------------
Net Sales $95,139 $106,523 $85,177 $95,010
Gross Profit 14,030 13,444 11,921 11,537
Net Income (Loss) 1,448 1,006 220 (204)
<PAGE>
Earnings (Loss)
per Share $ .17 $ .12 $ .03 $ (.02)
The building products industry is seasonal, causing the Company's lowest
sales to occur during the first and fourth quarters.
<PAGE>
COMMON STOCK MARKET PRICE RANGE AND DIVIDEND POLICY
The Common Stock of the Company commenced trading on the New York Stock
Exchange on March 7, 1988 (NYSE symbol: MGN). As of March 1, 1995, there
were approximately 2,940 holders of record of such Common Stock. The Company
currently does not pay cash dividends on its Common Stock. Any payment of
future dividends, and the amounts thereof, will be dependent upon the
Company's earnings, financial requirements, cash flow and other factors
deemed relevant by the Board of Directors.
The following table sets forth the high and low sale prices of the
Company's Common Stock reported in the New York Stock Exchange Consolidated
Transaction Reporting System.
High Low
-----------------------
1993:
First Quarter $ 7-7/8 $ 6-3/4
Second Quarter 8-1/4 6
Third Quarter 7-1/8 6
Fourth Quarter 9-1/8 6-1/4
1994:
First Quarter $ 8-7/8 $ 5-7/8
Second Quarter 6-3/4 4-3/4
Third Quarter 5-7/8 4-1/2
Fourth Quarter 6-1/4 5
On March 1, 1995, the closing price of the Common Stock was $6.13.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on Form S-8
(No. 33-32264 and No. 33-23882) and the Registration Statement on Form S-8
(No. 33-62148) of Morgan Products Ltd. of our report dated January 25, 1995
appearing on page 23 of the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement
Schedule which appears on page 20 of this Form 10-K.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains annual summary financial information extracted from
Morgan Products 1994 Annual Form 10-K and is qualified in its entirety by
reference to such Form 10-K filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 6,195
<SECURITIES> 0
<RECEIVABLES> 25,314
<ALLOWANCES> 953
<INVENTORY> 54,957
<CURRENT-ASSETS> 86,510
<PP&E> 45,730
<DEPRECIATION> 24,950
<TOTAL-ASSETS> 113,308
<CURRENT-LIABILITIES> 24,871
<BONDS> 33,245
<COMMON> 33,935
0
0
<OTHER-SE> 21,257
<TOTAL-LIABILITY-AND-EQUITY> 113,308
<SALES> 358,357
<TOTAL-REVENUES> 358,357
<CGS> 305,959
<TOTAL-COSTS> 364,251
<OTHER-EXPENSES> (469)
<LOSS-PROVISION> (54)
<INTEREST-EXPENSE> 3,776
<INCOME-PRETAX> (9,201)
<INCOME-TAX> 200
<INCOME-CONTINUING> (9,401)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,401)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
