SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 14, 1995
Date of Report (Date of earliest event reported)
DISCUS ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-13826 41-1456350
(State or other jurisdiction (Commission File No.) (IRS Employer ID No.)
of incorporation)
2430 Metropolitan Centre, 333 South Seventh Street
Minneapolis, Minnesota 55402
(Address of principal executive offices)
(612) 305-0339
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 14, 1995, Discus Acquisition Corporation (the "Company")
acquired from Bridgewater Resources Corp. ("Bridgewater") the outstanding stock
of Peerless Chain Company ("Peerless") pursuant to a Stock Purchase Agreement
dated initially November 22, 1995 and as amended December 7 and December 13,
1995. The stock of Peerless was purchased by the Company for $23.75 million,
subject to certain post-closing adjustments. The purchase price was paid with
subordinated financing from Bridgewater ($3.7 million); senior financing from
The CIT Group/Business Credit, Inc. ($14.133 million), and the balance
(approximately $5.1 million) by cash from the Company and application of a
reserve/credit to the purchase price. In connection with the acquisition, the
Company sold approximately $2.6 million of additional common stock to a group of
investors, including certain members of Peerless' management and obtained
$225,000 from the sale of short-term subordinated notes to a director and
affiliate of another director.
Peerless and its predecessors have been located in Winona, Minnesota
since 1917. The Company manufactures three principal product lines consisting of
chain, traction and wire form products for the consumer, hardware, industrial
and OEM markets. Peerless' net sales of these products for 1994, 1993 and 1992
were approximately $42.8 million, $36.7 million and $34.1 million, respectively.
Sales for 1995 are currently estimated to be $43.0 million.
Peerless' products consist of chain products, traction products and
wire form products produced in a variety of sizes, materials, finishes and
load-carrying capabilities. Consumer applications include utility chain for
swing sets, pet chains, border chains and decorative chains. Industrial products
include chain used in logging, agriculture and general securing applications.
OEM products include hoist chain, skidder chain, agricultural safety chain and
private label chain products. The Company also produces welded chain for such
applications as towing, hanging signs and trailer safety applications.
Traction products include tire chains, traction cables and accessories
for a broad range of passenger and commercial vehicles, farm, construction and
logging vehicles.
Wire form products include prepackaged and bulk peg hooks for consumer
use, retail store display fixtures and special order wire forms for the OEM
market.
Most chain products are manufactured by the Company at its plants in
Minnesota or Iowa. The Company markets its products primarily in the United
States, with limited distribution in Canada, Mexico and the United Kingdom. In
1994, consumer, industrial and OEM markets accounted for 49%, 19% and 32% of
sales. The Company ships products directly from its Winona or Iowa manufacturing
plants directly to customers or to five regional distribution centers located in
Georgia, Texas, Colorado, Nevada and Pennsylvania. The Company estimates that it
has a 15% market share in welded chain, 17% market share in weldless chain and
22% in tire chain.
The Company's customer base includes over 2,000 active accounts, of
which more than 85% have been customers for at least three years. Wal-Mart
Stores, Inc., a Peerless customer for over 25 years, accounted for more than 20%
of Peerless' 1994 sales. The Company is the sole supplier for Wal-Mart's chain,
traction and packaged peg wire form products. The remainder of the Company's top
ten customers accounted for 34% of 1994 sales, with no one account representing
more than 5% of total sales.
The Company believes that the U.S. welded, weldless and tire chain
market is in excess of $200 million. The Company competes with at least four
domestic chain manufacturers, with no one competitor claiming a dominant market
share position. Imported product provides another level of competition to the
Company, with most domestic manufacturers importing some portion of their
products. Independent distributors importing chain and traction products from
Asia, Europe and Africa provide additional competition and options for consumers
and industrial buyers. In addition, certain OEMs have chosen to source their
needs offshore.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
It is impractical for the Registrant to provide required
financial statements specified in Rule 3-05(b) for the
acquisition described in Item 2. The Registrant intends to
file such financial statements within 60 days.
(b) Pro forma financial information.
It is impractical for the Registrant to provide required pro
forma financial information. The Registrant intends to file
such financial statements within 60 days.
(c) Exhibits.
10.1 Stock Purchase Agreement dated November 22, 1995, as
amended December 1, 1995 and December 13, 1995,
between the Company and Bridgewater Resources Corp.
10.2 Financing Agreement dated December 13, 1995 between
The CIT Group/Business Credit, Inc. and Peerless
Chain Company and Peerless Chain of Iowa, Inc.
10.3 $2,500,000 Redemption Note dated December 13, 1995
between Peerless Chain Company and Bridgewater
Resources Corp.
10.4 $1,200,000 Stock Purchase Note dated December 13,
1995 between Discus Acquisition Corporation and
Bridgewater Resources Corp.
10.5 Stock Purchase Note dated December 13, 1995 in the
amount of $100,000 between Discus Acquisition
Corporation and Harry W. Spell.
10.6 Stock Purchase Note dated December 13, 1995 in the
amount of $125,000 between Discus Acquisition
Corporation and Pyramid Investors.
10.7 Subordination Agreement dated December 13, 1995
between Bridgewater Resources Corp. and The CIT
Group/Business Credit, Inc.
10.8 Stock Pledge Agreement dated December 13, 1995
between The CIT Group/Business Credit, Inc. and
Discus Acquisition Corporation.
10.9 Stock Pledge Agreement dated December 13, 1995
between The CIT Group/Business Credit, Inc. and
Peerless Chain Company.
10.10 Grant of security interest in patents, trademarks and
licenses dated December 13, 1995 between Peerless
Chain Company, Peerless Chain of Iowa, Inc. and The
CIT Group/Business Credit, Inc.
10.11 Guaranty of Parent Agreement dated December 13, 1995
between The CIT Group/Business Credit, Inc. and
Registrant.
10.12 Guaranty of Borrower dated December 13, 1995 between
The CIT Group Business Credit, Inc. and Peerless
Chain Company and Peerless Chain of Iowa, Inc.
10.13 Lease Agreement dated June 18, 1986, as amended,
between Peerless Chain Company and CPA Peerless
Limited Partnership.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DISCUS ACQUISITION CORPORATION
Dated: December 27, 1995. By /s/ William H. Spell
William H. Spell
Chief Executive Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
<S> <C> <C>
10.1 Stock Purchase Agreement dated November 22, 1995, as amended
December 1, 1995 and December 13, 1995, between the Company
and Bridgewater Resources Corp.
10.2 Financing Agreement dated December 13, 1995 between The
CIT Group/Business Credit, Inc. and Peerless Chain Company
and Peerless Chain of Iowa, Inc.
10.3 $2,500,000 Redemption Note dated December 13, 1995 between
Peerless Chain Company and Bridgewater Resources Corp.
10.4 $1,200,000 Stock Purchase Note dated December 13, 1995
between Discus Acquisition Corporation and Bridgewater
Resources Corp.
10.5 Stock Purchase Note dated December 13, 1995 in the amount
of $100,000 between Discus Acquisition Corporation and Harry
W. Spell.
10.6 Stock Purchase Note dated December 13, 1995 in the amount
of $125,000 between Discus Acquisition Corporation and
Pyramid Investors.
10.7 Subordination Agreement dated December 13, 1995 between
Bridgewater Resources Corp. and The CIT Group/Business
Credit, Inc.
10.8 Stock Pledge Agreement dated December 13, 1995 between
The CIT Group/Business Credit, Inc. and Discus Acquisition
Corporation.
10.9 Stock Pledge Agreement dated December 13, 1995 between
The CIT Group/Business Credit, Inc. and Peerless Chain
Company.
10.10 Grant of security interest in patents, trademarks and licenses
dated December 13, 1995 between Peerless Chain Company,
Peerless Chain of Iowa, Inc. and The CIT Group/Business
Credit, Inc.
10.11 Guaranty of Parent Agreement dated December 13, 1995
between The CIT Group/Business Credit, Inc. and Registrant.
10.12 Guaranty of Borrower dated December 13, 1995 between The
CIT Group Business Credit, Inc. and Peerless Chain Company
and Peerless Chain of Iowa, Inc.
10.13 Lease Agreement dated June 18, 1986, as amended, between
Peerless Chain Company and CPA Peerless Limited
Partnership.
</TABLE>
SECOND AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS SECOND AMENDMENT, dated as of December 13, 1995, by and between
Bridgewater Resources Corp. ("Seller"), the sole shareholder of Peerless Chain
Company (the "Company"), and Discus Acquisition Corporation ("Buyer") amends
that certain Stock Purchase Agreement dated November 22, 1995 by and between
Seller and Buyer for the sale of the outstanding capital stock of the Company
(as amended by Amendment dated December 1, 1995, the "Agreement"). Except as
otherwise provided herein, all capitalized terms herein are as defined in the
Agreement.
IN CONSIDERATION of the mutual promises and covenants contained herein,
the parties agree to amend the Agreement as follows:
1. Section 1.3 is hereby amended to be as follows:
1.3 Payment of Purchase Price. One Million Two Hundred
Thousand Dollars ($1,200,000) of the Purchase Price will be paid in
accordance with and pursuant to a Stock Purchase Note in the form of
Exhibit G hereto to be issued and delivered by Buyer to Seller at
Closing (the "Stock Purchase Note"). The remainder of the Base Price
will be paid at Closing by wire transfer of immediately available funds
to accounts designated by Seller prior to Closing. In the event of any
adjustment to the Purchase Price pursuant to Section 1.2(a) or (b),
immediately upon determination of such adjustment Seller will promptly
reimburse Buyer the amount of such adjustment in immediately available
funds. In the event of any delay in the payment of such adjustment,
such amount will bear interest from the due date until paid in full at
the default interest rate under the Note (as defined in Section 5.5).
2. The following Section 1.4 is hereby added:
1.4 Warrant. In addition to the Purchase Price and in
connection with the Stock Purchase Note, Buyer will issue and deliver
to Seller at Closing a Warrant for Purchase of Securities in the form
of Exhibit H hereto ("Warrant").
3. The date under Sections 2.1 and 11.1(b) is hereby amended to
December 13, 1995.
4. Section 2.3 is hereby amended as follows:
(a) The words ", the Stock Purchase Note and the Warrant" are
hereby added after the word "Agreement" in the third line of
Section 2.3(c);
(b) Sections 2.3(c) through (i) are hereby relettered (e)
through (k);
(c) New Sections 2.3(c) and (d) are hereby added as follows:
(c) the Stock Purchase Note duly executed;
(d) the Warrant duly executed;
5. The first sentence of Section 3.2 is hereby amended to be as
follows:
The authorized capital stock of the Company consists of one thousand
(1,000) shares of common stock, par value $.01 per share, of which ten
(10) shares are issued and outstanding, all of which are beneficially
owned by Seller and will be redeemed pursuant to Section 5.5 or
transferred at Closing to Buyer hereunder, in either case free and
clear of all mortgages, pledges, liens, security interests,
encumbrances, restrictions, adverse claims or charges or third party
rights of any kind ("Encumbrances").
6. Section 4.3 is hereby amended to be as follows:
4.3 Due Authorization, Execution and Delivery by Buyer; Effect
of Agreement. The execution, delivery and performance by Buyer of this
Agreement, the Note, the Stock Purchase Note and the Warrant and the
consummation by Buyer of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on
the part of Buyer. This Agreement has been duly and validly executed
and delivered by Buyer and constitutes, and the Note, the Stock
Purchase Note and the Warrant when duly and validly executed and
delivered by Buyer will constitute, the legal, valid and binding
obligations of Buyer, enforceable against it in accordance with their
terms, except to the extent that such enforceability (a) may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally, and (b) is subject to
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law). Neither the
execution, delivery and performance of this Agreement, the Note, the
Stock Purchase Note or the Warrant nor the consummation of the
transactions contemplated herein or therein will: (i) violate or be in
conflict with any provision of the articles of incorporation or bylaws
of Buyer; or (ii) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of
time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right
of termination, cancellation, imposition of fees or penalties under,
any debt, instrument, commitment, contract or other agreement or
obligation to which Buyer is a party or by which Buyer or any of its
properties or assets is or may be bound or result in the creation or
imposition of any Encumbrance upon any property or assets of Buyer; or
(iii) violate any provision of law, rule or regulation to which Buyer
is subject or any order, judgment or decree applicable to Buyer.
7. The following Section 4.9 is hereby added:
4.9 Capitalization. The authorized capital stock of Buyer
consists of ten million (10,000,000) shares of common stock, no par
value, of which four million nine hundred sixty-six thousand six
hundred twenty-nine (4,966,629) shares will be issued and outstanding
on the Closing Date, all of which will be on the Closing Date duly
authorized, validly issued, fully paid, nonassessable and without and
not issued in violation of preemptive rights, assuming clearance of
subscription payments received but not cleared as of the Closing Date.
There are outstanding no securities convertible into, exchangeable for
or carrying the right to acquire, equity securities of Buyer, or
subscriptions, warrants, options, rights or other arrangements or
commitments obligating Buyer to issue or acquire any of its equity
securities or any ownership interest therein, other than with respect
to the Warrant, and except as set forth on Exhibit I hereto.
8. Section 5.5 is hereby amended by replacing the fraction
"17,750/23,750" with the words "7.5 shares."
9. Section 7.7 is hereby amended to add the following sentence to
the end:
Any payment by the Company against the Ten Thousand Dollar ($10,000)
invoice claimed by Computer Associates International, Inc. to be owing
by the Company made to obtain consent of such party to assignment of
Seller's license with such party to the Company will be subject to
Seller's fifty percent (50%) contribution obligation above.
10. The following Section 7.8 is hereby added:
7.8 Seller Enhanced L/Cs. In the event any Seller Enhanced
L/Cs remain outstanding after Closing, and Seller has any continuing
obligation or has any funds subject to a continuing pledge with respect
thereto, Buyer will indemnify and hold harmless Seller and its officers
and directors from and against any and all Loss (as defined in Section
10.1) suffered by reason of, arising out of or resulting from such
Seller Enhanced L\C or any claim with respect thereto, and will take
such action as is necessary to cause Seller to be released from any
such continuing obligation and Seller's funds to be released from any
such continuing pledge not later than January 31, 1996. Buyer will pay
Seller a financing fee of Two Hundred Fifty Dollars ($250) at Closing,
in addition to the Purchase Price, in consideration of such credit
extension.
11. Exhibit A is hereby amended to include the following Section
1(i):
(i) The Intercompany Debt Balance will include as an amount
owing from the Company to Seller all checks issued by the Company
outstanding on the date as of which the Intercompany Debt Balance is
determined.
12. Exhibit D is hereby amended as follows:
(a) Paragraph (iii) of Exhibit D is hereby amended to be as
follows:
(iii) The execution, delivery and performance by
Buyer of the Agreement, the Note, the Stock Purchase Note and the
Warrant and the consummation by Buyer of the transactions contemplated
thereby have been duly authorized by all necessary corporate action on
the part of Buyer. The Agreement, the Note, the Stock Purchase Note and
the Warrant have been duly and validly executed and delivered by Buyer
and constitute the legal, valid and binding obligations of Buyer,
enforceable against it in accordance with their terms, except to the
extent that such enforceability (a) may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to creditors' rights generally, and (b) is subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Neither the execution,
delivery and performance of the Agreement, the Note, the Stock Purchase
Note or the Warrant nor the consummation of the transactions
contemplated therein will: (i) violate or be in conflict with any
provision of the articles of incorporation or bylaws of Buyer; or (ii)
be in conflict with, or constitute a default, however defined (or an
event which, with the giving of due notice or lapse of time, or both,
would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of fees or penalties under, any
debt, instrument, commitment, contract or other agreement or obligation
known to such counsel to which Buyer is a party or by which Buyer or
any of its properties or assets is or may be bound or result in the
creation or imposition of any Encumbrance upon any property or assets
of Buyer under any debt, instrument, commitment, contract or other
agreement or obligation known to such counsel; or (iii) violate any
provision of law, rule or regulation to which Buyer is subject or any
order, judgment or decree known to such counsel applicable to Buyer.
(b) The following new paragraph (viii) is hereby added:
(viii) The authorized capital stock of Buyer consists of ten
million (10,000,000) shares of common stock, no par value, of which
four million nine hundred sixty-six thousand six hundred twenty-nine
(4,966,629) shares are issued and outstanding (inclusive of shares
payment for which we understand from Buyer has been received but not
yet cleared), all of which will be on the Closing Date duly authorized,
validly issued, fully paid, nonassessable and without and not issued in
violation of preemptive rights (subject to such clearance of payments).
To the knowledge of such counsel, there are outstanding no securities
convertible into, exchangeable for or carrying the right to acquire,
equity securities of Buyer, or subscriptions, warrants, options, rights
or other arrangements or commitments obligating Buyer to issue or
acquire any of its equity securities or any ownership interest therein,
other than with respect to the Warrant, and except as set forth on
Exhibit I to the Agreement.
13. Exhibit E is hereby amended in its entirety to be in the form
of Exhibit E hereto.
14. Exhibit F is hereby amended in its entirety to be in the form
of Exhibit F hereto.
15. Exhibit G hereto is hereby added as Exhibit G.
16. Exhibit H hereto is hereby added as Exhibit H.
17. Exhibit I hereto is hereby added as Exhibit I.
18. The first sentence to Section 3 of the Amendment to the
Agreement dated December 1, 1995 is hereby amended to be as
follows:
In the course of preparing the Closing Balance Sheet, the Seller
Accountants will determine the change in the net intercompany balance
between Seller and the Company from November 30, 1995 to the Closing
Date, such intercompany balances determined in each case without regard
to checks of the Company issued and outstanding as of the date with
respect to which such determination is made, which determinations will
be subject to review by the Buyer Accountants and resolution by the
Accountant Arbitrator of any unresolved issues between the Seller
Accountants and the Buyer Accountants with respect thereto.
19. The Disclosure Schedule is hereby amended to add the
information scheduled on attached Exhibit A.
20. Except as set forth hereinabove, the Agreement remains in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, each of the parties hereto has caused this Second
Amendment to be executed on its behalf as of the date first above written.
DISCUS ACQUISITION CORPORATION
By /s/ William H. Spell
Its CEO
BRIDGEWATER RESOURCES CORP.
By Lori J. Poulos
Its CEO
Exhibit A
AMENDMENTS TO DISCLOSURE SCHEDULE
Schedule 3.1 - Colorado has been added to States of Foreign Qualification.
Schedule 3.10 - Item 70 is revised as follows: "70. Agreement between the
Company and Northwestern Bell Telephone Company d/b/a US West Communications
dated January 8, 1991, and Amendment thereto dated August 6, 1993."
Schedule 3.17 - Environment is revised to include the following:
The following additional environmental reports have been prepared for the
properties, the information contained in which being incorporated in Schedule
3.17:
1. Limited Environmental Assessment for Peerless Chain Company,
Dallas, Texas facility prepared by Northern Environmental
Technologies, Incorporated, November 20, 1995.
2. Limited Environmental Assessment for Peerless Chain Company,
Atlanta, Georgia facility prepared by Northern Environmental
Technologies, Incorporated, November 20, 1995.
3. Limited Environmental Assessment for Peerless Chain Company,
Denver, Colorado facility prepared by Northern Environmental
Technologies, Incorporated, November 20, 1995.
4. Limited Environmental Assessment for Peerless Chain Company,
Manchester, Iowa facility prepared by Northern Environmental
Technologies, Incorporated, November 20, 1995.
5. Limited Environmental Assessment for Peerless Chain Company,
Winona, Minnesota facility prepared by Northern Environmental
Technologies, Incorporated, November 20, 1995.
6. Limited Environmental Assessment for Peerless Chain Company,
Camp Hill, Pennsylvania facility prepared by Northern
Environmental Technologies, Incorporated, November 20, 1995.
7. Phase I Environmental Assessment (Volumes I & II) for Peerless Chain
Company, Winona, Minnesota facility prepared by Northern Environmental
Technologies, Incorporated, November 27, 1995.
8. Subsurface Investigation for Peerless Chain Company, Winona,
Minnesota facility prepared by Northern Environmental
Technologies, Incorporated, November 27, 1995.
Item 11 is added as follows: Flooding lubrication systems on most of the
Company's forming equipment and welding equipment result in oil dripping on the
floor beneath the equipment either because the oil overflows the existing catch
system or because the equipment does not have a catch system. Management is in
the process of designing improved catch systems for 120 machines, and estimates
$100,000 for materials and $25,000 for labor to build and install such systems.
No program for building and installing such systems has been budgeted or
defined.
Exhibit B
[There is no Exhibit B]
Exhibit C
[There is no Exhibit C]
Exhibit D
[There is no Exhibit D]
Exhibit E
REDEMPTION NOTE
$2,500,000 December ___, 1995
FOR VALUE RECEIVED, the undersigned, Peerless Chain Company
(the "Company"), a Minnesota corporation, hereby promises to pay to the order of
Bridgewater Resources Corp. ("Seller"), a Texas corporation, at the address
provided under Section 8 in lawful money of the United States in accordance with
the terms hereof the sum of Two Million Five Hundred Thousand Dollars
($2,500,000) plus interest thereon at the rate provided herein from the date
hereof until paid in full.
1. Purchase Agreement. This Note is given pursuant to that
certain Stock Purchase Agreement dated November 22, 1995 (as amended, the
"Purchase Agreement") by and between Discus Acquisition Corporation ("Buyer"), a
Minnesota corporation, and Seller for the sale of all of the outstanding capital
stock of the Company by Seller to Buyer, and as partial payment under the
Redemption (as defined in the Purchase Agreement). Capitalized terms not
otherwise defined herein will have the meanings set forth in the Purchase
Agreement. To the extent the terms of this Note as executed vary from Exhibit A
to the Purchase Agreement or the description hereof contained in the Purchase
Agreement, the terms hereof govern.
2. Definitions. Unless the context otherwise requires, the
following terms have the following meanings:
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, Buyer, (ii) which beneficially owns or holds five percent
(5%) or more of any class of the capital stock of Buyer or (iii) five percent
(5%) or more of the capital stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interest) of which is
beneficially owned or held by Buyer or a Subsidiary. The term "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 capital stock, by contract or otherwise.
"CIT" means The CIT Group/Business Credit, Inc.
"Guaranty" means any obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of Buyer or the Company guarantying in any manner, whether directly
or indirectly, any obligation, direct or indirect, absolute, contingent or
inchoate, whether existing now or in the future, of any other Person.
"Indebtedness" means any and all amounts owing or which may
become owing by the Company pursuant to the terms of this Note.
"Permitted Investments" means:
(a) Investments in commercial paper maturing in two hundred
seventy (270) days or less from the date of issuance which, at the time of
acquisition, is accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Services, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating commercial paper);
(b) Investments in direct obligations of the United
States of America or any agency thereof maturing within one (1)
year from the date of acquisition thereof;
(c) Investments in bank accounts or certificates of deposit
maturing within one (1) year from the date of origin and issued by a bank or
trust company having capital, surplus and undivided profits aggregating at least
One Hundred Million Dollars ($100,000,000); and
(d) Investments in money market preferred stocks for so long
as the same are accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Service, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating such preferred stocks).
"Person" means an individual, partnership, corporation, trust
or unincorporated organization, and a governmental agency or political
subdivision.
"Pledged Stock" is as defined in Section 6.2.
"Senior Credit Facility" means the credit facilities with CIT
under that certain Financing Agreement dated December __, 1995, or any
replacement credit facility.
"Senior Obligations" means the Senior Credit Facility and
the Winona Lease.
"Senior Pledge" means the security interest in the Pledged
Stock granted pursuant to that certain Stock Pledge Agreement by and between
Buyer and CIT dated December __, 1995, and any security interest in the Pledged
Stock granted to the holder of any replacement Senior Credit Facility pursuant
to which such holder agrees to deliver the stock certificates representing the
Collateral, upon satisfaction of such Senior Credit Facility, to the holder of
this Note or the holder of a succeeding replacement Senior Credit Facility
taking a security interest in the Pledged Stock including such terms.
"Spell Employment Agreement" means the Employment Agreement
dated December __, 1995 by and between the Company and William Spell.
"Stock Purchase Note" means the Stock Purchase Note dated
December __, 1995 issued by Buyer to the order of Seller pursuant to the
Purchase Agreement.
"Subordination Agreement" means the Subordination Agreement
dated December __, 1995 by and among CIT, Seller, Buyer, the Company and
Peerless Chain of Iowa, Inc.
"Subsidiary" means any corporation of which more than fifty
percent (50%) (by number of votes) of the voting stock is owned by Buyer and/or
one or more corporations which are themselves Subsidiaries of Buyer.
"Winona Lease" means that certain Lease Agreement by and
between PRC Corp. (formerly Peerless Chain Company) and Corporate Property
Associates 6 dated June 18, 1986, as assigned to the Company by Assignment and
Assumption Agreement dated September 26, 1989, as amended by Lease Amendment
dated September 26, 1989, Letter Amendment dated August 2, 1994 and Amendment to
Lease dated December __, 1995.
"Winona Lease Obligations" means the obligations of the
Company under the Winona Lease.
3. Payment Terms.
3.1 Interest. Interest will accrue on the unpaid principal of
this Note at the annual rate of eight percent (8%) until maturity; provided that
in the event any amount due hereunder is past due, interest will accrue on the
unpaid principal of this Note at the annual rate of thirteen percent (13%),
compounded annually. Accrued interest will be due quarterly on the last day of
December, March, June and September commencing December 31, 1995 until maturity
of all principal of this Note (by acceleration or otherwise).
3.2 Principal. The principal of this Note, together with all
accrued and unpaid interest not then otherwise due, will be due December __,
1998, unless maturity thereof is accelerated pursuant to the terms hereof;
provided, however, that to the extent any claims are pending for indemnification
under Section 7.2, 10.1 or 10.2 of the Purchase Agreement on such stated
maturity date, with respect to each such claim, the maturity date with respect
to an amount of principal of this Note equal to the amount of such claim will be
extended until such claim is finally resolved; provided, further, that in the
event the amount of any such claim is reduced prior to final resolution of such
claim, an amount of principal of this Note equal to such reduction will become
due upon such reduction; and provided, further, that no such extension will be
made in the event of a prior acceleration, and any such extension will terminate
upon acceleration, of maturity of the principal of this Note pursuant to the
terms hereof.
3.3 Prepayments; Application of Payments. This Note may be
prepaid, in whole or in part, at any time and from time to time without premium
or penalty. Payments on, and credits under Section 3.4 against, this Note will
be applied first to accrued interest due and unpaid, next (to the extent such
payment is a prepayment) to accrued interest unpaid and not yet due, next to
costs and expenses accrued hereunder, with the balance to principal.
3.4 Offsets. Any liability of Seller under Sections 7.2, 10.1,
10.2 or 10.5 of the Purchase Agreement will be offset against Indebtedness
(whether or not then due) to the extent of the balance outstanding hereunder as
of the final determination of such liability.
4. Buyer and Company Covenants. From the date hereof and
continuing so long as any amount remains unpaid on this Note:
4.1 Corporate Existence, etc. Buyer and the Company each will
preserve and keep in force and effect its corporate existence and all licenses
and permits necessary to the proper conduct of the business of Buyer and the
Company taken as a whole.
4.2 Restricted Buyer Distributions. Buyer will not declare or
pay any dividends or make any other payment or distribution, either in cash or
property, on or in purchase, redemption or retirement of any shares of Buyer's
capital stock of any class or any warrants, rights or options to acquire any
such shares by purchase, conversion or otherwise, provided that nothing herein
restricts Buyer from making payment under the Stock Purchase Note or any
resulting full or partial termination or expiration of the Warrant for Purchase
of Securities dated December __, 1995 issued by Buyer to Seller pursuant to the
Stock Purchase Agreement.
4.3 Restricted Company Issuances and Distributions. The
Company will not:
(a) issue any shares of the Company's capital stock of any
class or any warrants, rights or options to purchase any shares of the Company's
capital stock, whether by reason of stock split or combination or
reclassification, dividend, exchange, new consideration or otherwise;
(b) declare or pay any dividends or make any other payment or
distribution, either in cash or property, on or in purchase, redemption or
retirement of any shares of the Company's capital stock, or make any other
payment or distribution, either directly or indirectly, in respect of the
Company's capital stock or otherwise, including without limitation for goods or
services, to Buyer or to any Affiliate of Buyer, except (i) payments equal to
state and federal income tax liability on Buyer's consolidated tax returns
resulting from the Company's operations, made on the due date of the applicable
return, (ii) payments when and as due under the Spell Employment Agreement,
(iii) provided that when made, no Default exists hereunder, payments equal to
amounts due under redemption provisions under Repurchase Agreements entered into
on the Closing Date with management personnel of the Company with respect to an
aggregate of not more than four hundred twenty-five thousand four hundred
fifty-one (425,451) shares of the common stock of Buyer, (iv) payments applied
by Buyer in payment of the Stock Purchase Note, and (v) payments not to exceed
One Hundred Eighty-Eight Thousand Dollars ($188,000) annually to fund normal
operating expenses of Buyer.
4.4 Mergers, Consolidations and Sales of Assets. The Company
will not (i) consolidate with or be a party to a merger with any other
corporation, or (ii) sell, lease or otherwise dispose of all or any substantial
part of its assets.
4.5 Guaranties. The Company will not become or be liable in
respect of any Guaranty except Guaranties entered into in the ordinary course of
the Business and Guaranties of Buyer of loans to management personnel of the
Company for the purchase of an aggregate of not more than four hundred
twenty-five thousand four hundred fifty-one (425,451) shares of the common stock
of Buyer.
4.6 Transactions with Affiliates. Buyer and the Company each
will not enter into or be a party to any transaction or arrangement with any
Affiliate (including without limitation the purchase from, sale to or exchange
of property with, or the rendering of any service by or for, any such
Affiliate), except pursuant to the reasonable requirements of such party's
business and upon fair and reasonable terms no less favorable to such party than
would obtain in a comparable arm's-length transaction with a person other than
an Affiliate. The Spell Employment Agreement and promissory notes issued by
Buyer on the date of this Note to the order of Harry Spell and Pyramid Partners
c/o Perkins Capital Management in the aggregate principal amount of Two Hundred
Twenty- Five Thousand Dollars ($225,000) with interest at an initial rate of
twenty percent (20%) per annum are deemed to meet the requirements of this
Section 4.6.
4.7 Reports and Rights of Inspection. Buyer and the Company
each will keep proper books of record and account in which full and correct
entries will be made of all dealings or transactions of or in relation to the
business and affairs of Buyer or the Company, in accordance with generally
accepted accounting principles consistently applied (except for changes in
application disclosed in the financial statements furnished to the holder hereof
pursuant to this Section 4.7 and concurred in by the independent public
accountants referred to in (b) hereof), and will furnish to the holder hereof:
(a) As soon as available and in any event within forty-five
(45) days after the end of each quarterly fiscal period of each fiscal year
consolidated and consolidating balance sheets of Buyer and the Company as of the
close of such period, and consolidated and consolidating statements of income
and retained earnings and statements of cash flows of Buyer and the Company for
the quarterly fiscal period then ending and for the portion of the fiscal year
ending with such period in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and certified by an authorized financial officer of Buyer to
the effect that (except for the exclusion in unaudited quarterly financial
statements of certain footnote and other information normally presented with
annual audited financial statements, and subject to changes resulting from
year-end adjustments) such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied (except for
changes in application in which the accountants referred to in clause (b) hereof
concur) and present fairly the financial condition of Buyer and the Company.
(b) As soon as available and in any event within ninety (90)
days after the close of each fiscal year of Buyer consolidated and consolidating
balance sheets of Buyer and the Company as of the close of such fiscal year, and
consolidated and consolidating statements of income and retained earnings and
statements of cash flows of Buyer and the Company for such fiscal year, in each
case setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an opinion thereon of a firm
of independent public accountants of recognized national standing selected by
Buyer to the effect that the financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except for changes in application in which such accountants concur and as are
noted therein) and present fairly the financial condition of Buyer and the
Company and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, includes such tests of the accounting
records and such other auditing procedures as were considered necessary in the
circumstances.
(c) Promptly upon receipt thereof, each interim or special
audit made by independent accountants of the books of Buyer or the Company.
(d) Promptly upon their becoming available, each financial
statement, report, notice or proxy statement sent by Buyer to stockholders
generally, and each report and any registration statement or prospectus filed by
Buyer with NASDAQ or any securities exchange or the Securities Exchange
Commission or any successor agency, and copies of any orders in any proceedings
to which Buyer or the Company is a party issued by any governmental agency,
federal or state, having jurisdiction over Buyer or the Company.
(e) Within the periods provided in paragraphs (a) and (b)
above, a certificate of an authorized financial officer of Buyer stating that
such officer has reviewed the provisions of this Note and setting forth, to the
best of such officer's knowledge, whether there existed as of the date of such
financial statements and whether there exists on the date of the certificate or
existed at any time during the period covered by such financial statements any
Default or any condition which but for the passage of time or the giving of
notice or both would constitute a Default and, if any such condition or event
existed during such period or exists on the date of the certificate, specifying
the nature and period of existence thereof and the action Buyer has taken or is
taking and proposes to take with respect thereto;
(f) The annual plans and operating projections Buyer and
the Company furnish to CIT when and as so furnished.
5. Subordination. Anything in this Note to the contrary
notwithstanding, the Indebtedness evidenced by this Note will be subordinate and
junior in right of payment to the Senior Obligations, whether outstanding on the
date of this Note or incurred after the date of this Note, to the extent and in
the manner hereinafter set forth:
(a) Notwithstanding anything to the contrary contained
herein, this Note is in all respects subject to the terms and
provisions of the Subordination Agreement.
(b) In the event of any sale under or in accordance with any
judgment or decree rendered with respect to this Note in any proceeding by or on
behalf of the holder hereof or in the event of any distribution, division or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of the Company, or the proceeds
thereof, to creditors of the Company occurring by reason of any liquidation,
dissolution or winding up of the Company or in the event of any execution sale,
receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization
or other similar proceeding relative to the Company or its debts or properties,
then in any such event the Winona Lease Obligations will be preferred in
payment, and the Winona Lease Obligations will be first paid and satisfied in
full before any payment or distribution of any kind or character, whether in
cash, property or securities (other than securities which are subordinate and
junior in right of payment to the payment of the Winona Lease which may at the
time be outstanding), will be made upon this Note; and in any such event any
distribution of any kind or character, whether in cash, property or securities
(other than in securities which are subordinate and junior in right of payment
to the payment of the Winona Lease which may at the time be outstanding), which
is made upon or in respect of the Indebtedness will be paid over to the lessor
under the Winona Lease for application to the Winona Lease Obligations unless
and until the Winona Lease Obligations is paid and satisfied in full, and such
amounts so paid over will be deemed not to be made upon or in respect of the
Indebtedness, or the holder of this Note will be subrogated to the rights of the
lessor under the Winona Lease to the extent thereof, as elected by the holder of
this Note;
(c) In the event that pursuant to the provisions hereof this
Note is declared or becomes due and payable before its expressed maturity
because of an occurrence of a Default (under circumstances when the foregoing
clause (b) is not applicable) or otherwise, no amount will be paid by the
Company in respect of Indebtedness in excess of current interest payments as
provided herein, except at the stated maturity thereof (all subject to the
foregoing clause (b) above), unless and until the Winona Lease Obligations has
been paid in full or payment thereof has been provided for in a manner
satisfactory to the lessor under the Winona Lease;
(d) Without limiting the effect of any of the other provisions
hereof, during the continuance of any default in the payment of rent or any
other amount with respect to the Winona Lease, no payment will be made on or
with respect to the Indebtedness, if either (i) notice of such default in
writing has been given to the Company by the lessor under the Winona Lease,
provided that judicial proceedings are commenced with respect to such default
within one hundred eighty (180) days thereafter, or (ii) judicial proceedings
are pending in respect of such default.
(e) The holder hereof irrevocably authorizes and empowers the
holder of the Winona Lease, in any proceeding under Title 11 of the United
States Code in which the Company is subject, to file a proof of claim in behalf
of the holder hereof with respect to the obligations hereunder if the holder
hereof fails to file a proof of its claims prior to 30 days before the
expiration of the time period during which such claims must be submitted, to
accept and receive any payment or distribution which may be payable or
deliverable at any time upon or in respect of the obligations hereunder in an
amount not in excess of that portion of the Winona Lease Obligation then
outstanding (unless CIT is entitled to such payment under the terms of the
Subordination Agreement) and to take such other action as may be reasonably
necessary to effectuate the foregoing. Unless CIT has filed a proof of claim or
has otherwise sought the same information or documents, the holder hereof will
provide to the lessor of the Winona Lease all information and documents
necessary to present claims or seek enforcement as aforesaid.
(f) To the extent that the lessor under the Winona Lease
receives any amounts from the holder hereof in accordance with the provisions of
the Note which, when added to the total amount received directly by the lessor
under the Winona Lease from any other source, exceeds the total Winona Lease
Obligation, the lessor under the Winona Lease will be obligated to pay the
excess to the holder hereof. In the event that as a result of an avoidance
action under Title 11 of the United States Code (including, but not necessarily
limited to, any action under 11 U.S.C. ss.ss. 544, 545, 547, 548, 549 and/or
550), the holder hereof is required to return to the Company or its bankruptcy
estate any payment received by the holder hereof and paid over to the lessor
under the Winona Lease pursuant to this Section 5, thereupon the lessor of the
Winona Lease will pay back to the holder hereof such amount paid over to the
lessor of the Winona Lease.
(g) The provisions of this Section 5 will be subject and
subordinate to the rights of CIT under the Subordination Agreement. The holder
hereof will not be required to take any action, perform any obligation or make
any payment hereunder which it reasonably believes would: (i) be in conflict
with or contrary to the terms of the Subordination Agreement; and/or (ii)
prevent it from performing any of its obligations under the Subordination
Agreement; and/or (iii) prevent or frustrate CIT from exercising any of its
rights under the Subordination Agreement. The lessor under the Winona Lease will
not exercise any rights hereunder to the extent doing so would: (x) be in
conflict with or contrary to the terms of the Subordination Agreement; and/or
(y) prevent the holder hereof from performing any of its obligations under the
Subordination Agreement; and/or (z) prevent or frustrate CIT from exercising any
of its rights under the Subordination Agreement.
(h) No right of any present or future holder of the Senior
Obligations to enforce subordination as herein provided will at any time or in
any way be prejudiced or impaired by any failure to act on the part of Buyer or
the Company, or by any noncompliance by Buyer or the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof that
any such holders of the Senior Obligations may have or with which they may be
otherwise charged. The provisions of this Section 5 are solely for the purpose
of defining the relative rights of the holders of the Senior Obligations on the
one hand, and the holder hereof on the other hand, and nothing in this Section 5
will impair, as between Buyer or the Company and the holder hereof as
applicable, the obligations of Buyer and the Company to pay to the holder hereof
Indebtedness in accordance with the remaining terms of this Note, nor will
anything herein prevent the holder hereof from exercising all remedies otherwise
permitted by applicable law or hereunder upon any Default, subject to the
rights, if any, of the holders of the Senior Obligations as herein provided.
Without limiting the foregoing, no suspension of any payment of Indebtedness
pursuant to the provisions of this Section 5 will suspend or defer the due date
of such payment as determined by the remaining provisions of this Note.
6. Buyer Guaranty and Security Agreement.
6.1 Guaranty. Buyer absolutely, irrevocably and
unconditionally guarantees to the holder hereof the payment of the
Indebtedness promptly when due, by acceleration or otherwise.
6.2 Security Interest. In order to secure the Indebtedness,
Buyer hereby grants to the holder hereof a security interest in all shares of
stock owned by Buyer in the Company (and any and all additions thereto,
substitutions therefor, and proceeds thereof) (the "Pledged Stock").
6.3 Warranties and Obligations of Buyer. Buyer hereby
warrants and covenants to the holder hereof:
(a) The Pledged Stock represents 100% of the issued and
outstanding shares of capital stock of the Company.
(b) Buyer has and will maintain during the term of this Note
sole title to and beneficial ownership of the Pledged Stock, free of all liens,
charges, security interests and encumbrances (other than the security interest
created hereby and under the Senior Pledge), and has full power and authority to
subject the Pledged Stock to the security interest created hereby.
(c) Buyer will hereafter from time to time execute and deliver
such financing statements, assignments separate from certificates and other
instruments or documents, deliver the certificates representing the Pledged
Stock to the holder hereof upon termination of the Senior Pledge and perform
such other acts as the holder hereof may reasonably request to establish,
protect and maintain a perfected security interest in the Pledged Stock and an
ability to effectively enforce its remedies hereunder with respect to the
Pledged Stock. Buyer will at all times cause all certificates representing the
Pledged Stock to include a legend referencing this Note and the security
interest of the holder hereof provided hereunder.
6.4 Priority. The holder of this Note by acceptance hereof
agrees that the security interest granted hereunder in the Pledged Stock is
subordinate and junior in interest and priority to the Senior Pledge.
6.5 Nonimpairment. The holder hereof may from time to time,
without notice to Buyer, and without impairing or affecting the security
interest created hereby: (a) acquire a security interest in any property in
addition to the Pledged Stock, or release any such interest so acquired or
release any security interest in any of the Pledged Stock, or permit any
substitution or exchange for such property or any part thereof; (b) acquire the
primary or secondary liability of any party or parties with respect to all or
any of the Indebtedness, or release, modify, or compromise the same or any part
thereof; (c) modify, extend or renew for any period any of the Indebtedness; and
(d) resort to the Pledged Stock for payment of the Indebtedness whether or not
the holder hereof has resorted to any other collateral or proceeding against any
party primarily or secondarily liable on the Indebtedness.
6.6 Voting Rights. Buyer hereby grants to the holder hereof an
irrevocable proxy, coupled with an interest, to vote any or all of the Pledged
Stock, which proxy may be exercised by the holder hereof only at such time as a
Default in the payment of principal under this Note is continuing and no Senior
Pledge is in effect. Such proxy will remain in effect until this Note is
satisfied in full. Except for those instances where the holder hereof exercises
such proxy, Buyer will be entitled to exercise the voting power with respect to
the Pledged Stock consistent with the terms or purposes of this Note.
6.7 Remedies. In the event a Default hereunder has occurred
and is continuing, the holder hereof will have, in addition to any other rights
and remedies a secured party can assert under the Minnesota Uniform Commercial
Code and to the extent not inconsistent with nonwaivable provisions thereof, the
following rights and remedies, without having to give notice except as is
hereinafter specifically provided:
(a) The holder hereof may sell the Pledged Stock, or any part
thereof, at a public or private sale, following the notice hereinafter provided,
for cash, upon credit, or for future delivery at such price or prices as the
holder hereof deems satisfactory. The holder hereof, or any parties related to
or affiliated with the holder hereof, may purchase any or all of the Pledged
Stock sold at a public sale. The holder hereof is authorized at any sale, if the
holder hereof deems it advisable to do so, to restrict the prospective bidders
or purchasers to persons who will represent and agree that they are purchasing
for their own account for investment, and not with a view to the distribution or
sale of any of the Pledged Stock. Upon any such sale, the holder hereof will
have the right to deliver, assign, and transfer to the purchaser thereof the
Pledged Stock so sold. Each purchaser at any such sale will hold the property
sold absolutely free from any claim or right of Buyer of whatsoever kind,
including any equity or right of redemption of Buyer which Buyer has under any
rule of law or statute now existing or hereafter adopted; and as to such
purchaser, Buyer hereby specifically waives all such rights of redemption, of
stay, or of appraisal, which might in any way affect such purchaser. The holder
hereof will give Buyer at least ten (10) days' written notice of intention to
make such public or private sale, which notice will state the time and place
fixed for such public sale or the time after which such private sale may be
consummated and whether the sale is to be public or private. At any such sale
the Pledged Stock may be sold in one lot as an entirety or in separate parcels,
as the holder hereof may determine. In case of any sale on credit or for future
delivery, the Pledged Stock so sold may be retained by the holder hereof until
the selling price is paid by the purchaser thereof, and the holder hereof will
not incur any liability in case of the failure of such purchaser to take up and
pay for the Pledged Stock so sold, and in case of any such failure, such Pledged
Stock may be again sold upon like notice. The holder hereof will not be
obligated to complete any sale for which the holder hereof sends out notice and
may, without notice or publication, adjourn any sale or cause the same to be
adjourned by announcement at the time and place fixed for such sale, and such
sale may thereafter be made at the time and place to which the same has been so
adjourned.
(b) The holder hereof, instead of exercising the power of
nonjudicial sale herein conferred, may proceed by a suit or suits at law or in
equity to foreclose the pledge and sell the Pledged Stock, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(c) Without limiting the rights of the holder hereof under any
other provision of this Note, and in addition thereto, Buyer will be obligated,
to the maximum extent permitted by law, if a Default is continuing and if
counsel for the holder hereof determines that it is necessary for the lawful
sale of the Pledged Stock in a commercially reasonable manner, upon written
request from the holder hereof, to vote its shares to cause the Company, at the
Company's or Buyer's expense, to prepare, file and cause to become effective
promptly, a registration statement complying with the Securities Act of 1933, as
amended, for the public sale of such of the Pledged Stock as the holder hereof
may elect, and to take comparable action to permit such sales under the
securities laws of such state jurisdictions as the holder hereof may designate.
If such registration statement is filed, Buyer further will be obligated to vote
its shares to cause the Company, at the Company's or Buyer's expense, to enter
into and perform its obligations under one or more underwriting agreements in
connection therewith, containing customary representations, warranties,
covenants, and indemnities and contribution provisions if requested by the
holder hereof. Buyer will be obligated to vote its shares to cause the Company,
at the Company's or Buyer's expense, (i) to keep any such registration statement
and related prospectus current and in compliance with applicable federal and
state securities laws so long as required to satisfy applicable prospectus
delivery requirements and (ii) at the request of the holder hereof at any time
after the effective date of any such registration statement, to file
post-effective amendments to such registration statement so that sales of
Pledged Stock by the holder hereof will be covered by a current prospectus and
can be made in compliance with all applicable federal and state securities laws.
(d) Buyer further will be obligated to (i) take such action as
is necessary to cause the Company to delivery to the holder hereof such
information as the holder hereof reasonably requests for inclusion in any
registration statement, prospectus or offering memorandum or in any preliminary
prospectus or preliminary offering memorandum or any amendment or supplement to
any thereof or in any other writing prepared in connection with the offer, sale
or resale of all or any portion of the Pledged Stock and to deliver such
information regarding Buyer as the holder hereof reasonably requests, which
information will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make such
information not misleading, and (ii) vote its shares to do or cause to be done
all such other acts and things as may be necessary to make such offer, sale or
resale of all or any portion of the Pledged Stock valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental agencies or instrumentalities, domestic or foreign, having
jurisdiction over any such offer, sale or resale.
(e) Without limiting paragraphs (c) and (d) of this Section
6.7, if the holder hereof decides to exercise its right to sell all or any of
the Pledged Stock, upon written request Buyer will from time to time take such
action as is necessary to cause to be furnished to the holder hereof all such
information as the holder hereof may request and as is accessible to Buyer in
order to qualify such Pledged Stock as exempt securities, or the sale or release
of such Pledged Stock as exempt transactions, under federal or state securities
laws. Buyer will be obligated to take such action as is necessary to cause the
Company to allow the holder hereof and any underwriter access at reasonable
times and places to the books, records and premises of the Company; Buyer
further will be obligated to assist, and take such action as is necessary to
cause the Company to assist the holder hereof, any underwriter, any agent of any
thereof, and any counsel, accountant or other expert for any thereof, in
inspection, evaluation, and any other "due diligence" action of or with respect
to any such books, records and premises; and Buyer further will be obligated to
cause any independent public accountant for the Company to furnish a letter to
the holder hereof and underwriters in customary form and covering matters of the
type customarily covered by letters of accountants for issuers to underwriters.
(f) Buyer further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by the holder hereof
by reason of the failure by Buyer to perform any of the covenants contained in
this Section and, consequently, agrees that, if Buyer fails to perform any of
such covenants, the holder hereof will be entitled to equitable relief for the
enforcement of the provisions of this Section 6.7. Buyer will indemnify the
holder hereof for any and all fees, charges, reimbursements, judgments or other
expenses incurred by the holder hereof due to any failure of Buyer to perform
its obligations under this Section 6.7.
(g) Notwithstanding the foregoing provisions of this Section
6.7, the holder of this Note will not be permitted to exercise any of the
foregoing rights or remedies contained or referenced in this Section 6.7 for so
long as any Senior Pledge remains in effect without the prior written consent of
the holder thereof.
6.8 Application of Proceeds. The proceeds of any sale
of the Pledged Stock hereunder will be applied by the holder
hereof:
(a) first, to the payment of the costs and expenses of
such sale, including reasonable attorneys' fees and all expenses
and advances made or incurred by it in connection therewith;
(b) second, to the payment of the Indebtedness;
(c) finally, to the payment to Buyer or its successors
and assigns of any surplus then remaining from such proceeds.
(d) The holder hereof will not be required to make any
allocation or distribution to Buyer of proceeds from sale except from collected
funds after satisfaction or release of all indemnification or other payment
obligations that may be asserted against the holder hereof or such proceeds in
connection with such sale. Any collected funds retained pursuant to this
provision will be promptly deposited or invested in Permitted Investments until
disbursed in accordance herewith.
6.9 Waivers. The holder hereof may at any time and from time
to time, without the consent of or notice to Buyer, without incurring
responsibility to Buyer, without releasing, impairing or affecting the liability
of Buyer hereunder, upon or without any terms or conditions and in whole or in
part: (a) sell, pledge, surrender, compromise, settle, release, renew,
subordinate, extend, substitute, exchange, change, or otherwise dispose of or
deal with in any manner and in any order any Indebtedness, any evidence thereof,
or any security therefor; (b) accept any security for or other guarantors of any
Indebtedness; and (c) fail, neglect or omit to obtain, realize upon or protect
any Indebtedness or any security therefor, to exercise any lien upon or right to
any money, credit or property toward the liquidation of the Indebtedness, or to
exercise any other right against Buyer, the Company or any other person. No act
or thing, except full payment and discharge of the Indebtedness, which but for
this provision could act as a release or impairment of the liability of Buyer
hereunder, will in any way release, impair or affect such liability.
6.10 Primary Obligation. This guaranty is a primary obligation
of Buyer and the holder hereof will not be required to first resort for payment
of the Indebtedness to the Company or any other person, their properties or
estates, or any security or other rights or remedies whatsoever. Buyer will be
and remain liable for any deficiency remaining after foreclosure of any mortgage
or security interest securing Indebtedness, whether or not the liability of the
Company or any other person for such deficiency is discharged pursuant to
statute, judicial decision or otherwise. If any payment applied by the holder
hereof to the Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including without limitation the
bankruptcy, insolvency or reorganization of Buyer or any other person), the
Indebtedness to which such payment was applied will for the purposes of Buyer's
guaranty be deemed to have continued in existence, notwithstanding such
application, and this guaranty will be enforceable as to such Indebtedness as
fully as if such application had never been made.
6.11 Additional Waivers. Buyer waives: (a) notice of
acceptance of its guaranty hereunder and of the creation and existence of the
Indebtedness; (b) presentment, demand for payment, notice of dishonor, notice of
nonpayment, and protest of any instrument evidencing the Indebtedness; and (c)
all other demands and notices to Buyer, the Company or any other person and all
other actions to establish the liability of Buyer hereunder.
7. Default, Remedies
7.1 Default. Any one or more of the following
constitutes a Default as that term is used herein:
(a) Failure of the Company to pay any principal amount or
interest hereunder when due and continuation of such condition for fifteen (15)
days after written notice thereof by the holder hereof to the Company;
(b) Failure to perform any obligation of the Company hereunder
other than for the payment of money and continuation of such condition for
thirty (30) days after written notice thereof by the holder hereof to the
Company;
(c) Failure of Buyer to pay any principal amount or interest
under the Stock Purchase Note when due and continuation of such condition for
fifteen (15) days after written notice thereof by the holder thereof to Buyer;
(d) Failure to perform any obligation of Buyer under the Stock
Purchase Agreement other than for the payment of money and continuation of such
condition for thirty (30) days after written notice thereof by the holder
thereof to Buyer;
(e) Failure of the Company to pay any amount under the
Senior Obligations when due for so long as such condition
continues;
(f) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against Buyer or the
Company and, if instituted against Buyer or the Company are consented to or are
not dismissed within sixty (60) days after such institution; or
(g) Buyer or the Company becomes insolvent or bankrupt,
generally does not pay its debts as they become due or makes an assignment for
the benefit of creditors, or Buyer or the Company applies for or consents to the
appointment of a custodian, trustee or receiver for Buyer or the Company or for
the major part of the property of either, or a custodian, trustee or receiver is
appointed for Buyer or the Company or for the major part of the property of
either and is not discharged within sixty (60) days after such appointment.
7.2 Acceleration of Maturity. When any Default described in
Sections 7.1(b), (d) or (g) has happened and is continuing, and in the case of
Section 7.1(b) or (d) provided no Senior Obligation is then outstanding, the
holder hereof may, by written notice to the Company, declare the entire
principal and all interest accrued hereunder to be, and the same will thereupon
become, immediately due and payable, without any presentment, demand, protest or
other notice of any kind. When a Default described in Section 7.1 (f) has
occurred, the entire principal and all interest accrued hereunder will thereupon
become immediately due and payable without presentment, demand, protest or other
notice of any kind.
7.3 Costs of Enforcement. Upon a Default, the Company will be
obligated to pay all costs of collection and enforcement of the rights and
remedies of the holder hereof, including court costs and attorneys' fees,
whether or not legal proceedings are commenced.
7.4 Waivers. The Company waives presentment for payment,
demand, protest, notice of protest and notice of dishonor. No delay by the
holder hereof in exercising any right or remedy hereunder, at law or in equity
will operate as a waiver of such right or remedy and no single or partial
exercise of any such right or remedy will preclude any further exercise thereof,
or the exercise of any other rights or remedies.
8. Notices. Any notice, request, instruction or other document to be
given hereunder by Buyer, the Company or the holder of this Note to any such
other party will be in writing and delivered personally or by telephonic
facsimile transmission or sent by registered or certified mail, postage prepaid
(and if by telephonic facsimile transmission with a copy sent by mail),
if to the holder of this Note to:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, California 90067
Attn: Lori Poulos
Facsimile No.: 310-552-3446
with a copy to:
Oppenheimer Wolff & Donnelly
Suite 3400, Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Douglas L. Hemer
Facsimile No.: 612-344-9376
if to Buyer or the Company to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to
the party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
9. Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this Note
or the breach hereof, unless resolved by mutual agreement of the parties, will
be finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the effective date of
this Agreement by a single arbitrator appointed in accordance with said Rules.
The determination of the arbitrator will be final and binding upon the parties
to the arbitration and judgment upon the award rendered by the arbitrator will
be entered in any court of competent jurisdiction. The place of arbitration will
be Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Note in any court of competent jurisdiction.
10. Governing Law; Consent to Jurisdiction. This Note will be
construed in accordance with and governed by the laws of the State of Minnesota
applicable to agreements made and to be performed in such jurisdiction without
reference to conflicts of law principles. Buyer and the Company by execution and
delivery of this Note, and the holder of this Note by acceptance hereof, each
irrevocably consents that any legal action or proceeding against it under,
arising out of or in any manner relating to this Note may be brought only in an
arbitration proceeding as provided in Section 9 or in a court of the State of
Minnesota or in the United States District Court for the District of Minnesota.
Each of Buyer, the Company and the holder of this Note further expressly and
irrevocably assents and submits to the personal jurisdiction of the arbitrators
selected pursuant to Section 9 or any of such courts in any such action or
proceeding. Each of Buyer, the Company and the holder of this Note further
irrevocably consents to the service of any complaint, summons, notice or other
process relating to any such action or proceeding by delivery thereof to it by
hand or by mail in the manner provided for in Section 8 hereof. Each of Buyer,
the Company and the holder of this Note further hereby expressly and irrevocably
waives any claim or defense in any action or proceeding based on any alleged
lack of personal jurisdiction, improper venue or forum non conveniens or any
similar basis.
11. Neither this Note nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered on the day and year first above written.
PEERLESS CHAIN COMPANY
By
Its
IN CONSIDERATION of Seller's acceptance of the Note and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Buyer hereby agrees to the guaranty and grant of security interest
and all other terms of Sections 4, 5, 6, 7, 8, 9 and 10 and, to the extent
applicable to such Sections, Section 2 of the foregoing Note.
DISCUS ACQUISITION CORPORATION
By
Its
Exhibit F
BUYER FINANCINGS
TRANSACTION SOURCES AND USES
<TABLE>
<CAPTION>
(thousands)
SOURCES: USES:
<S> <C> <C> <C>
Revolver $ 9,543,000 Cash to Seller $20,050,000
Sr. Term Loan 6,700,000 Seller Sub Debt 2,500,000
Seller Sub Debt 1,200,000 Transaction Costs 1,043,000
Preferred Stock 2,500,000
Common Stock 4,850,000
----------- -----------
Total $24,793,000 Total $24,793,000
=========== ===========
</TABLE>
EQUITY SOURCES:
Preferred Shareholders $1,800,000
New Common Shareholders 2,000,000
Discus Acquisition 2,250,000
Exhibit G
STOCK PURCHASE NOTE
$1,200,000 December ___, 1995
FOR VALUE RECEIVED, the undersigned, Discus Acquisition Corporation
("Buyer"), a Minnesota corporation, hereby promises to pay to the order of
Bridgewater Resources Corp. ("Seller"), a Texas corporation, at the address
provided under Section 8 in lawful money of the United States in accordance with
the terms hereof the sum of One Million Two Hundred Thousand Dollars
($1,200,000) plus interest thereon at the rate provided herein from the date
hereof until paid in full.
1. Purchase Agreement. This Note is given pursuant to that certain
Stock Purchase Agreement dated November 22, 1995 (as amended, the "Purchase
Agreement") by and between Buyer and Seller for the sale of all of the
outstanding capital stock of Peerless Chain Company (the "Company"), a Minnesota
corporation, by Seller to Buyer, and as partial payment of the Purchase Price
(as defined in the Purchase Agreement). Capitalized terms not otherwise defined
herein will have the meanings set forth in the Purchase Agreement. To the extent
the terms of this Note as executed vary from Exhibit G to the Purchase Agreement
or the description hereof contained in the Purchase Agreement, the terms hereof
govern.
2. Definitions. Unless the context otherwise requires, the following
terms have the following meanings:
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, Buyer, (ii) which beneficially owns or holds five percent
(5%) or more of any class of the capital stock of Buyer or (iii) five percent
(5%) or more of the capital stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interest) of which is
beneficially owned or held by Buyer or a Subsidiary. The term "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 capital stock, by contract or otherwise.
"CIT" means The CIT Group/Business Credit, Inc.
"Closing Notes" means promissory notes issued by Buyer on the
date of this Agreement to the order of Harry Spell and Pyramid Partners c/o
Perkins Capital Management in the aggregate principal amount of Two Hundred
Twenty-Five Thousand Dollars ($225,000).
"Guaranty" means any obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of Buyer or the Company guarantying in any manner, whether directly
or indirectly, any obligation, direct or indirect, absolute, contingent or
inchoate, whether existing now or in the future, of any other Person.
"Indebtedness" means any and all amounts owing or which may
become owing by Buyer pursuant to the terms of this Note.
"Permitted Investments" means:
(a) Investments in commercial paper maturing in two hundred
seventy (270) days or less from the date of issuance which, at the time of
acquisition, is accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Services, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating commercial paper);
(b) Investments in direct obligations of the United States of
America or any agency thereof maturing within one (1) year from the date of
acquisition thereof;
(c) Investments in bank accounts or certificates of deposit
maturing within one (1) year from the date of origin and issued by a bank or
trust company having capital, surplus and undivided profits aggregating at least
One Hundred Million Dollars ($100,000,000); and
(d) Investments in money market preferred stocks for so long
as the same are accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Service, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating such preferred stocks).
"Person" means an individual, partnership, corporation, trust
or unincorporated organization, and a governmental agency or political
subdivision.
"Pledged Stock" is as defined in Section 6.1.
"Redemption Note" means the Redemption Note dated December __,
1995 issued by the Company to the order of Seller pursuant to the Purchase
Agreement.
"Senior Credit Facility" means the credit facilities with CIT
under that certain Financing Agreement dated December __, 1995, or any
replacement credit facility.
"Senior Obligations" means the Senior Credit Facility and
the Winona Lease.
"Senior Pledge" means the security interest in the Pledged
Stock granted pursuant to that certain Stock Pledge Agreement by and between
Buyer and CIT dated December __, 1995, and any security interest in the Pledged
Stock granted to the holder of any replacement Senior Credit Facility pursuant
to which such holder agrees to deliver the stock certificates representing the
Collateral, upon satisfaction of such Senior Credit Facility, to the holder of
this Note or the holder of a succeeding replacement Senior Credit Facility
taking a security interest in the Pledged Stock including such terms.
"Spell Employment Agreement" means the Employment Agreement
dated December __, 1995 by and between the Company and William Spell.
"Subordination Agreement" means the Subordination Agreement
dated December __, 1995 by and among CIT, Seller, Buyer, the Company and
Peerless Chain of Iowa, Inc.
"Subsidiary" means any corporation of which more than fifty
percent (50%) (by number of votes) of the voting stock is owned by Buyer and/or
one or more corporations which are themselves Subsidiaries of Buyer.
"Winona Lease" means that certain Lease Agreement by and
between PRC Corp. (formerly Peerless Chain Company) and Corporate Property
Associates 6 dated June 18, 1986, as assigned to the Company by Assignment and
Assumption Agreement dated September 26, 1989, as amended by Lease Amendment
dated September 26, 1989, Letter Amendment dated August 2, 1994 and Amendment to
Lease dated December __, 1995.
"Winona Lease Obligations" means the obligations of the
Company under the Winona Lease.
3. Payment Terms.
3.1 Interest. Interest will accrue on the unpaid principal of
this Note at the annual rate of twenty percent (20%) through March 31, 1996,
eight percent (8%) from April 1, 1996 through August 31, 1996, and thirteen
percent (13%), compounded annually, from September 1,1996 until this Note is
paid in full.
3.2 Principal. The principal of this Note, together with all
accrued and unpaid interest not then otherwise due, will be due March 31, 1996.
3.3 Prepayments; Application of Payments. This Note may be
prepaid, in whole or in part, at any time and from time to time without premium
or penalty. Payments on this Note will be applied first to accrued interest due
and unpaid, next (to the extent such payment is a prepayment) to accrued
interest unpaid and not yet due, next to costs and expenses accrued hereunder,
with the balance to principal.
4. Buyer Covenants. From the date hereof and continuing so
long as any amount remains unpaid on this Note:
4.1 Corporate Existence, etc. Buyer will, and will cause the
Company to, preserve and keep in force and effect its corporate existence and
all licenses and permits necessary to the proper conduct of the business of
Buyer and the Company taken as a whole.
4.2 Restricted Buyer Issuances and Distributions. Buyer
will not:
(a) issue any shares of Buyer's capital stock of any class or
any warrants, rights or options to purchase any shares of Buyer's capital stock,
whether by reason of stock split or combination or reclassification, dividend,
exchange, new consideration or otherwise, except (i) issuances of shares of
capital stock of Buyer the proceeds of which are applied in payment of the
Indebtedness, (ii) issuances of options for up to six hundred sixteen thousand
five hundred (616,500) shares of the common stock of Buyer under Buyer's 1994
Stock Option Plan (net of any shares the option for which is terminated in
connection with any such issuance) and issuances of shares of such common stock
upon exercise thereof or of any options scheduled on Exhibit I to the Purchase
Agreement, (iii) consummation of issuance of shares payment for which has been
received by Buyer but not yet cleared as of the date of this Note, and (iv)
issuances of shares of common stock of Buyer the proceeds of which are applied
in payment of the Closing Notes.
(b) declare or pay any dividends or make any other payment or
distribution, either in cash or property, on or in purchase, redemption or
retirement of any shares of Buyer's capital stock of any class or any warrants,
rights or options to acquire any such shares by purchase, conversion or
otherwise, except, provided that when made, no Default exists hereunder, amounts
due under redemption provisions under Repurchase Agreements entered into on the
Closing Date with management personnel of the Company with respect to an
aggregate of not more than four hundred twenty-five thousand four hundred
fifty-one (425,451) shares of the common stock of Buyer.
4.3 Restricted Company Issuances and Distributions. Buyer will
cause the Company to not:
(a) issue any shares of the Company's capital stock of any
class or any warrants, rights or options to purchase any shares of the Company's
capital stock, whether by reason of stock split or combination or
reclassification, dividend, exchange, new consideration or otherwise;
(b) declare or pay any dividends or make any other payment or
distribution, either in cash or property, on or in purchase, redemption or
retirement of any shares of the Company's capital stock, or make any other
payment or distribution, either directly or indirectly, in respect of the
Company's capital stock or otherwise, including without limitation for goods or
services, to Buyer or to any Affiliate of Buyer, except (i) payments equal to
state and federal income tax liability on Buyer's consolidated tax returns
resulting from the Company's operations, made on the due date of the applicable
return, (ii) payments when and as due under the Spell Employment Agreement,
(iii) provided that when made, no Default exists hereunder, payments equal to
amounts due under redemption provisions under Repurchase Agreements entered into
on the Closing Date with management personnel of the Company with respect to an
aggregate of not more than four hundred twenty-five thousand four hundred
fifty-one (425,451) shares of the common stock of Buyer, (iv) payments applied
by Buyer in payment of the Indebtedness, and (v) payments not to exceed One
Hundred Eighty- Eight Thousand Dollars ($188,000) annually to fund normal
operating expenses of Buyer.
4.4 Mergers, Consolidations and Sales of Assets. Buyer will
cause the Company to not (i) consolidate with or be a party to a merger with any
other corporation, or (ii) sell, lease or otherwise dispose of all or any
substantial part of its assets.
4.5 Guaranties. Buyer will not, and will cause the Company to
not, become or be liable in respect of any Guaranty except Guaranties entered
into in the ordinary course of the Business, Buyer's Guaranty of the Redemption
Note, Buyer's Guaranty of any Senior Obligations and Guaranties of Buyer of
loans to management personnel of the Company for the purchase of an aggregate of
not more than four hundred twenty-five thousand four hundred fifty-one (425,451)
shares of the common stock of Buyer.
4.6 Transactions with Affiliates. Buyer will, and will cause
the Company to, not enter into or be a party to any transaction or arrangement
with any Affiliate (including without limitation the purchase from, sale to or
exchange of property with, or the rendering of any service by or for, any such
Affiliate), except pursuant to the reasonable requirements of such party's
business and upon fair and reasonable terms no less favorable to such party than
would obtain in a comparable arm's-length transaction with a person other than
an Affiliate. The Spell Employment Agreement and the Closing Notes are deemed to
meet the requirements of this Section 4.6.
4.7 Reports and Rights of Inspection. Buyer will, and will
cause the Company to, keep proper books of record and account in which full and
correct entries will be made of all dealings or transactions of or in relation
to the business and affairs of Buyer or the Company, in accordance with
generally accepted accounting principles consistently applied (except for
changes in application disclosed in the financial statements furnished to the
holder hereof pursuant to this Section 4.7 and concurred in by the independent
public accountants referred to in (b) hereof), and will furnish to the holder
hereof:
(a) As soon as available and in any event within forty-five
(45) days after the end of each quarterly fiscal period of each fiscal year
consolidated and consolidating balance sheets of Buyer and the Company as of the
close of such period, and consolidated and consolidating statements of income
and retained earnings and statements of cash flows of Buyer and the Company for
the quarterly fiscal period then ending and for the portion of the fiscal year
ending with such period in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and certified by an authorized financial officer of Buyer to
the effect that (except for the exclusion in unaudited quarterly financial
statements of certain footnote and other information normally presented with
annual audited financial statements, and subject to changes resulting from
year-end adjustments) such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied (except for
changes in application in which the accountants referred to in clause (b) hereof
concur) and present fairly the financial condition of Buyer and the Company.
(b) As soon as available and in any event within ninety (90)
days after the close of each fiscal year of Buyer consolidated and consolidating
balance sheets of Buyer and the Company as of the close of such fiscal year, and
consolidated and consolidating statements of income and retained earnings and
statements of cash flows of Buyer and the Company for such fiscal year, in each
case setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an opinion thereon of a firm
of independent public accountants of recognized national standing selected by
Buyer to the effect that the financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except for changes in application in which such accountants concur and as are
noted therein) and present fairly the financial condition of Buyer and the
Company and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, includes such tests of the accounting
records and such other auditing procedures as were considered necessary in the
circumstances.
(c) Promptly upon receipt thereof, each interim or special
audit made by independent accountants of the books of Buyer or the Company.
(d) Promptly upon their becoming available, each financial
statement, report, notice or proxy statement sent by Buyer to stockholders
generally, and each report and any registration statement or prospectus filed by
Buyer with Nasdaq or any securities exchange or the Securities Exchange
Commission or any successor agency, and copies of any orders in any proceedings
to which Buyer or the Company is a party issued by any governmental agency,
federal or state, having jurisdiction over Buyer or the Company.
(e) Within the periods provided in paragraphs (a) and (b)
above, a certificate of an authorized financial officer of Buyer stating that
such officer has reviewed the provisions of this Note and setting forth, to the
best of such officer's knowledge, whether there existed as of the date of such
financial statements and whether there exists on the date of the certificate or
existed at any time during the period covered by such financial statements any
Default or any condition which but for the passage of time or the giving of
notice or both would constitute a Default and, if any such condition or event
existed during such period or exists on the date of the certificate, specifying
the nature and period of existence thereof and the action Buyer has taken or is
taking and proposes to take with respect thereto;
(f) The annual plans and operating projections Buyer and the
Company furnish to CIT when and as so furnished.
5. Subordination. Notwithstanding anything to the contrary contained
herein, this Note is in all respects subject to the terms and provisions of the
Subordination Agreement. No right of any present or future holder of the Senior
Credit Facility to enforce subordination as herein provided will at any time or
in any way be prejudiced or impaired by any failure to act on the part of Buyer
or the Company, or by any noncompliance by Buyer or the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof that
any such holders of the Senior Credit Facility may have or with which they may
be otherwise charged. The provisions of this Section 5 are solely for the
purpose of defining the relative rights of the holders of the Senior Credit
Facility on the one hand, and the holder hereof on the other hand, and nothing
in this Section 5 will impair, as between Buyer or the Company and the holder
hereof as applicable, the obligations of Buyer and the Company to pay to the
holder hereof Indebtedness in accordance with the remaining terms of this Note,
nor will anything herein prevent the holder hereof from exercising all remedies
otherwise permitted by applicable law or hereunder upon any Default, subject to
the rights, if any, of the holders of the Senior Credit Facility as herein
provided. Without limiting the foregoing, no suspension of any payment of
Indebtedness pursuant to the provisions of this Section 5 will suspend or defer
the due date of such payment as determined by the remaining provisions of this
Note.
6. Security Agreement.
6.1 Security Interest. In order to secure the Indebtedness,
Buyer hereby grants to the holder hereof a security interest in all shares of
stock owned by Buyer in the Company (and any and all additions thereto,
substitutions therefor, and proceeds thereof) (the "Pledged Stock").
6.2 Warranties and Obligations of Buyer. Buyer hereby warrants
and covenants to the holder hereof:
(a) The Pledged Stock represents 100% of the issued and
outstanding shares of capital stock of the Company.
(b) Buyer has and will maintain during the term of this Note
sole title to and beneficial ownership of the Pledged Stock, free of all liens,
charges, security interests and encumbrances (other than the security interest
created hereby and under the Senior Pledge), and has full power and authority to
subject the Pledged Stock to the security interest created hereby.
(c) Buyer will hereafter from time to time execute and deliver
such financing statements, assignments separate from certificates and other
instruments or documents, deliver the certificates representing the Pledged
Stock to the holder hereof upon termination of the Senior Pledge and perform
such other acts as the holder hereof may reasonably request to establish,
protect and maintain a perfected security interest in the Pledged Stock and an
ability to effectively enforce its remedies hereunder with respect to the
Pledged Stock. Buyer will at all times cause all certificates representing the
Pledged Stock to include a legend referencing this Note and the security
interest of the holder hereof provided hereunder.
6.3 Priority. The holder of this Note by acceptance hereof
agrees that the security interest granted hereunder in the Pledged Stock is
subordinate and junior in interest and priority to the Senior Pledge.
6.4 Nonimpairment. The holder hereof may from time to time,
without notice to Buyer, and without impairing or affecting the security
interest created hereby: (a) acquire a security interest in any property in
addition to the Pledged Stock, or release any such interest so acquired or
release any security interest in any of the Pledged Stock, or permit any
substitution or exchange for such property or any part thereof; (b) acquire the
primary or secondary liability of any party or parties with respect to all or
any of the Indebtedness, or release, modify, or compromise the same or any part
thereof; (c) modify, extend or renew for any period any of the Indebtedness; and
(d) resort to the Pledged Stock for payment of the Indebtedness whether or not
the holder hereof has resorted to any other collateral or proceeding against any
party primarily or secondarily liable on the Indebtedness.
6.5 Voting Rights. Buyer hereby grants to the holder hereof an
irrevocable proxy, coupled with an interest, to vote any or all of the Pledged
Stock, which proxy may be exercised by the holder hereof only at such time as a
Default in the payment of principal under this Note is continuing and no Senior
Pledge is in effect. Such proxy will remain in effect until this Note is
satisfied in full. Except for those instances where the holder hereof exercises
such proxy, Buyer will be entitled to exercise the voting power with respect to
the Pledged Stock consistent with the terms or purposes of this Note.
6.6 Remedies. In the event a Default hereunder has occurred
and is continuing, the holder hereof will have, in addition to any other rights
and remedies a secured party can assert under the Minnesota Uniform Commercial
Code and to the extent not inconsistent with nonwaivable provisions thereof, the
following rights and remedies, without having to give notice except as is
hereinafter specifically provided:
(a) The holder hereof may sell the Pledged Stock, or any part
thereof, at a public or private sale, following the notice hereinafter provided,
for cash, upon credit, or for future delivery at such price or prices as the
holder hereof deems satisfactory. The holder hereof, or any parties related to
or affiliated with the holder hereof, may purchase any or all of the Pledged
Stock sold at a public sale. The holder hereof is authorized at any sale, if the
holder hereof deems it advisable to do so, to restrict the prospective bidders
or purchasers to persons who will represent and agree that they are purchasing
for their own account for investment, and not with a view to the distribution or
sale of any of the Pledged Stock. Upon any such sale, the holder hereof will
have the right to deliver, assign, and transfer to the purchaser thereof the
Pledged Stock so sold. Each purchaser at any such sale will hold the property
sold absolutely free from any claim or right of Buyer of whatsoever kind,
including any equity or right of redemption of Buyer which Buyer has under any
rule of law or statute now existing or hereafter adopted; and as to such
purchaser, Buyer hereby specifically waives all such rights of redemption, of
stay, or of appraisal, which might in any way affect such purchaser. The holder
hereof will give Buyer at least ten (10) days' written notice of intention to
make such public or private sale, which notice will state the time and place
fixed for such public sale or the time after which such private sale may be
consummated and whether the sale is to be public or private. At any such sale
the Pledged Stock may be sold in one lot as an entirety or in separate parcels,
as the holder hereof may determine. In case of any sale on credit or for future
delivery, the Pledged Stock so sold may be retained by the holder hereof until
the selling price is paid by the purchaser thereof, and the holder hereof will
not incur any liability in case of the failure of such purchaser to take up and
pay for the Pledged Stock so sold, and in case of any such failure, such Pledged
Stock may be again sold upon like notice. The holder hereof will not be
obligated to complete any sale for which the holder hereof sends out notice and
may, without notice or publication, adjourn any sale or cause the same to be
adjourned by announcement at the time and place fixed for such sale, and such
sale may thereafter be made at the time and place to which the same has been so
adjourned.
(b) The holder hereof, instead of exercising the power of
nonjudicial sale herein conferred, may proceed by a suit or suits at law or in
equity to foreclose the pledge and sell the Pledged Stock, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(c) Without limiting the rights of the holder hereof under any
other provision of this Note, and in addition thereto, Buyer will be obligated,
to the maximum extent permitted by law, if a Default is continuing and if
counsel for the holder hereof determines that it is necessary for the lawful
sale of the Pledged Stock in a commercially reasonable manner, upon written
request from the holder hereof, to vote its shares to cause the Company, at the
Company's or Buyer's expense, to prepare, file and cause to become effective
promptly, a registration statement complying with the Securities Act of 1933, as
amended, for the public sale of such of the Pledged Stock as the holder hereof
may elect, and to take comparable action to permit such sales under the
securities laws of such state jurisdictions as the holder hereof may designate.
If such registration statement is filed, Buyer further will be obligated to vote
its shares to cause the Company, at the Company's or Buyer's expense, to enter
into and perform its obligations under one or more underwriting agreements in
connection therewith, containing customary representations, warranties,
covenants, and indemnities and contribution provisions if requested by the
holder hereof. Buyer will be obligated to vote its shares to cause the Company,
at the Company's or Buyer's expense, (i) to keep any such registration statement
and related prospectus current and in compliance with applicable federal and
state securities laws so long as required to satisfy applicable prospectus
delivery requirements and (ii) at the request of the holder hereof at any time
after the effective date of any such registration statement, to file
post-effective amendments to such registration statement so that sales of
Pledged Stock by the holder hereof will be covered by a current prospectus and
can be made in compliance with all applicable federal and state securities laws.
(d) Buyer further will be obligated to (i) take such action as
is necessary to cause the Company to delivery to the holder hereof such
information as the holder hereof reasonably requests for inclusion in any
registration statement, prospectus or offering memorandum or in any preliminary
prospectus or preliminary offering memorandum or any amendment or supplement to
any thereof or in any other writing prepared in connection with the offer, sale
or resale of all or any portion of the Pledged Stock and to deliver such
information regarding Buyer as the holder hereof reasonably requests, which
information will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make such
information not misleading, and (ii) vote its shares to do or cause to be done
all such other acts and things as may be necessary to make such offer, sale or
resale of all or any portion of the Pledged Stock valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental agencies or instrumentalities, domestic or foreign, having
jurisdiction over any such offer, sale or resale.
(e) Without limiting paragraphs (c) and (d) of this Section
6.6, if the holder hereof decides to exercise its right to sell all or any of
the Pledged Stock, upon written request Buyer will from time to time take such
action as is necessary to cause to be furnished to the holder hereof all such
information as the holder hereof may request and as is accessible to Buyer in
order to qualify such Pledged Stock as exempt securities, or the sale or release
of such Pledged Stock as exempt transactions, under federal or state securities
laws. Buyer will be obligated to take such action as is necessary to cause the
Company to allow the holder hereof and any underwriter access at reasonable
times and places to the books, records and premises of the Company; Buyer
further will be obligated to assist, and take such action as is necessary to
cause the Company to assist the holder hereof, any underwriter, any agent of any
thereof, and any counsel, accountant or other expert for any thereof, in
inspection, evaluation, and any other "due diligence" action of or with respect
to any such books, records and premises; and Buyer further will be obligated to
cause any independent public accountant for the Company to furnish a letter to
the holder hereof and underwriters in customary form and covering matters of the
type customarily covered by letters of accountants for issuers to underwriters.
(f) Buyer further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by the holder hereof
by reason of the failure by Buyer to perform any of the covenants contained in
this Section and, consequently, agrees that, if Buyer fails to perform any of
such covenants, the holder hereof will be entitled to equitable relief for the
enforcement of the provisions of this Section 6.6. Buyer will indemnify the
holder hereof for any and all fees, charges, reimbursements, judgments or other
expenses incurred by the holder hereof due to any failure of Buyer to perform
its obligations under this Section 6.6.
(g) Notwithstanding the foregoing provisions of this Section
6.6, the holder of this Note will not be permitted to exercise any of the
foregoing rights or remedies contained or referenced in this Section 6.6 for so
long as any Senior Pledge remains in effect without the prior written consent of
the holder thereof.
6.7 Application of Proceeds. The proceeds of any sale of the
Pledged Stock hereunder will be applied by the holder hereof:
(a) first, to the payment of the costs and expenses of such
sale, including reasonable attorneys' fees and all expenses and advances made or
incurred by it in connection therewith;
(b) second, to the payment of the Indebtedness;
(c) finally, to the payment to Buyer or its successors and
assigns of any surplus then remaining from such proceeds.
(d) The holder hereof will not be required to make any
allocation or distribution to Buyer of proceeds from sale except from collected
funds after satisfaction or release of all indemnification or other payment
obligations that may be asserted against the holder hereof or such proceeds in
connection with such sale. Any collected funds retained pursuant to this
provision will be promptly deposited or invested in Permitted Investments until
disbursed in accordance herewith.
7. Default, Remedies
7.1 Default. Any one or more of the following constitutes a
Default as that term is used herein:
(a) Failure of Buyer to pay any principal amount or interest
hereunder when due and continuation of such condition for fifteen (15) days
after written notice thereof by the holder hereof to Buyer;
(b) Failure to perform any obligation of Buyer hereunder other
than for the payment of money and continuation of such condition for thirty (30)
days after written notice thereof by the holder hereof to Buyer;
(c) Failure of the Company to pay any principal amount or
interest under the Redemption Note when due and continuation of such condition
for fifteen (15) days after written notice thereof by the holder thereof to the
Company;
(d) Failure to perform any obligation of the Company under the
Redemption Note other than for the payment of money and continuation of such
condition for thirty (30) days after written notice thereof by the holder
thereof to the Company;
(e) Failure of the Company to pay any amount under the Senior
Obligations when due for so long as such condition continues;
(f) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against Buyer or the
Company and, if instituted against Buyer or the Company are consented to or are
not dismissed within sixty (60) days after such institution; or
(g) Buyer or the Company becomes insolvent or bankrupt,
generally does not pay its debts as they become due or makes an assignment for
the benefit of creditors, or Buyer or the Company applies for or consents to the
appointment of a custodian, trustee or receiver for Buyer or the Company or for
the major part of the property of either, or a custodian, trustee or receiver is
appointed for Buyer or the Company or for the major part of the property of
either and is not discharged within sixty (60) days after such appointment.
7.2 Acceleration of Maturity. When any Default described in
Sections 7.1(b), (d) or (g) has happened and is continuing, and in the case of
Section 7.1(b) or (d) provided no Senior Obligation is then outstanding, the
holder hereof may, by written notice to the Company, declare the entire
principal and all interest accrued hereunder to be, and the same will thereupon
become, immediately due and payable, without any presentment, demand, protest or
other notice of any kind. When a Default described in Section 7.1 (f) has
occurred, the entire principal and all interest accrued hereunder will thereupon
become immediately due and payable without presentment, demand, protest or other
notice of any kind.
7.3 Costs of Enforcement. Upon a Default, Buyer will be
obligated to pay all costs of collection and enforcement of the rights and
remedies of the holder hereof, including court costs and attorneys' fees,
whether or not legal proceedings are commenced.
7.4 Waivers. Buyer waives presentment for payment, demand,
protest, notice of protest and notice of dishonor. No delay by the holder hereof
in exercising any right or remedy hereunder, at law or in equity will operate as
a waiver of such right or remedy and no single or partial exercise of any such
right or remedy will preclude any further exercise thereof, or the exercise of
any other rights or remedies.
8. Notices. Any notice, request, instruction or other document to be
given hereunder by Buyer or the holder of this Note to the other party will be
in writing and delivered personally or by telephonic facsimile transmission or
sent by registered or certified mail, postage prepaid (and if by telephonic
facsimile transmission with a copy sent by mail),
if to the holder of this Note to:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, California 90067
Attn: Lori Poulos
Facsimile No.: 310-552-3446
with a copy to:
Oppenheimer Wolff & Donnelly
Suite 3400, Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Douglas L. Hemer
Facsimile No.: 612-344-9376
if to Buyer to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
9. Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this Note
or the breach hereof, unless resolved by mutual agreement of the parties, will
be finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the effective date of
this Agreement by a single arbitrator appointed in accordance with said Rules.
The determination of the arbitrator will be final and binding upon the parties
to the arbitration and judgment upon the award rendered by the arbitrator will
be entered in any court of competent jurisdiction. The place of arbitration will
be Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Note in any court of competent jurisdiction.
10. Governing Law; Consent to Jurisdiction. This Note will be construed
in accordance with and governed by the laws of the State of Minnesota applicable
to agreements made and to be performed in such jurisdiction without reference to
conflicts of law principles. Buyer by execution and delivery of this Note, and
the holder of this Note by acceptance hereof, each irrevocably consents that any
legal action or proceeding against it under, arising out of or in any manner
relating to this Note may be brought only in an arbitration proceeding as
provided in Section 9 or in a court of the State of Minnesota or in the United
States District Court for the District of Minnesota. Each of Buyer and the
holder of this Note further expressly and irrevocably assents and submits to the
personal jurisdiction of the arbitrators selected pursuant to Section 9 or any
of such courts in any such action or proceeding. Each of Buyer and the holder of
this Note further irrevocably consents to the service of any complaint, summons,
notice or other process relating to any such action or proceeding by delivery
thereof to it by hand or by mail in the manner provided for in Section 8 hereof.
Each of Buyer and the holder of this Note further hereby expressly and
irrevocably waives any claim or defense in any action or proceeding based on any
alleged lack of personal jurisdiction, improper venue or forum non conveniens or
any similar basis.
11. Neither this Note nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
12. This Note is not an obligation of the Company.
IN WITNESS WHEREOF, Buyer has caused this Note to be duly executed and
delivered on the day and year first above written.
DISCUS ACQUISITION CORPORATION
By
Its
Exhibit H
WARRANT FOR PURCHASE OF
SECURITIES
OF
DISCUS ACQUISITION CORPORATION
December __, 1995
For value received, Bridgewater Resources Corp. (it and its registered
assigns hereinafter referred to as the "Holder") is entitled to purchase from
Discus Acquisition Corporation, a Minnesota corporation (the "Company"), on or
after April 1, 1996 until and to the extent this Warrant expires or terminates
by its terms, one million six hundred fifty-nine thousand seven hundred
twenty-one (1,659,721) fully paid and nonassessable shares of the Company's
common stock, no par value, (such class of stock being hereinafter referred to
as the "Common Stock" and such Common Stock as may be acquired upon exercise
hereof being hereinafter referred to as the "Warrant Stock"), at an aggregate
price of Ten Thousand Dollars ($10,000), and at a ratable price per share in
accordance with such aggregate price.
This Warrant has been issued to the Holder by the Company pursuant to a
Stock Purchase Agreement between the Company and the named Holder dated November
22, 1995 (as amended, the "Purchase Agreement").
This Warrant is subject to the following provisions, terms and
conditions:
1. (a) This Warrant will terminate upon payment in full of that certain
Stock Purchase Note dated December __, 1995 issued by the Company to the order
of the named Holder pursuant to the Purchase Agreement (the "Stock Purchase
Note") on or before March 31, 1996.
(b) In the event the Stock Purchase Note is paid in full
within any month scheduled below, this Warrant will expire and will no longer be
exercisable with respect to the number of shares of Warrant Stock scheduled
opposite the applicable month, or, if less, the total number of shares of
Warrant Stock then remaining available for exercise hereunder, in each case
subject to adjustment pursuant to Section 3:
Number of Shares
Payment Period Terminated
April, 1996 1,409,102
May, 1996 1,142,486
June, 1996 858,291
July, 1996 554,720
August, 1996 229,719
(c) This Warrant will expire and will no longer be exercisable
with respect to all shares of Warrant Stock for which this Warrant is then
unexercised upon payment in full of the Stock Purchase Note and that certain
Redemption Note dated December __, 1995 issued by Peerless Chain Company to the
order of the named Holder pursuant to the Stock Purchase Agreement.
2. The rights represented by this Warrant may be exercised by the
Holder, in whole or in part, by written notice of exercise delivered to the
Company accompanied by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it, by
cash, certified check or bank draft, of the warrant exercise price for such
shares. The Warrant Stock so purchased will be deemed to be issued as of the
close of business on the date on which this Warrant has been surrendered and
payment has been made for such Warrant Stock as aforesaid. Certificates for the
shares of the Warrant Stock so purchased will be delivered to the Holder within
fifteen (15) days after the rights represented by this Warrant have been so
exercised, and, unless this Warrant has expired, a new Warrant representing the
number of shares of the Common Stock, if any, with respect to which this Warrant
has not been exercised will also be delivered to the Holder within such time.
Notwithstanding the foregoing, however, the Company will not be required to
deliver any certificates for shares of the Warrant Stock except in accordance
with the provisions and subject to the limitations of Section 6 below. In lieu
of issuance of any fractional share, the Company may pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the higher
of the Stock Price Standard (as defined in Section 4(a) below) in effect on the
date of exercise or the market price per share of Common Stock as of the close
of business on the date of exercise. For purposes hereof, "market price" means,
if the Common Stock is traded on a securities exchange or the Nasdaq National
Market System, the closing price of the Common Stock sales on such exchange or
the Nasdaq National Market System, or, if the Common Stock is otherwise traded
in the over-the-counter market, the closing bid price averaged over a period of
twenty (20) consecutive business days prior to the date as of which "market
price" is being determined. If at any time the Common Stock is not traded on an
exchange or the Nasdaq National Market System, or otherwise traded in the
over-the-counter market, the "market price" will be deemed to be the higher of
(i) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within sixty (60) days preceding
the date as of which the determination is to be made, or (ii) the fair value
thereof on the date as of which the determination is to be made determined in
good faith by the Board of Directors of the Company.
3. The Company covenants and agrees that all shares of the Warrant
Stock that may be issued upon the exercise of this Warrant will, upon issuance,
be duly authorized and issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof. The Company
further covenants and agrees that until expiration of this Warrant, the Company
will at all times have authorized, and reserved for the purpose of issuance or
transfer upon exercise of this Warrant, a sufficient number of shares of the
Common Stock to provide for the exercise of this Warrant.
4. The foregoing provisions are, however, subject to the following:
(a) The "Stock Price Standard" means One and 10/100 Dollars
($1.10) per share, subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Stock Price Standard, the Holder will
thereafter be entitled to purchase, at the Stock Price Standard resulting from
such adjustment, the number of shares obtained by multiplying the Stock Price
Standard in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the Stock Price Standard resulting from such adjustment.
(b) Except for options to purchase shares of Common Stock
scheduled on Exhibit I to the Purchase Agreement or hereafter granted pursuant
to the Company's 1994 Stock Option Plan or other similar plans adopted by the
Company and except for shares of Common Stock issued upon the exercise thereof
(provided that the aggregate number of shares thus covered by unexercised
options and thus issued are not in excess of one million one hundred eighty-one
thousand seven hundred fifty (1,181,750) (appropriately adjusted to reflect any
stock splits, stock dividends, reorganizations, consolidations and similar
changes)), if and whenever the Company issues or sells any shares of its Common
Stock for a consideration per share less than the Stock Price Standard in effect
immediately prior to the time of such issue or sale, then, forthwith upon such
issue or sale, the Stock Price Standard will be reduced to the price (calculated
to the nearest $.001) determined by dividing (1) an amount equal to the sum of
(aa) the number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Stock Price Standard, and (bb) the
consideration, if any, received by the Company upon such issue or sale, by (2)
an amount equal to the sum of (aa) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (bb) the number of
shares thus issued or sold.
For the purposes of this Section 4(b), the following
provisions (i) to (viii), inclusive, will also be applicable:
(i) In case at any time the Company grants (whether
directly or by assumption in a merger or otherwise) any rights to subscribe for
or to purchase, or any options for the purchase of, (a) Common Stock or (b) any
obligations or any shares of stock of the Company which are convertible into, or
exchangeable for, Common Stock (any of such obligations or shares of stock being
hereinafter called "Convertible Securities"), whether or not such rights or
options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities (determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such rights or options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of such rights
or options, plus, in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the issue of
such Convertible Securities and upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or options) is
less than the Stock Price Standard in effect immediately prior to the time of
the granting of such rights or options, then the total maximum number of shares
of Common Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or options will (as of the
date of granting of such rights or options) be deemed to have been issued for
such price per share. Except as provided in Section 4(b)(viii) below, no further
adjustments of the Stock Price Standard will be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) In case the Company issues or sells (whether directly
or by assumption in a merger or otherwise) any Convertible Securities, whether
or not the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (x) the total amount received or receivable
by the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) is less than the Stock Price
Standard in effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities will (as of the date of the issue or
sale of such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (a) except as provided in
Section 4(b)(viii) below, no further adjustments of the Stock Price Standard
will be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and (b) if any such issue or sale of
such Convertible Securities is made upon exercise of any rights to subscribe for
or to purchase or any option to purchase any such Convertible Securities for
which adjustments of the Stock Price Standard have been or are to be made
pursuant to other provisions of this Section 4(b), no further adjustment of the
Stock Price Standard will be made by reason of such issue or sale.
(iii) In case the Company declares a dividend or makes any
other distribution upon any capital stock of the Company payable in Common Stock
or Convertible Securities, or in any rights or options to purchase any Common
Stock or Convertible Securities, any such Common Stock or Convertible
Securities, or any such rights or options, as the case may be, issuable in
payment of such dividend or distribution will be deemed to have been issued or
sold without consideration.
(iv) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities are issued or sold for cash, the consideration received
therefor will be deemed to be the amount received by the Company therefor,
without deducting therefrom any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be deemed to be the
fair value of such consideration as determined by the Board of Directors of the
Company, without deducting therefrom any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase such Common Stock or Convertible Securities are
issued in connection with any merger or consolidation in which the Company is
the surviving corporation, the amount of consideration therefor will be deemed
to be the fair value as determined by the Board of Directors of the Company of
such portion of the assets and business of the non-surviving corporation or
corporations as such Board determines to be attributable to such Common Stock,
Convertible Securities, rights or options, as the case may be. In the event of
any consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or substantially all of
the assets of the Company for stock or other securities of any other
corporation, the Company will be deemed to have issued a number of shares of its
Common Stock for stock or securities of the other corporation computed on the
basis of the actual exchange ratio on which the transaction was predicated and
for a consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and if any
such calculation results in adjustment of the Stock Price Standard, the
determination of the number of shares of Common Stock issuable upon exercise
hereof immediately prior to such merger, conversion or sale, for purposes of
Section 4(d) below, will be made after giving effect to such adjustment of the
Stock Price Standard.
(v) In case the Company takes a record of the holders of
its Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock or in Convertible Securities, or in
any rights or options to purchase any Common Stock or Convertible Securities, or
(b) to subscribe for or purchase Common Stock or Convertible Securities, then
the date of such record will be deemed to be the date of the issue or sale of
the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such rights of subscription or purchase, as the case may
be.
(vi) The number of shares of Common Stock outstanding at
any given time will not include shares owned or held by or for the account of
the Company, and the disposition of any such shares will be considered an issue
or sale of Common Stock for the purpose of this Section 4(b). The number of
shares of Common Stock outstanding at any given time will be deemed to include
shares of Common Stock deemed issued pursuant to Section 4(b)(i) or (ii), and
any additional shares of Common Stock covered by outstanding rights to subscribe
for or purchase, or any outstanding options or warrants for the purchase of,
Common Stock.
(vii) Except as provided in Sections 4(b)(i) and (ii), the
consideration received by the Company upon issuance or sale of shares of Common
Stock will be deemed to include the consideration received upon issuance of
Convertible Securities converted into such shares of Common Stock, and the
consideration received upon issuance of any rights to subscribe for or to
purchase, or options for the purchase of, such shares of Common Stock or such
Convertible Securities.
(viii) If (x) the purchase price provided for in any right
or option referred to in Section 4(b)(i), or (y) the additional consideration,
if any, payable upon the conversion or exchange of Convertible Securities
referred to in Section 4(b)(i) or (ii), or (z) the rate at which any Convertible
Securities referred to in Section 4(b)(i) or (ii) are convertible into or
exchangeable for Common Stock, changes at any time (other than under or by
reason of provisions designed to protect against dilution), the Stock Price
Standard then in effect hereunder will forthwith be increased or decreased to
such Stock Price Standard as would have obtained had the adjustments made upon
the issuance of such rights, options or Convertible Securities been made upon
the basis of (a) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such options or rights or
upon the conversion or exchange of such Convertible Securities, and the total
consideration received therefor, and (b) the issuance at the time of such change
of any such options, rights, or Convertible Securities then still outstanding
for the consideration, if any, received by the Company therefor and to be
received on the basis of such changed price; and on the expiration of any such
option or right or the termination of any such right to convert or exchange such
Convertible Securities, the Stock Price Standard then in effect hereunder will
forthwith be increased to such Stock Price Standard as would have obtained had
the adjustments made upon the issuance of such rights or options or Convertible
Securities been made upon the basis of the issuance of the shares of Common
Stock theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights or options or upon the conversion or
exchange of such Convertible Securities. If (xx) the purchase price provided for
in any right or option referred to in Section 4(b)(i), or (yy) the additional
consideration, if any, payable upon conversion or exchange of Convertible
Securities referred to in Section 4(b)(i) or (ii), or (zz) the rate at which any
Convertible Securities referred to in Section 4(b)(i) or (ii) are convertible
into or exchangeable for Common Stock, decreases at any time under or by reason
of provisions with respect thereto designed to protect against dilution, then in
case of the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security, the
Stock Price Standard then in effect hereunder will forthwith be decreased to
such Stock Price Standard as would have obtained had the adjustments made upon
the issuance of such right, option or Convertible Security been made upon the
basis of the issuance of (and the total consideration received for) the shares
of Common Stock delivered as aforesaid.
(c) In case the Company at any time subdivides the outstanding
Common Stock into a greater number of shares or declares a dividend payable in
the Common Stock, the Stock Price Standard in effect immediately prior to such
subdivision will be proportionately reduced, and conversely, in case the
outstanding Common Stock are combined into a smaller number of shares, the Stock
Price Standard in effect immediately prior to such combination will be
proportionately increased.
(d) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation is effected in such a way that holders of the Common Stock
are entitled to receive stock, securities or assets ("Substituted Property")
with respect to or in exchange for such Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, the Holder
will have the right to purchase and receive upon the basis and upon the terms
and conditions specified in this Warrant and in lieu of the Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such Substituted Property as would have been issued
or delivered to the Holder if it had exercised this Warrant and had received
upon exercise of this Warrant the Common Stock prior to such reorganization,
reclassification, consolidation, merger or sale. The Company will not effect any
such consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets assumes by
written instrument executed and mailed to the Holder at the last address of the
Holder appearing on the books of the Company, the obligation to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase.
(e) If the Company takes any other action, or if any other
event occurs which does not come within the scope of the provisions of Sections
4(b), (c) or (d), but which should result in an adjustment in the Stock Price
Standard and/or the number of shares subject to this Warrant in order to fairly
protect the purchase rights of the Holder, an appropriate adjustment in such
purchase rights will be made by the Company.
(f) Upon any adjustment of the Stock Price Standard and/or the
number of shares of Warrant Stock, the Company will give written notice thereof,
by first-class mail, postage prepaid, addressed to the Holder at the address of
the Holder as shown on the books of the Company, which notice will state the
Stock Price Standard resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(g) As used herein the term "Common Stock" means and includes
the Company's presently authorized Common Stock and also includes any capital
stock of any class of the Company hereafter authorized which is not limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company; provided that
the shares receivable pursuant to exercise of this Warrant includes shares
designated as Common Stock of the Company as of the date of this Warrant, or, in
case of any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in Section 4(d) above.
5. This Warrant will not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
6. The Holder, by acceptance hereof, represents and warrants that (a)
it is acquiring this Warrant for its own account for investment purposes only
and not with a view to its resale or distribution and (b) it has no present
intention to resell or otherwise dispose of all or any part of this Warrant
other than pursuant to registration under federal and state securities laws or
an exemption from such registration, the availability of which the Company will
determine in its sole discretion. The Company may condition such issuance or
sale, pledge, assignment or other disposition on the receipt from the party to
whom this Warrant is to be so transferred or to whom any shares of Warrant Stock
are to be issued or so transferred of any representations and agreements
requested by the Company in order to permit such issuance or transfer to be made
pursuant to exemptions from registration under federal and applicable state
securities laws. Each certificate representing this Warrant (or any part
thereof) and any shares of Warrant Stock will be stamped with appropriate
legends setting forth these restrictions on transferability. The Holder, by
acceptance hereof, agrees to give written notice to the Company before
exercising or transferring this Warrant or transferring any shares of the
Warrant Stock of the Holder's intention to do so, describing briefly the manner
of any proposed exercise or transfer. Within thirty (30) days after receiving
such written notice, the Company will notify the Holder as to whether such
exercise or transfer may be effected.
7. (a) If at any time during the period commencing April 1, 1996 and
ending on the date of final expiration of this Warrant or two (2) years after
the last exercise of this Warrant, whichever last occurs, the Company proposes
to register any of its securities under the Securities Act of 1933 (the
"Securities Act"), the Company will give to all registered holders of this
Warrant or the Warrant Stock (which term, for purposes of this Section 7, will
be deemed to include any securities into which the shares of Warrant Stock may,
by their terms, be converted) written notice of its intention in that regard and
use its best efforts to effect the registration under the Securities Act, if
such registration is permissible, of such shares of Warrant Stock as may be
specified by written notice from any of such holders delivered to the Company
within twenty (20) days after such notice is given (which notice will be deemed
to have been given upon the deposit thereof in first class or express U. S.
mail, postage pre-paid, addressed to each holder at the address of such holder
as shown in the books of the Company), provided, however, that (i) the Company
will not be required to include any such shares of Warrant Stock in any such
registration for any holder who is able to sell during a period of six months or
less all shares of Warrant Stock owned by such holder (or issuable to such
holder upon exercise of this Warrant) pursuant to Rule 144 under the Securities
Act (or similar rule or regulation); (ii) the Company will not be required to
include this Warrant in any such registration; (iii) the Company will not be
required to give such notice with respect to, or to include such shares of
Warrant Stock in, any such registration which is exclusively (y) a registration
of a stock option plan or other employee benefit plan or of securities issued or
issuable pursuant to any such plan, or (z) a registration of securities proposed
to be issued in exchange for securities or assets of, or in connection with a
merger or consolidation with, another corporation, (iv) the Company will not be
required to give such notice with respect to, or to include such shares of
Warrant Stock in, any such registration which is at the request or demand of any
holder or holders of its securities having contractual registration rights and
which does not include any issuance of securities by the Company; (v) the
Company will not be required to include in any such registration any securities
previously duly registered under the Securities Act; (vi) the Company may, in
its sole discretion, withdraw any such registration statement and abandon the
proposed offering in which any such holder had requested to participate; (vii)
if the offering to which the registration statement relates is to be distributed
by or through an underwriter, each such holder will agree, as a condition to the
inclusion of such holder's shares of Warrant Stock in such registration, to sell
the shares of Warrant Stock held by such holder to be so registered through such
underwriter on the same terms and conditions as the underwriter agrees to sell
securities on behalf of the Company and not to sell, transfer, pledge, assign or
otherwise dispose of any shares of Warrant Stock not sold by such holder in such
offering for such period (up to one hundred eighty (180) days after the
effective date of the registration statement) as may be required by the
underwriter, provided that the restrictions imposed by the underwriter on such
holders will not be more onerous than any such restriction imposed upon
affiliates of the Company; and (viii) if the offering to which the registration
statement relates is to be distributed by or through an underwriter and a
greater number of securities is offered for participation in the proposed
underwriting than in the opinion of the Company's underwriter can be
accommodated without significantly adversely affecting the proposed
underwriting, the amount of such securities otherwise to be included in the
underwritten offering on behalf of all persons other than the Company may be
reduced pro rata, in accordance with the securities proposed to be sold by each
such holder, or may be eliminated entirely from such underwritten public
offering. The costs and expenses of such offering, including but not limited to
legal fees, special audit fees, printing expenses, filing fees, fees and
expenses relating to qualifications under state securities or blue sky laws and
the premiums for insurance, if any, incurred by the Company in connection with
any registration made pursuant to this Section 7(a) will be borne entirely by
the Company; provided, however, that any holders participating in such
registration will bear their own underwriting discounts and commissions and the
fees and expenses of their own counsel or accountants in connection with any
such registration.
(b) If the Company receives a written request therefor from any record
holder or holders of this Warrant or shares of Warrant Stock constituting an
aggregate of at least 60% of the shares of Warrant Stock issued or issuable and
not previously duly registered under the Securities Act, the Company will
prepare and file a registration statement under the Securities Act on Form S-3
or any successor form promulgated by the Securities and Exchange Commission
("Form S-3") covering the shares of Warrant Stock which are the subject of such
request and use its best efforts to cause such registration statement to become
effective, provided Form S-3 is then available for use by the Company and such
record holder or holders. The Company will give to all registered holders of
this Warrant or the shares of Warrant Stock written notice of any such request
and use its best efforts to cover under such Form S-3 registration such shares
of Warrant Stock as may be specified by written notice from any such holders
delivered to the Company within twenty (20) days after such notice is given
(which notice will be deemed to have been given upon the deposit thereof in
first class or express U.S. Mail, postage pre-paid, addressed to each holder at
the address of such holder as shown in the books of the Company). Such holders
may exercise the foregoing registration right any number of times. The costs and
expenses of the offering, including but not limited to legal fees, special audit
fees, printing expenses, filing fees, fees and expenses relating to
qualifications under state securities or blue sky laws and the premiums for
insurance, if any, incurred by the Company in connection with the first Form S-3
registration made pursuant to this Section 7(b) will be borne by the Company;
provided, however, that any holders participating in such registration will bear
their own underwriting discounts and commissions and the fees and expenses of
their own counsel or accountants in connection with any such registration. The
costs and expenses of the offering incurred by the Company in connection with
each additional Form S-3 registration made pursuant to this Section 7(b) will be
borne by the holders participating in such registration pro rata according to
the number of shares of Warrant Stock included therein.
(c) In the event of any registration of a security pursuant to
this Section 7, the Company will indemnify each such holder, its officers and
directors and each person, if any, who controls such holder within the meaning
of Section 15 of the Securities Act against all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus (and as
amended or supplemented) relating to such registration, or caused by any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they are made unless such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Company by such holder expressly for use therein. The obligations
of the Company to register any of its securities in accordance with the
foregoing will be subject to the condition that each holder agrees in writing to
indemnify the Company, its officers and directors, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act, and
each underwriter of the shares of Warrant Stock so registered, and each person,
if any, who controls such underwriter within the meaning of Section 15 of the
Securities Act, with respect to losses, claims, damages and liabilities caused
by any untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by such holder to the Company expressly for use
in such registration statement or prospectus, provided that the obligation of
each holder hereunder will not exceed the amount of proceeds received by such
holder from the sale of any securities registered under this Section 7.
(d) The Company will, at its expense (or at the expense of the
participating holders to the extent provided in Section 7(b)), also take
reasonable measures to qualify the shares of Warrant Stock included in any
registration statement pursuant to this Section 7 for sale under applicable blue
sky laws of such states as the Company determines are reasonably necessary for
the sale of such shares of Warrant Stock.
(e) Upon the exercise of registration rights pursuant to this
Section 7, each holder agrees to supply the Company with such information as may
be required by the Company to register or qualify such shares of Warrant Stock.
8. The Company will not, by amendment of its articles of incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will not take
any action that would result, by operation of the provisions of Section 4, in
decreasing the amount payable for any shares of Warrant Stock below the par
value therefor, and (c) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of this Warrant.
9. In the event of:
a. any taking by the Company of a record of the holders of the
Common Stock for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
b. any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
c. any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then and in each such event the Company will give
prior written notice to each Holder specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
and (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or other securities) will be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up.
10. This Warrant will be transferable only on the books of the Company
by the Holder in person, or by duly authorized representative, on surrender of
this Warrant, properly assigned.
11. Any notice, request, instruction or other document to be given
hereunder by the Company or the Holder to any such other party will be in
writing and delivered personally or by telephonic facsimile transmission or sent
by registered or certified mail, postage prepaid (and if by telephonic facsimile
transmission with a copy sent by mail),
if to the Holder to:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, California 90067
Attn: Lori Poulos
Facsimile No.: 310-552-3446
with a copy to:
Oppenheimer Wolff & Donnelly
Suite 3400, Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Douglas L. Hemer
Facsimile No.: 612-344-9376
if to the Company to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
12. Subject to the last sentence of this Section, any controversy or
claim arising out of or relating to any provisions of this Warrant or the breach
hereof, unless resolved by mutual agreement of the parties, will be finally
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in effect on the effective date of this
Agreement by a single arbitrator appointed in accordance with said Rules. The
determination of the arbitrator will be final and binding upon the parties to
the arbitration and judgment upon the award rendered by the arbitrator will be
entered in any court of competent jurisdiction. The place of arbitration will be
Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Warrant in any court of competent
jurisdiction.
13. This Warrant will be construed in accordance with and governed by
the laws of the State of Minnesota applicable to agreements made and to be
performed in such jurisdiction without reference to conflicts of law principles.
The Company by execution and delivery of this Warrant, and the Holder by
acceptance hereof, each irrevocably consents that any legal action or proceeding
against it under, arising out of or in any manner relating to this Warrant may
be brought only in an arbitration proceeding as provided in Section 12 or in a
court of the State of Minnesota or in the United States District Court for the
District of Minnesota. Each of the Company and the Holder further expressly and
irrevocably assents and submits to the personal jurisdiction of the arbitrators
selected pursuant to Section 12 or any of such courts in any such action or
proceeding. Each of the Company and the Holder further irrevocably consents to
the service of any complaint, summons, notice or other process relating to any
such action or proceeding by delivery thereof to it by hand or by mail in the
manner provided for in Section 11 hereof. Each of the Company and the Holder
further hereby expressly and irrevocably waives any claim or defense in any
action or proceeding based on any alleged lack of personal jurisdiction,
improper venue or forum non conveniens or any similar basis.
14. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer effective the date first above written.
DISCUS ACQUISITION CORPORATION
By
Its
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED
OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE
COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Exhibit I
OUTSTANDING BUYER OPTIONS
Number of Exercise
Optionee Shares(1) Price
Michael E. Platt 31,250(2) $ .32
50,000(3) 1.10
Reynold M. Anderson 30,000(4) .29
18,000 .875
32,000(3) 1.10
Douglas B. Tenpas 10,000(4) .29
William H. Spell 190,000 1.35
40,000 .75
175,000(3) 1.10
Harry W. Spell 45,000 1.35
22,000 .75
18,000 .875
32,000(3) 1.10
Bruce A. Richard 20,000 1.35
16,000 .75
18,000 .875
32,000(3) 1.10
Richard W. Perkins 45,000 1.35
22,000 .75
18,000 .875
32,000(3) 1.10
George R. Long 8,000 .94
Stanford M. Baratz 8,000 .94
Sherree L. Tipton 3,000 .875
3,000(3) 1.10
Jan van Osnabrugge 60,000(3) 1.10
Gerald Faurote 40,000(3) 1.10
Dale Schwanke 33,000(3) 1.10
Robert Deter 33,000(3) 1.10
John McCauley 27,500(3) 1.10
Richard George 17,500(3) 1.10
Chester Adkins 17,500(3) 1.10
Curtis Mihm 17,500(3) 1.10
Anthony Kochever 17,500(3) 1.10
(1) Except as otherwise indicated, all options have been granted under
Buyer's 1994 Stock Option Plan.
(2) Granted under Buyer's 1984 Stock Option Plan.
(3) Options are subject to obtaining shareholder approval.
(4) Not granted under any plan.
AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT, dated as of December 1, 1995, by and between
Bridgewater Resources Corp. ("Seller"), the sole shareholder of Peerless Chain
Company (the "Company"), and Discus Acquisition Corporation ("Buyer") amends
that certain Stock Purchase Agreement dated November 22, 1995 by and between
Seller and Buyer for the sale of the outstanding capital stock of the Company
(the "Agreement"). Except as otherwise provided herein, all capitalized terms
herein are as defined in the Agreement.
IN CONSIDERATION of the mutual promises and covenants contained herein,
the parties agree to amend the Agreement as follows:
1. The date under Sections 2.1 and 11.1(b) is amended to December
7, 1995.
2. For purposes of determining the Intercompany Debt Balance, the
Closing Balance Sheet and the Closing Net Worth, Closing will be
deemed to occur on November 30, 1995.
3. In the course of preparing the Closing Balance Sheet, the Seller Accountants
will determine the change in the net intercompany balance between Seller and the
Company from November 30, 1995 to the Closing Date, which determination will be
subject to review by the Buyer Accountants and resolution by the Accountant
Arbitrator of any unresolved issues between the Seller Accountants and the Buyer
Accountants with respect thereto. The Purchase Price will be increased by the
amount of any increase in such intercompany balance, and any decrease in such
intercompany balance will be credited as a payment against the Purchase Price.
Buyer will pay Seller the amount of any such increase, and Seller will reimburse
Buyer any resulting overpayment of Purchase Price, in immediately available
funds promptly upon determination thereof. In the event of any delay in the
payment of such adjustment, such amount will bear interest from the due date
until paid in full at the default interest rate under the Note.
4. For purposes of Sections 10.2(b) and 10.7, the Closing Date will be deemed to
be November 30, 1995, except that the second sentence of Section 10.7 applies to
all covenants and agreements contained in the Agreement to be performed or
complied with at or prior to the Closing.
5. Section 1.3 of the Agreement will apply to both Section 1.2(a) and (b) of the
Agreement.
6. Except as set forth hereinabove, the Agreement remains in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed on its behalf as of the date first above written.
DISCUS ACQUISITION CORPORATION
By /s/ William H. Spell
Its CEO
BRIDGEWATER RESOURCES CORP.
By Lori J. Poulos
Its CEO
STOCK PURCHASE AGREEMENT
BETWEEN
BRIDGEWATER RESOURCES CORP.
AND
DISCUS ACQUISITION CORPORATION
FOR THE CAPITAL STOCK OF
PEERLESS CHAIN COMPANY
DATED AS OF NOVEMBER 22, 1995
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I SALE AND PURCHASE OF STOCK............................................................... 1
1.1 Sale of the Stock.................................................................... 1
1.2 Purchase Price....................................................................... 1
1.3 Payment of Purchase Price............................................................ 3
ARTICLE II CLOSING.............................................................................. 3
2.1 The Closing.......................................................................... 3
2.2 Deliveries of Seller................................................................. 3
2.3 Deliveries of Buyer.................................................................. 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER............................................. 5
3.1 Corporate Organization............................................................... 5
3.2 Capitalization....................................................................... 5
3.3 Authorization........................................................................ 6
3.4 Non-Contravention.................................................................... 6
3.5 Consents and Approvals............................................................... 6
3.6 Financial Statements................................................................. 7
3.7 Absence of Certain Changes or Events................................................. 7
3.8 Title to Assets...................................................................... 8
3.9 Real Properties...................................................................... 8
3.10 Commitments.......................................................................... 8
3.11 Bank Accounts; Powers of Attorney.................................................... 10
3.12 Insurance............................................................................ 10
3.13 Intellectual Property Rights......................................................... 10
3.14 Taxes................................................................................ 11
3.15 Employee Benefit Plans; ERISA........................................................ 11
3.16 Labor Matters........................................................................ 12
3.17 Environment.......................................................................... 13
3.18 Compliance with Laws................................................................. 14
3.19 Litigation........................................................................... 14
3.20 Equipment............................................................................ 14
3.21 Customers and Suppliers.............................................................. 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.............................................. 14
4.1 Buyer's Organization................................................................. 14
4.2 The Company's Authority.............................................................. 14
4.3 Due Authorization, Execution and Delivery by
Buyer; Effect of Agreement........................................................... 15
4.4 Due Authorization, Execution and Delivery by the
Company; Effect of Agreement......................................................... 15
4.5 Consents............................................................................. 16
4.6 HSR.................................................................................. 16
4.7 Litigation........................................................................... 16
4.8 Investment Intent.................................................................... 16
ARTICLE V COVENANTS OF SELLER.................................................................. 16
5.1 Cooperation and Assignments.......................................................... 16
5.2 Conduct of Business.................................................................. 17
5.3 Access............................................................................... 17
5.4 Intercompany Debt.................................................................... 17
5.5 Redemption........................................................................... 17
ARTICLE VI COVENANTS OF BUYER................................................................... 18
6.1 Cooperation and Assumption........................................................... 18
6.2 Buyer Financing...................................................................... 18
6.3 Lease Consents....................................................................... 18
6.4 Termination of Letters of Credit..................................................... 19
6.5 Company Bank Accounts................................................................ 19
ARTICLE VII ADDITIONAL COVENANTS................................................................. 19
7.1 Books and Records; Personnel......................................................... 19
7.2 Tax Returns, Payments of Taxes, Transfer Taxes
and Audits........................................................................... 20
7.3 Cooperation; Access to Information and Retention
of Records Concerning Taxes.......................................................... 21
7.4 Section 338(h)(10) Election with Respect to
Taxes................................................................................ 22
7.5 Allocation with Respect to Taxes..................................................... 22
7.6 Continuation of Insurance Coverages.................................................. 22
7.7 Additional Cooperation............................................................... 23
ARTICLE VIII CONDITIONS TO SELLER'S OBLIGATIONS................................................... 23
8.1 Representations, Warranties and Covenants of
Buyer................................................................................ 23
8.2 No Prohibition....................................................................... 23
8.3 Further Action....................................................................... 24
8.4 Deliveries........................................................................... 24
8.5 No Challenges........................................................................ 24
8.6 Seller Lease Guaranty................................................................ 24
8.7 Seller Enhanced L/Cs................................................................. 24
8.8 Seller Bank Guaranties............................................................... 24
8.9 Intercompany Debt Balance............................................................ 24
8.10 Acceptance of Other Agreements....................................................... 24
CONDITIONS TO BUYER'S OBLIGATIONS............................................................................... 25
9.11 Representations, Warranties and Covenants of
Sellers.............................................................................. 25
9.12 No Prohibition....................................................................... 25
9.13 Further Action....................................................................... 25
9.14 Deliveries........................................................................... 25
9.15 No Challenges........................................................................ 25
9.16 Lessor Consent and Lease Amendments.................................................. 26
9.17 Buyer Financings..................................................................... 26
9.18 Employment Agreements................................................................ 26
9.19 Environmental Review................................................................. 26
9.20 Document Review. ................................................................... 26
ARTICLE IX INDEMNIFICATION AND RELATED MATTERS.................................................. 26
10.1 Indemnification by Seller............................................................ 26
10.2 Additional Indemnifications by Seller................................................ 26
10.3 Indemnification by Buyer............................................................. 28
10.4 Notice of Indemnification............................................................ 28
10.5 Indemnification Procedure for Third-Party
Claims............................................................................... 28
10.6 Limitation on Indemnification Liabilities............................................ 29
10.7 Survival of Representations, Warranties and
Covenants............................................................................ 29
10.8 Exclusive Remedy..................................................................... 30
ARTICLE X TERMINATION PRIOR TO CLOSING......................................................... 30
11.1 Termination.......................................................................... 30
11.2 Effect on Obligations................................................................ 31
ARTICLE XI MISCELLANEOUS........................................................................ 31
12.1 Entire Agreement; Amendments......................................................... 31
12.2 Successors and Assigns............................................................... 31
12.3 Counterparts......................................................................... 31
12.4 Headings............................................................................. 31
12.5 Modifications and Waivers............................................................ 31
12.6 Expenses............................................................................. 32
12.7 Notices.............................................................................. 32
12.8 Arbitration.......................................................................... 33
12.9 Governing Law; Consent to Jurisdiction............................................... 33
12.10 Public Announcements................................................................. 34
12.11 Confidentiality and Nonsolicitation.................................................. 34
12.12 Further Assurances................................................................... 35
12.13 Severability......................................................................... 35
12.14 Definition of Seller's "Best Knowledge".............................................. 36
12.15 No Third Party Beneficiaries......................................................... 36
12.16 Rule of Construction................................................................. 36
</TABLE>
EXHIBITS
Exhibit A - Closing Balance Sheet Instructions
Exhibit B - Commitments Not In the Company's Name
Exhibit C - Opinion of Counsel of Seller
Exhibit D - Opinion of Counsel of Buyer
Exhibit E - Note
Exhibit F - Buyer Financings
DEFINITIONS
Defined Term Section
Accountant Arbitrator 1.2(c)
Allocation Schedule 7.5(a)
Base Price 1.2
Best knowledge 12.14
Business First Recital
Buyer Opening Paragraph
Buyer Accountants 1.2(c)
Buyer Financing Commitments 6.2
Buyer Financings 6.2
Closing 2.1
Closing Balance Sheet 1.2(c)
Closing Date 2.1
Closing Net Worth 1.2(c)
Code 3.14(b)
Commitments 3.10
Company Opening Paragraph
Consent 3.5
Disclosure Schedule 3.1
Election 7.4(a)
Employee Benefit Plans 3.15(a)
Encumbrances 3.2
Environmental Law 3.17
Environmentally Regulated Materials 3.17
ERISA 3.15(a)
ERISA Affiliate 3.15(b)
Financial Statements 3.6
GAAP 1.2(b)
HSR Act 4.6
Indemnitee 10.4
Indemnitor 10.4
Information 12.11(a)
Intellectual Property Rights 3.13
Intercompany Debt Balance 5.4
Leased Real Property 3.9(b)
Litigation 3.19
Loss 10.1
Note 5.5
October Balance Sheet 3.6
Post-Closing Return 7.2(b)
Pre-Closing Return 7.2(a)
Purchase Price 1.2
Redemption 5.5
Representatives 12.11(a)
Seller Opening Paragraph
Seller Accountants 1.2(c)
Seller Affiliate 3.7(e)
Seller Bank Guaranties 6.5
Seller Enhanced L/Cs 6.4
Seller Lease Guaranty 6.3
September Balance Sheet 3.6
Stock Second Recital
Subsidiary First Recital
Taxes 3.14(a)
Tax Returns 3.14(a)
Threshold Amount 10.6
Winona Lease 6.3
Winona Lease Lessor 6.3
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into this 22nd day of November, 1995,
is by and between Bridgewater Resources Corp., a Texas corporation ("Seller"),
the sole shareholder of Peerless Chain Company, a Minnesota corporation (the
"Company"), and Discus Acquisition Corporation, a Minnesota corporation
("Buyer").
RECITALS:
FIRST, the Company and its subsidiary Peerless Chain of Iowa, Inc., an
Iowa corporation (the "Subsidiary") are primarily engaged in the business of the
manufacture and distribution of chain, traction and wire form products (the
"Business").
SECOND, Seller is the owner of all shares of the issued and outstanding
capital stock of the Company (the "Stock"), and Buyer desires to purchase and
Seller desires to sell all of the Stock;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements and upon the terms and subject to the
conditions hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF STOCK
1.1 Sale of the Stock. Subject to the terms and conditions of this
Agreement, on the Closing (as defined in Section 2.1) Seller will sell to Buyer,
and Buyer will purchase from Seller, the Stock outstanding at Closing and not
redeemed concurrently with Closing as hereinafter provided for the consideration
specified herein. Seller will bear the cost of any documentary, stamp, sales,
transfer, excise or other taxes payable in respect of the transactions
contemplated hereby.
1.2 Purchase Price. The aggregate purchase price to be paid by Buyer to
Seller for the Stock to be transferred to Buyer hereunder (the "Purchase Price")
will be Six Million Fifty Thousand Dollars ($6,050,000) (the "Base Price"),
subject to reduction as follows:
(a) The Base Price will be reduced on a dollar-for-
dollar basis by the amount, if any, by which the Company's Closing Net Worth (as
defined below) on Closing is less than the sum of Ten Million Four Hundred
Sixty-Three Thousand Dollars ($10,463,000).
(b) The Base Price will be reduced on a dollar-for-
dollar basis by the amount, if any, by which the Intercompany Debt Balance (as
defined in Section 5.4) (without taking into effect the contribution to capital
of the Intercompany Debt Balance and determined in accordance with the
instructions listed on Exhibit A and otherwise in accordance with generally
accepted accounting principles ("GAAP") on a basis consistent with the Company's
latest audited balance sheet) is less than Nine Million One Hundred Thousand
Dollars ($9,100,000).
(c) Promptly after Closing, Buyer will cause the Company to prepare a
consolidated balance sheet as of Closing in accordance with GAAP on a basis
consistent with the Company's latest audited balance sheet, but without taking
into account the effect of the Election (as defined in Section 7.4(a)), the
contribution to capital of the Intercompany Debt Balance or the Redemption (as
defined in Section 5.5), and provided that such balance sheet will be prepared
in accordance with the instructions listed on Exhibit A hereto regardless of
whether such instructions conform to GAAP or are consistent with the Company's
latest audited balance sheet. Buyer will cause such balance sheet to be audited
by the Company's current audit group within Coopers & Lybrand L.L.P. (the
"Seller Accountants"). Buyer's accountant group within Coopers & Lybrand L.L.P.
(the "Buyer Accountants") will be provided access to review the audit workpapers
of the Seller Accountants and full opportunity to raise with the Seller
Accountants any issues the Buyer Accountants may have with respect to such
balance sheet and the resulting Closing Balance Sheet (as hereinafter defined)
as audited by the Seller Accountants. In the event any such issues raised by the
Buyer Accountants are not resolved by mutual agreement of the Seller Accountants
and the Buyer Accountants, such unresolved issues will be submitted thereby to
Coopers & Lybrand L.L.P. partner Thomas C. Wertheimer or, if Thomas C.
Wertheimer is not then a partner of Coopers & Lybrand L.L.P., another Coopers &
Lybrand L.L.P. partner mutually acceptable to the parties (the "Accountant
Arbitrator"), whose decision on any such issues will be final and binding on the
parties. The "Closing Balance Sheet" means such balance sheet as so audited, and
after resolution as hereinabove provided of all issues raised by the Buyer
Accountants with respect thereto. "Closing Net Worth" means the Company's
consolidated stockholder's equity as of Closing as reported on the Closing
Balance Sheet adjusted in accordance with the instructions listed on Exhibit A
hereto regardless of whether such instructions conform to GAAP or are consistent
with the Company's latest audited balance sheet, and after resolution as
hereinabove provided of all issues raised by the Buyer Accountants with respect
thereto. The Closing Net Worth as so determined will be binding upon the
parties. Buyer and Seller will use their best efforts to cause the Closing
Balance Sheet to be completed and the Closing Net Worth to be determined within
ninety (90) days after Closing. Seller will bear the first Two Thousand Five
Hundred Dollars ($2,500) of the costs of such audit by the Seller Accountants
(as a contribution to Buyer's costs incurred in environmental due diligence in
connection herewith), and Buyer and Seller will share equally the remainder of
such costs and any fees of the Accountant Arbitrator. Buyer will bear the costs
of the Buyer Accountants.
1.3 Payment of Purchase Price. The Purchase Price will be paid at
Closing by wire transfer of immediately available funds to accounts designated
by Seller prior to Closing. In the event of any adjustment to the Purchase Price
pursuant to Section 1.2(a), immediately upon determination of such adjustment
Seller will promptly reimburse Buyer the amount of such adjustment in
immediately available funds. In the event of any delay in the payment of such
adjustment, such amount will bear interest from the due date until paid in full
at the default interest rate under the Note (as defined in Section 5.5).
ARTICLE II
CLOSING
2.1 The Closing. The closing of the transactions contemplated hereby
(the "Closing") will take place at the offices of Briggs and Morgan,
Minneapolis, Minnesota, at 9:00 a.m. on December 1, 1995, unless the parties
otherwise mutually agree (the "Closing Date"). All matters at the Closing and
the Redemption (as defined in Section 5.5) will be considered to take place
simultaneously effective immediately after the close of business on the Closing
Date and no delivery of any document will be deemed complete until all
transactions and deliveries of documents are completed.
2.2 Deliveries of Seller. At the Closing, Seller will deliver the
following documents to Buyer:
(a) certificates representing the Stock duly endorsed
in blank for transfer or accompanied by duly executed stock powers
assigning the Stock in blank;
(b) the articles of incorporation, bylaws, minute
books and stock transfer books of the Company and the Subsidiary, certified by
the Secretary of Seller to be complete, correct and as in effect as of the
Closing Date;
(c) resolutions of the shareholder and board of
directors of Seller authorizing the execution, delivery and performance of this
Agreement by Seller, certified by the Secretary of Seller to be complete,
correct and as in effect as of the Closing Date;
(d) a certificate of incumbency with respect to the
officers of Seller certified by the Secretary of Seller as correct
as of the Closing Date;
(e) the officer's certificate required pursuant to
Section 9.1;
(f) a mutual release executed by Seller on the one
hand and the Company and the Subsidiary on the other hand under which each
releases the other from any and all claims it or they may have against the other
relating to any period prior to the Closing Date, except with respect to
obligations of Seller hereunder and except with respect to claims of
indemnification and contribution Seller may have for liability for the
obligations of the Company or the Subsidiary;
(g) such assignments of such agreements scheduled on
Exhibit B hereto to the Company as Buyer requests, in such forms as are approved
by Buyer prior to Closing (such approval not to be unreasonably withheld);
(h) an opinion of counsel for Seller, in substantially
the form of Exhibit C attached hereto; and
(i) any other documents reasonably requested by the
Buyer, to confirm the accuracy of the representations and warranties and the
performance of the agreements of the Seller hereunder.
2.3 Deliveries of Buyer. At the Closing, Buyer will
deliver to Seller the following:
(a) the Purchase Price to be paid in immediately
available funds at Closing;
(b) the Note duly executed;
(c) resolutions of the board of directors of Buyer
authorizing the execution, delivery and performance of this Agreement by Buyer
and the execution, delivery and performance of the Note by the Company and by
Buyer as guarantor under the Note, certified by the Secretary of Buyer to be
complete, correct and as in effect as of the Closing Date;
(d) a certificate of incumbency with respect to the
officers of Buyer certified by the Secretary of Buyer as correct as
of the Closing Date;
(e) resolutions of the board of directors and
shareholder of the Company effective simultaneously with Closing authorizing and
ratifying the execution, delivery and performance of the Note by the Company,
certified by the Secretary of the Company to be complete, correct and as in
effect as of the Closing Date;
(f) a certificate of incumbency with respect to the
officers of the Company effective simultaneously with Closing
certified by the Secretary of the Company as correct as of the
Closing Date;
(g) the officer's certificate required pursuant to
Section 8.1;
(h) the opinion of counsel for Buyer, in the form of
Exhibit D attached hereto; and
(i) any other documents reasonably requested by the
Seller, to confirm the accuracy of the representations and warranties and the
performance of the agreements of the Buyer hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
3.1 Corporate Organization. The Company owns and controls one hundred
percent (100%) of the outstanding capital stock of the Subsidiary. Each of the
Company and the Subsidiary is a corporation duly organized, validly existing and
in good standing under the law of the state of its incorporation, and each has
corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate its properties and assets. Schedule 3.1
of the Disclosure Schedule dated the date hereof and delivered to Buyer in
connection herewith (the "Disclosure Schedule") sets forth for each of the
Company and the Subsidiary its state of incorporation and each state in which it
is qualified or licensed to do business, and as of the date of this Agreement
its officers and directors.
3.2 Capitalization. The authorized capital stock of the Company
consists of one thousand (1,000) shares of common stock, par value $.01 per
share, of which ten (10) shares are issued and outstanding, all of which are
beneficially owned by Seller and will be transferred at Closing to Buyer
hereunder free and clear of all mortgages, pledges, liens, security interests,
encumbrances, restrictions, adverse claims or charges or third party rights of
any kind ("Encumbrances"). All issued and outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid, nonassessable and
are without and were not issued in violation of preemptive rights. There are
outstanding no securities convertible into, exchangeable for or carrying the
right to acquire, equity securities of the Company, or subscriptions, warrants,
options, rights or other arrangements or commitments obligating the Company to
issue or acquire any of its equity securities or any ownership interest therein.
In the case of the Subsidiary: (a) all of the issued and outstanding shares of
capital stock are duly authorized, validly issued, fully paid, nonassessable and
are without and were not issued in violation of preemptive rights; (b) all
outstanding capital stock and other equity securities are owned or controlled
directly or indirectly by the Company free and clear of all Encumbrances; and
(c) there are outstanding no securities convertible into, exchangeable for, or
carrying the right to acquire, equity securities of the Subsidiary, or
subscriptions, warrants, options, rights or other arrangements or commitments
obligating the Subsidiary to issue or acquire any of its equity securities or
any ownership interest therein.
3.3 Authorization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
requisite corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by Seller of this Agreement and the consummation by
Seller of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Seller. This Agreement has been duly
and validly executed by Seller and constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except to the extent that such enforceability (a) may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally, and (b) is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.4 Non-Contravention. Except as set forth in Schedule 3.4 of the
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated herein will: (a)
violate or be in conflict with any provision of the articles or certificates of
incorporation or bylaws of the Company, the Subsidiary or Seller; or (b) be in
conflict with, or constitute a default, however defined (or an event which, with
the giving of due notice or lapse of time, or both, would constitute such a
default), under, or cause or permit the acceleration of the maturity of, or give
rise to any right of termination, cancellation, imposition of fees or penalties
under, any debt, instrument, commitment, contract or other agreement or
obligation to which the Company, the Subsidiary or Seller is a party or by which
the Company, the Subsidiary or Seller or any of the Company's, the Subsidiary's
or Seller's properties or assets is or may be bound or result in the creation or
imposition of any Encumbrance upon any property or assets of the Company or the
Subsidiary, except such as may result from actions of Buyer; or (c) violate any
provision of law, rule or regulation to which the Company, the Subsidiary or
Seller is subject or any order, judgment or decree applicable to the Company,
the Subsidiary or Seller.
3.5 Consents and Approvals. With respect to the Company, the Subsidiary
and Seller, except as set forth in Schedule 3.5 of the Disclosure Schedule, and
assuming the correctness of Buyer's representations and warranties contained in
Section 4.4, no consent, waiver, approval, order or authorization of or from, or
registration, notification, declaration or filing with, any governmental or
regulatory authority or any individual or other private entity (hereinafter
sometimes separately referred to as a "Consent" and sometimes collectively as
"Consents") is required in connection with the execution, delivery or
performance of this Agreement by Seller or the consummation by Seller of the
transactions contemplated herein.
3.6 Financial Statements. Seller has furnished to Buyer audited balance
sheets of the Company as of December 31, 1993 and 1994 and the Company's
unaudited balance sheets as of September 30 and October 31, 1995 (the September
30, 1995 balance sheet is hereinafter referred to as the "September Balance
Sheet" and the October 31, 1995 balance sheet is hereinafter referred to as the
"October Balance Sheet") and related consolidated statements of operations and
retained earnings and cash flows for the nine (9) months, year and years to date
then ended respectively (together, the "Financial Statements"). Except as set
forth in Schedule 3.6 of the Disclosure Schedule, to Seller's best knowledge,
the Financial Statements are in accordance with the books and records of the
Company and the Subsidiary, have been prepared in conformity with GAAP
consistently applied throughout the periods and fairly present the financial
position of the Company and the Subsidiary as of the respective dates thereof,
the results of the operations and changes in financial position for the periods
then ended, all in accordance with GAAP consistently applied throughout the
periods.
3.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.7 of the Disclosure Schedule, since September 30, 1995, neither the
Company nor the Subsidiary has (a) suffered any damage, destruction or casualty
loss materially and adversely affecting the condition (financial or otherwise),
working capital, assets, properties, liabilities, obligations, reserves,
businesses, prospects, goodwill or going concern value or experienced any event
or failed to take any action which reasonably could be expected to result in
such an adverse change; (b) discharged or incurred any material obligation or
liability with respect to the Business, except in the ordinary course of
business; (c) entered into any transaction with respect to the Business not in
the ordinary course of its business, except as provided in Article V; (d)
declared, set aside or paid any dividend or other distribution (whether in cash,
stock, property or any combination thereof) in respect of its capital stock, or
redeemed or acquired any of its capital stock; (e) otherwise transferred any
cash or other assets to Seller or any entity directly or indirectly controlling,
under common control with or controlled by Seller (a "Seller Affiliate"), except
pursuant to ordinary course operation of the Company's intercompany zero balance
cash management system; (f)(i) increased the rate or terms of compensation
payable or to become payable by the Company or the Subsidiary to their
respective directors, officers or employees or of any bonus, insurance, pension
or other employee benefit plan, payment or arrangement made to, for or with any
such directors, officers or employees, except increases occurring in the
ordinary course of business in accordance with its customary practices (which
includes normal periodic performance reviews and related compensation and
benefit increases) or (ii) paid, lent or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with
any such directors, officers or employees, other than the regular payment of
salaries and travel advances in the ordinary course of business and consistent
with past practice; or (g) incurred any indebtedness for borrowed money.
3.8 Title to Assets. The Company and the Subsidiary have good title or
a valid lease with respect to all of the properties, rights, contracts, claims
and other assets which are used in the Business, free and clear of all
Encumbrances, except (a) as set forth in the Disclosure Schedule or reflected on
the September Balance Sheet or the notes thereto and (b) Encumbrances which,
individually or in the aggregate, do not have an adverse effect on the Business.
3.9 Real Properties.
(a) Neither the Company nor the Subsidiary has
interests of any kind in any real property other than as set forth in Section
3.9(b) or has owned any real property.
(b) Schedule 3.9 of the Disclosure Schedule sets forth
a list of all real properties in which the Company or the Subsidiary has a
leasehold interest (the "Leased Real Property") and the lease agreements of the
Company or the Subsidiary, as applicable, with respect thereto.
(c) To Seller's best knowledge, neither the Company
nor the Subsidiary has received any written notice of any pending, threatened or
contemplated condemnation proceeding affecting the Leased Real Property or any
part thereof, or of any sale or other disposition of the Leased Real Property or
any part thereof in lieu of condemnation, or that any of the Leased Real
Property is not in compliance with all applicable codes, ordinances and
regulations.
3.10 Commitments. To Seller's best knowledge, Schedule 3.10 of the
Disclosure Schedule contains a list of all contracts, agreements and commitments
to which the Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any of their respective properties is bound and which are
individually material to the Business or which meet any of the criteria set
forth in any subpart of this Section 3.10 scheduled below (collectively, the
"Commitments"). Except as disclosed in the Disclosure Schedule, to Seller's best
knowledge, all Commitments are valid and in full force and effect and
enforceable against the Company or the Subsidiary, as applicable, and any other
party thereto in accordance with their terms (subject to bankruptcy, insolvency,
creditors' rights, equitable considerations and public policy, and except that
no representation or warranty is given concerning the availability of specific
performance or other equitable remedies) and neither the Company nor the
Subsidiary nor any other party thereto is in material default thereunder, nor
are there circumstances which with the giving of notice or passing of time or
both would constitute a material default thereunder by the Company or the
Subsidiary or any other party thereto, nor has the Company or the Subsidiary
received any notice claiming any such default or circumstance. Commitments
include, without limitation, any contract, agreement or commitment to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
or any of their respective properties is bound:
(a) which represents a commitment on the part of the
Company or the Subsidiary for the expenditure of more than $5,000, other than
contracts entered into in the ordinary course of the Business;
(b) which, together with all related agreements, is
for the lease of personal property to or from any person providing
for lease payments in excess of $10,000 per year;
(c) which, together with all related agreements, is
for the purchase or sale of raw materials, commodities, supplies, products or
other personal property, or for the furnishing or receipt of services or
products, the performance of which will extend over a period of more than one
year or involve consideration in excess of $10,000, excluding contracts for the
purchase or sale of raw materials, supplies, products or services which are
entered into in the ordinary course of business and may be terminated upon not
more than thirty (30) days notice;
(d) which concerns a partnership or joint venture;
(e) under which, together with all related agreements,
the Company or the Subsidiary has incurred, created, assumed or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation, in excess
of $10,000 or under which either has imposed a security interest on any of its
assets, tangible or intangible;
(f) which concerns confidentiality or noncompetition;
(g) which is a profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation, bonus, severance or other
material plan or arrangement for the benefit of current or former directors,
officers and employees;
(h) which is a collective bargaining agreement;
(i) under which any individual is employed on a full-
time basis, consulting or other basis providing annual compensation
in excess of $50,000 or providing severance benefits;
(j) under which the Company or the Subsidiary has
advanced or loaned any amount to any officers or employees of the
Company or the Subsidiary outside the ordinary course of the
Business;
(k) under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the Company
and the Subsidiary;
(l) to which Seller or any other Seller Affiliate is
a party; or
(m) the performance of which, together with all
related agreements, involves consideration in excess of $10,000.
3.11 Bank Accounts; Powers of Attorney. Schedule 3.11 of the Disclosure
Schedule sets forth: (a) the names of all financial institutions, investment
banking and brokerage houses, and other similar institutions at which the
Company or the Subsidiary maintains an account or safe deposit box and the names
of all persons authorized to draw thereon or make withdrawals therefrom; and (b)
the names of all persons or entities holding general or special powers of
attorney from the Company or the Subsidiary.
3.12 Insurance. Schedule 3.12 of the Disclosure Schedule contains a
list of all policies or binders of fire and other casualty, general liability,
theft, life, workers' compensation, health, directors and officers, business
interruption and other forms of insurance owned or held by the Company or the
Subsidiary, specifying the insurer, the policy number and the term of the
coverage.
3.13 Intellectual Property Rights. Except as disclosed in Schedule 3.13
of the Disclosure Schedule, to Seller's best knowledge (a) the Company and the
Subsidiary own or possess adequate licenses or other valid rights to use all
patents, patent rights, trademarks, service marks, trade names, copyrights,
applications therefor, trade secrets, know-how and other intellectual property
("Intellectual Property Rights") material to the conduct of the Business, (b)
the conduct of the Business does not conflict with or infringe on any valid
Intellectual Property Rights of others in any way which materially and adversely
affects the condition (financial or otherwise), working capital, assets,
properties, liabilities, obligations, reserves, businesses, prospects, goodwill
or going concern value of the Company or the Subsidiary, and (c) neither the
Company nor the Subsidiary has received any charge, complaint, claim, demand or
notice alleging any interference with, infringement upon, misappropriation of or
violation of any Intellectual Property Rights of others (including any claim
that the Company or the Subsidiary must license or refrain from using any
Intellectual Property Rights of others). To Seller's best knowledge, Schedule
3.13 of the Disclosure Schedule sets forth a list of all material United States
and foreign patents, trademarks, service marks, trade names and registered
copyrights, and applications therefor, used by the Company or the Subsidiary in
the conduct of the Business and all licenses to or by the Company or the
Subsidiary of Intellectual Property Rights which the Company or the Subsidiary
owns or uses in the conduct of the Business. To Seller's best knowledge, no
third party has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property Rights of the Company or the
Subsidiary.
3.14 Taxes.
(a) Except as set forth in Schedule 3.14 of the
Disclosure Schedule, to Seller's best knowledge: (i) the Company and the
Subsidiary have duly and timely filed (and until the Closing Date will duly and
timely file or obtain valid extensions to file) all tax and information reports,
returns and related documents required to be filed by them ("Tax Returns") with
respect to income, franchise, gross receipts, sales, use, occupation,
employment, withholding, excise, transfer, real and personal property and other
taxes, charges and levies, including without limitation interest, penalties,
assessments, deficiencies and other charges due or claimed to be due from it by
any governmental authority, ("Taxes") and have duly paid, or made adequate
provision for the due and timely payment of, all such Taxes; (ii) all Tax
Returns were (or will be) true, correct and complete in all material respects
when filed for all periods ending on or before the Closing Date; (iii) no
deficiencies for any Taxes for which the Company or the Subsidiary may be liable
have been asserted in writing or assessed against the Company or the Subsidiary
or any former subsidiary for which the Company or the Subsidiary may be liable
which remain unpaid; and (iv) there are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any such Tax Returns
for any period.
(b) Seller is not a foreign person within the meaning
of Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended ("Code")
and will provide an affidavit meeting the requirements of such section at
Closing.
3.15 Employee Benefit Plans; ERISA.
(a) To Seller's best knowledge, Schedule 3.15 of the
Disclosure Schedule hereto sets forth a true and complete list of each material
"employee benefit plan" (as that term is defined under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and any
other plan, program, arrangement or agreement that is maintained by the Company
or the Subsidiary related to the employment of any present or former director,
officer or employee of the Company or the Subsidiary under which the Company or
the Subsidiary has any present or future obligation or liability (the "Employee
Benefit Plans").
(b) To Seller's best knowledge: each of the Employee Benefit
Plans that is subject to ERISA is in compliance with ERISA in all material
respects; each of the Employee Benefit Plans intended to be "qualified" within
the meaning of Code Section 401(a) is so qualified; each trust maintained in
connection with each such qualified plan is tax-exempt under Code Section
501(a); nothing has occurred to cause the loss of the qualified status of any
such qualified plan; no Employee Benefit Plan has an accumulated or waived
funding deficiency within the meaning of Code Section 412; neither the Company
nor the Subsidiary nor any trade or business which together with the Company or
the Subsidiary would be deemed a "single employer" within the meaning of ERISA
Section 4001 ("ERISA Affiliate") has incurred, directly or indirectly, any
material liability (including any material contingent liability) to or on
account of an Employee Benefit Plan pursuant to Title IV of ERISA; no
proceedings have been instituted to terminate any Employee Benefit Plan that is
subject to Title IV of ERISA; no "reportable event," as such term is defined in
ERISA Section 4043(b), has occurred with respect to any Employee Benefit Plan;
and no condition exists that presents a material risk to the Company or an ERISA
Affiliate of incurring a liability to or on account of a Employee Benefit Plan
pursuant to Title IV of ERISA.
(c) To Seller's best knowledge: no Employee Benefit
Plan is a multiemployer plan (within the meaning of ERISA Section 4001(a)(3))
and no Employee Benefit Plan is a multiple employer plan as defined in Code
Section 413; all material contributions or other amounts that are required to be
paid by the Company or the Subsidiary as of the Closing Date with respect to
each Employee Benefit Plan with respect to current or prior plan years have been
either paid or accrued; and there are no material, pending, threatened or
anticipated claims (other than routine claims for benefits) by, or on behalf of
or against any of the Employee Benefit Plans or any trusts related thereto.
(d) To Seller's best knowledge, neither the Company
nor the Subsidiary, nor any ERISA Affiliate, nor any Employee Benefit Plan, nor
any trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company, the Subsidiary,
any ERISA Affiliate, any Employee Benefit Plan, any such trust, or any trustee
or administrator thereof, or any party dealing with any Employee Benefit Plan or
any such trust could be subject to either a material civil penalty assessed
pursuant to ERISA Section 409, 502(i) or 502(l) or a material tax imposed
pursuant to Code Section 4975 or 4976.
(e) To Seller's best knowledge, with respect to each
Employee Benefit Plan that is a "group health plan" within the meaning of ERISA
Section 601(a) and that is subject to Code Section 4980B, including but not
limited to any medical plan, dental plan, health care reimbursement plan or
employee assistance program, the Company and the Subsidiary have operated such
plans in material compliance with the continuation coverage requirements of
those provisions and Part 6 of Title I of ERISA.
3.16 Labor Matters. Except as set forth in Schedule 3.16 of the
Disclosure Schedule, to Seller's best knowledge, neither the Company nor the
Subsidiary is obligated by or subject to any collective bargaining agreement or
collective bargaining obligation. Except as set forth in Schedule 3.16 of the
Disclosure Schedule, to Seller's best knowledge, there are no strikes, slowdowns
or picketing against the Company or the Subsidiary previously experienced since
September 26, 1989, pending or threatened, nor are there nor have there been any
efforts to organize any unions or employee associations at the Business, nor are
there any pending or threatened grievances or unfair labor charges.
3.17 Environment. Except as set forth in Schedule 3.17 of the
Disclosure Schedule, to Seller's best knowledge neither the Company nor the
Subsidiary or any former subsidiary nor any prior or current other owner or
lessee has generated, handled, manufactured, treated, stored, used, released,
transported or disposed of any Environmentally Regulated Materials (as defined
below) on, beneath, to, from or about any of the Leased Real Property or any
other properties formerly owned, leased or operated by the Company or the
Subsidiary or any former subsidiary, except for the generation, handling,
manufacture, treatment, storage, use, release, transportation and disposal, in
compliance with all applicable laws, of such substances used in the ordinary
course of the Business. Except as set forth in Schedule 3.17 of the Disclosure
Schedule, to Seller's best knowledge, no Environmentally Regulated Material has
been disposed of or allowed to be disposed of on or off any of such properties
which may give rise to a clean-up responsibility, personal injury liability or
property damage claim against the Company or the Subsidiary, or give rise to the
Company or the Subsidiary being named a potentially responsible party for any
such clean-up costs, personal injuries or property damage, or create any cause
of action by any third party against the Company or the Subsidiary under any
Environmental Laws (as defined below). Except as set forth in Schedule 3.17 of
the Disclosure Schedule, to Seller's best knowledge, neither the Company nor the
Subsidiary has received any notices or claims of violations or liabilities
relating to pollution control or protection of the environment. The term
"Environmentally Regulated Materials" means any element, compound pollutant,
contaminant, substance, material or waste, or any mixture thereof, designated,
listed, referenced, regulated or identified pursuant to any Environmental Law.
The term "Environmental Law" means the National Environmental Policy Act, 42
U.S.C. ss.ss. 4321 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq., the Federal Clean Air Act,
42 U.S.C. ss.ss. 7401 et seq., the Toxic Substances Control Act, 15 U.S.C.
ss.ss. 2601 et seq., the Emergency Planning and Community Right to Know Act, 42
U.S.C. P. 11001, the Hazard Communication Act ss.ss. 651 et seq., and the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 136, each as
amended, and applicable state and local counterparts.
3.18 Compliance with Laws. Except as set forth in Schedule 3.18 of the
Disclosure Schedule, to Seller's best knowledge, each of the Company and the
Subsidiary has operated and is operating the Business in compliance with all
laws, rules, regulations and orders applicable to the Business in all material
respects.
3.19 Litigation. Except as set forth in Schedule 3.19 of the Disclosure
Schedule, to Seller's best knowledge, there is no action, order, proceeding or
investigation in or by any court or before or by any arbitrator, mediator or
governmental authority ("Litigation") outstanding, pending or threatened (a) by
or against or involving the Company or the Subsidiary or any of their leased or
owned properties or any of their officers, directors, agents or employees (but
only in such capacities) or the Business, or (b) which seeks to enjoin or obtain
damages in respect of the consummation of the transactions contemplated hereby.
3.20 Equipment. Except as set forth in Schedule 3.20 of the Disclosure
Schedule, to Seller's best knowledge, as of the date of this Agreement the
production equipment and other fixed assets of the Company and the Subsidiary
necessary for current levels of production are in good working order, ordinary
wear and tear excepted.
3.21 Customers and Suppliers. Except as set forth in Schedule 3.21 of
the Disclosure Schedule, to Seller's best knowledge, none of the Company's top
twenty (20) customers during the ten (10) month period ending October 31, 1995
in terms of the Company's consolidated revenues, and no supplier of five percent
(5%) or more of the Company's consolidated raw material purchases during such
ten (10) month period intends not to regularly conduct business with the Company
and the Subsidiary after Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Buyer's Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has all requisite corporate power and authority to carry on its business as
it is now being conducted, and to execute, deliver and perform this Agreement
and the Note and to consummate the transactions contemplated hereby.
4.2 The Company's Authority. The Company has all requisite
corporate power and authority to execute, deliver and perform, as
applicable, the Redemption and the Note and to consummate the
transactions contemplated thereby.
4.3 Due Authorization, Execution and Delivery by Buyer; Effect of
Agreement. The execution, delivery and performance by Buyer of this Agreement
and the Note and the consummation by Buyer of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Buyer. This Agreement has been duly and validly executed and
delivered by Buyer and constitutes, and the Note when duly and validly executed
and delivered by Buyer will constitute, the legal, valid and binding obligations
of Buyer, enforceable against it in accordance with their terms, except to the
extent that such enforceability (a) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally, and (b) is subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Neither the execution, delivery and performance of this Agreement or the Note
nor the consummation of the transactions contemplated herein or therein will:
(i) violate or be in conflict with any provision of the articles of
incorporation or bylaws of Buyer; or (ii) be in conflict with, or constitute a
default, however defined (or an event which, with the giving of due notice or
lapse of time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of fees or penalties under, any debt,
instrument, commitment, contract or other agreement or obligation to which Buyer
is a party or by which Buyer or any of its properties or assets is or may be
bound or result in the creation or imposition of any Encumbrance upon any
property or assets of Buyer; or (iii) violate any provision of law, rule or
regulation to which Buyer is subject or any order, judgment or decree applicable
to Buyer.
4.4 Due Authorization, Execution and Delivery by the Company; Effect of
Agreement. The execution, delivery and performance, as applicable, by the
Company of the Redemption and the Note and the consummation by the Company of
the transactions contemplated thereby will have been duly authorized by all
necessary corporate action on the part of the Company contemporaneously with the
Closing. The Note will have been duly and validly executed and delivered by the
Company contemporaneously with the Closing and upon Closing the Note will
constitute the legal, valid and binding obligations of the Company, enforceable
against it in accordance with their terms, except to the extent that such
enforceability (a) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally, and
(b) is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). To Buyer's
best knowledge, neither the execution, delivery or performance, and applicable,
of the Redemption or the Note nor the consummation of the transactions
contemplated therein or in this Agreement will: (i) violate or be in conflict
with any provision of the articles of incorporation or bylaws of the Company; or
(ii) be in conflict with, or constitute a default, however defined (or an event
which, with the giving of due notice or lapse of time, or both, would constitute
such a default), under, or cause or permit the acceleration of the maturity of,
or give rise to any right of termination, cancellation, imposition of fees or
penalties under, any debt, instrument, commitment, contract or other agreement
or obligation to which the Company is a party or by which the Company or any of
its properties or assets is or may be bound or result in the creation or
imposition of any Encumbrance upon any property or assets of the Company under
any debt, instrument, commitment, contract or other agreement or obligation; or
(iii) violate any provision of law, rule or regulation to which the Company is
subject or any order, judgment or decree applicable to the Company.
4.5 Consents. No Consent is required in connection with the execution,
delivery or performance by Buyer of the Agreement or by Buyer or the Company of
the Note or the taking of any other action contemplated hereby or thereby.
4.6 HSR. For purposes of determining whether the purchase of the
outstanding capital stock of the Company contemplated hereunder requires
compliance with the filing and waiting period requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), Buyer is the "acquiring person"
within the meaning of Rule 801.2(a) of the HSR Act with respect to such
transaction, and Buyer has total assets of less than Ten Million Dollars
($10,000,000) and annual net sales of less than Ten Million Dollars
($10,000,000) as determined under Rule 801.11 of the HSR Act.
4.7 Litigation. There is no Litigation pending or, to Buyer's best
knowledge, threatened which seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated hereby.
4.8 Investment Intent. Buyer is acquiring the Stock solely
for the purpose of investment and not with a present intention or
view toward, or for sale in connection with, any distribution
thereof.
ARTICLE V
COVENANTS OF SELLER
From and after the date hereof and until the Closing Date, Seller
covenants and agrees with Buyer as follows:
5.1 Cooperation and Assignments. Seller will use its best efforts, and
will cooperate with Buyer, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as are required in
order to enable Seller to effect the transactions contemplated hereby, and
otherwise will use its best efforts to cause the consummation of such
transactions in accordance with the terms and conditions hereof, provided that
Seller will not be obligated to incur any liability or expense in connection
therewith, except the cost and expense of its employees and representatives
engaged in such efforts or as otherwise expressly set forth herein.
5.2 Conduct of Business. Except as Buyer otherwise may consent to in
writing (which consent will not be unreasonably withheld), Seller will cause the
Company and the Subsidiary (a) to operate the Business in the ordinary course in
all material respects; and (b) not to take any action which would result in a
breach of the representations and warranties contained in Section 3.7 as though
made on and as of the Closing Date. Without limiting the foregoing, Seller will
cause the Company to operate within its normal operating policies and procedures
with respect to the collection of accounts receivable and payment of accounts
payable so as not to take or omit actions outside the ordinary course of
business to accelerate the collection of accounts receivable or defer the
payment of accounts payable.
5.3 Access. Seller will provide Buyer with such information as Buyer
from time to time reasonably may request with respect to the Business and to
personnel of the Company and the Subsidiary and the transactions contemplated by
this Agreement, and will permit Buyer and its representatives reasonable access,
during regular business hours and upon reasonable notice, to the properties,
books and records of the Business and to personnel of the Company and the
Subsidiary, as Buyer from time to time reasonably may request. Any disclosure
whatsoever during such investigation by Buyer will not constitute an enlargement
of or additional warranties or representations of Seller beyond those
specifically set forth in this Agreement.
5.4 Intercompany Debt. All amounts due the Company from Seller as of
Closing will be offset against all amounts then due Seller from the Company, and
effective on Closing Seller will contribute to the capital of the Company the
balance due Seller from the Company (the "Intercompany Debt Balance").
5.5 Redemption. Effective on the Closing and after giving effect to the
contribution of the Intercompany Debt Balance to the capital of the Company, the
Company will redeem from Seller 17,750/23,750 of the Stock for a redemption
price of Seventeen Million Seven Hundred Thousand] Dollars ($17,700,000),
Fifteen Million Two Hundred Thousand Dollars ($15,200,000) to be paid by wire
transfer of immediately available funds to accounts designated by Seller prior
to Closing, and Two Million Five Hundred Thousand Dollars ($2,500,000) to be
paid in accordance with a promissory note executed by the Company, guaranteed by
Buyer, payable to the order of Seller and issued on the terms contained in and
in the form of Exhibit E hereto (the "Note") and delivered to Seller at Closing.
ARTICLE VI
COVENANTS OF BUYER
From and after the date hereof and until the Closing Date, Buyer hereby
covenants and agrees with Seller as follows:
6.1 Cooperation and Assumption. Buyer will use its best efforts, and
will cooperate with Seller, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as are required in
order to enable Buyer to effect the transactions contemplated hereby, and will
otherwise use its best efforts to cause the consummation of the transactions
contemplated hereby in accordance with the terms and conditions hereof, provided
that Buyer will not be obligated to incur any liability or expense in connection
therewith, except the cost and expense of its employees and representatives
engaged in such efforts or as otherwise expressly set forth herein.
6.2 Buyer Financing. Buyer will use its best efforts to arrange for
financings to fund payment of the Purchase Price and the cash portion of the
Redemption and to provide working capital for the operations of the Company as
outlined in Exhibit F hereto or as otherwise arranged by Buyer and reasonably
acceptable to Seller as providing adequate funding for the Purchase Price and
the Redemption and meeting any conditions precedent to any such financing or to
any required consents from the Winona Lessor (as defined below) (the "Buyer
Financings") and to obtain and deliver to Seller on or before November 24, 1995
written commitments for the Buyer Financings reasonably acceptable to Seller in
form and content (the "Buyer Financing Commitments"), provided that Buyer will
not be obligated to incur any liability or expense in connection therewith,
except the cost and expense of its employees and representatives engaged in such
efforts, and the commitment fees, costs and expenses of the parties providing
the Buyer Financing Commitments in amounts ordinary and usual for the party
receiving the financing to bear for the amount and type of financing to be
provided.
6.3 Lease Consents. Buyer will be responsible for obtaining, and will
use its best efforts to obtain, all necessary consents and agreements from the
lessor (the "Winona Lease Lessor") under the Company's lease of its Winona,
Minnesota facility (the "Winona Lease") with respect to the transactions
contemplated hereby, including without limitation the release of Seller from its
Subordination Agreement and its Guaranty and Suretyship Agreement (together, the
"Seller Lease Guaranty") in connection with the Winona Lease, and for obtaining
any additional consents and agreements of the Winona Lease Lessor desired by
Buyer, provided that Buyer will not be obligated to incur any liability or
expense in connection therewith, except the cost and expense of its employees
and representatives engaged in such efforts. Buyer acknowledges that necessary
consents and agreements of the Winona Lease Lessor includes any necessary
consents or agreements from third parties holding assignments, collateral or
otherwise, of the Winona Lease or the Seller Lease Guaranty, including the
mortgagees of the Leased Real Property under the Winona Lease.
6.4 Termination of Letters of Credit. Buyer will use its best efforts
to obtain termination on or before Closing of all letters of credit outstanding
for the benefit of the Company in connection with the Company's import of goods
and the Company's workers' compensation liability, or otherwise with respect to
which Seller has provided credit enhancement (the "Seller Enhanced L/Cs").
6.5 Company Bank Accounts. Buyer acknowledges that all existing bank
account balances of the Company as of Closing will be transferred to Seller at
Closing, without reserve for checks issued thereon then outstanding. Buyer will
be responsible for obtaining, and will use its best efforts to obtain, the
release of Seller on or before Closing from all liabilities and obligations with
respect to the Company's bank accounts, including without limitation with
respect to checks issued thereon outstanding at Closing (the "Seller Bank
Guaranties").
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Books and Records; Personnel. For a period of seven (7) years after
the Closing (or such longer period as may be required by any governmental agency
or ongoing Litigation or in connection with any administrative proceeding):
(a) Buyer will not dispose of or destroy any of the
business records and files of the Business. If Buyer wishes to dispose of or
destroy such records and files after that time, it will first give thirty (30)
days' prior written notice to Seller and Seller will have the right, at its
option and expense, upon prior written notice to Buyer within such 30 day
period, to take possession of the records and files within sixty (60) days after
the date of Seller's notice to Buyer.
(b) Buyer will allow Seller and its representatives
access, when there is a legitimate business purpose not injurious to Buyer, to
all business records and files of the Business which are transferred to Buyer in
connection herewith, during regular business hours and upon reasonable notice at
Buyer's principal place of business or at any location where such records are
stored, and Seller will have the right, at its own expense, to make copies of
any such records and files; provided, however, that any such access or copying
will be had or done in such a manner so as not to interfere with the normal
conduct of Buyer's business or operations.
(c) Buyer will make available to Seller, upon
reasonable written request and at Seller's expense (subject to Section 7.3(a)
and otherwise at a charge equal to the compensation and benefits paid by the
Company or the Subsidiary to such personnel for the period that such personnel
are assisting Buyer), the Company's and the Subsidiary's personnel to assist
Seller in locating and obtaining records and files maintained by the Company or
to provide assistance or participation as reasonably required by Seller in
anticipation of, or preparation for, existing or future Litigation, tax return
preparation or other matters in which Seller or any of its affiliates is
involved and which is related to the Business. Buyer will not be obligated to
provide such personnel to the extent that Buyer, in its reasonable discretion,
believes that such assistance will adversely affect the operations of the
Company.
7.2 Tax Returns, Payments of Taxes, Transfer Taxes and Audits.
(a) Seller will prepare and file, or cause to be
prepared and filed, on a timely basis all tax returns (including any amendments
thereto) of the Company with respect to any income Taxes for any period ending
on or prior to the close of business on the Closing Date and any Taxes due as a
result of the transactions contemplated under this Agreement (a "Pre-Closing
Return").
(b) Buyer will prepare and file, or cause to be
prepared and filed, on a timely basis, all tax returns (including any amendments
thereto) of the Company with respect to any Taxes for any period ending after
the Closing Date (a "Post-Closing Return").
(c) Seller will pay, or cause to be paid, and will
indemnify and hold harmless Buyer and the Company from and against, any and all
income Taxes for any period ending on or prior to the close of business on the
Closing Date and any Taxes due as a result of the transactions contemplated
under this Agreement, including without limitation all Taxes arising as a result
of the Election (as defined in Section 7.4(a)) and any additional or carry-over
tax liabilities which may be owed due to the Company's inclusion in any
consolidated income Tax Return of Seller, including without limitation any gain
resulting from the recapture of depreciation or cancellation of Intercompany
Indebtedness. Subject to the provisions of Section 7.2(d) below, if Buyer or the
Company pays to any taxing authority an amount for which Seller is liable under
this Section 7.2(c), Seller will pay such amount to Buyer within five (5) days
of Buyer's or the Company's written demand therefor delivered with reasonable
supporting documentation. Seller will be entitled to any and all refunds that
may become due with respect to any income Taxes for any period thereof ending on
or prior to the close of business on the Closing Date.
(d) Each of Seller and Buyer will have the right, at its own
expense, to control any audit or determination by any taxing authority, to
initiate any claim for refund or file any amended tax return, and to contest,
resolve and defend against any assessment, notice of deficiency, or other
adjustment or proposed adjustment of Taxes for any taxable period for which it
is charged with responsibility for filing a tax return under this Agreement;
provided, however, that no party will have the right to agree to any assessment,
deficiency, settlement, or other adjustment or proposed adjustment of Taxes that
would adversely affect the interest of another party without such other party's
written consent, which consent will not be unreasonably withheld. Each party
will notify the other party within twenty (20) days after the initiation of any
activity by a taxing authority that could lead to such a claim.
7.3 Cooperation; Access to Information and Retention of Records
Concerning Taxes.
(a) Cooperation. The parties agree to cooperate with one
another following the Closing with respect to matters regarding Taxes. Without
limiting the generality of the foregoing, each of Seller and Buyer will provide
the other, and Buyer, after the Closing, will cause the Company to provide
Seller with the right, at reasonable times and upon reasonable notice, to have
access to, and to copy and use, any records or information which may be relevant
for the taxable period for which the requesting party is charged with payment
responsibility for Taxes under this Agreement in connection with the preparation
of any Tax Returns, any audit or other examination by any taxing authority, the
filing of any claim for a refund of any Taxes or for the allowance of any credit
of Taxes, or any judicial or administrative proceedings relating to liability
for Taxes. To the extent necessary or appropriate, Buyer will appoint
representatives of Seller as authorized to deal with any governmental body or
personnel in connection with any audit or examination for which Seller is
responsible. The party requesting assistance hereunder will reimburse the other
party for reasonable expenses incurred in providing such assistance, provided
that the Company will provide such assistance from its personnel as may be
reasonably requested by Seller in the preparation of Pre-Closing Returns for the
periods ending the Closing Date at no charge to Seller, with customary
participation by Seller's independent accountants at Seller's cost and expense.
Any information obtained pursuant to this Section 7.3(a) will be held in strict
confidence and will be used solely in connection with the reason for which it
was requested.
(b) Business Records and Files. For a period of fifteen (15)
years from the Closing, Seller and the Company will not dispose of or destroy
any of the business records and files of Seller or the Company relating to Taxes
pertaining to taxable periods ending on or prior to the Closing.
7.4 Section 338(h)(10) Election with Respect to Taxes.
(a) Buyer will make a timely election under Section 338(g) of
the Code and any corresponding elections under state and local tax laws, and
Seller and Buyer will jointly make an election under section 338(h)(10) of the
Code and any corresponding elections under state and local tax laws
(collectively, the "Election"), including execution of Form 8023-A under the
Code.
(b) Seller and Buyer will, as promptly as practicable
following the Closing, cooperate with each other to take all actions necessary
and appropriate (including filing such forms, returns, elections, schedules and
other documents as may be required) to effectuate and preserve a timely Election
in accordance with Section 338(h)(10) of the Code and the corresponding
provisions of state and local tax laws.
(c) Seller and Buyer will report the sale of the Stock
pursuant to this Agreement consistently with the Election and will take no
position contrary thereto in any tax return, any discussion with or proceeding
before any tax authority, or otherwise.
7.5 Allocation with Respect to Taxes.
(a) In connection with the Election, Buyer will prepare (or
cause to be prepared) an allocation (the "Allocation Schedule") of the Purchase
Price among the assets of the Company. Such allocation of the Purchase Price
will be made in accordance with Section 338(b) of the Code and any applicable
rules or regulations thereunder. Seller will have the right to review and
reasonably approve the Allocation Schedule, and Seller and Buyer will consult
and resolve in good faith any issues arising as a result of Seller's review of
such Allocation Schedule.
(b) Seller and Buyer (i) will be bound by the allocation
contained in the Allocation Schedule for purposes of determining any and all
consequences with respect to Taxes of the transactions contemplated herein, (ii)
will prepare and file all tax returns to be filed with any tax authority in a
manner consistent with such Allocation Schedule, and (iii) will take no position
inconsistent with such Allocation Schedule in any tax return, any discussion
with or proceeding before any tax authority, or otherwise. In the event that
such Allocation Schedule is disputed by any tax authority, the party receiving
notice of such dispute will promptly notify the other party thereof.
7.6 Continuation of Insurance Coverages. Buyer will cause the Company
to continue to carry insurance for at least the same coverages and limits and
for not more than the same deductibles and co-payables as currently carried by
or for the Company with respect to any exposures to Seller under its
indemnification obligations under Sections 10.1 and 10.2. In the event the
Company fails to maintain such coverages, Seller's liability under Sections 10.1
and 10.2 will be determined as if such coverages had been maintained in full
force and effect during all relevant time periods.
7.7 Additional Cooperation. In the event any necessary consent to
assignment to the Company of any agreement scheduled on Exhibit B is not
obtained prior to Closing, Seller will (a) take all reasonable steps necessary
to obtain the consent of any such third party, provided that Seller will not be
obligated to incur any liability or expense in connection therewith, except the
cost and expense of its employees and representatives engaged in such efforts
and except that Seller will contribute fifty percent (50%) of any payment
required by any such third party to provide any such consent; (b) cooperate with
Buyer and the Company in any reasonable and lawful arrangements designed to
provide the benefits of such agreement to the Company so long as the Company
fully cooperates with Seller in such arrangements and promptly reimburses Seller
for all payments, charges or other liabilities made or suffered by Seller in
connection therewith; and (c) enforce, at the request of Buyer or the Company
and at the expense and for the account of the Company, any rights of Seller
arising from such agreement against the other party or parties thereto
(including the right to elect to terminate any such agreement in accordance with
the terms thereof upon the written advice of Buyer or the Company).
ARTICLE VIII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller under this Agreement to consummate the
transactions contemplated hereby are, at the option of Seller, subject to
satisfaction of the following conditions precedent on or before the Closing.
8.1 Representations, Warranties and Covenants of Buyer. Buyer will have
complied in all material respects with all of its agreements and covenants
contained herein to be performed at or prior to the Closing Date, and all of the
representations and warranties of Buyer contained herein will be true in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date, except (a) as otherwise contemplated hereby,
and (b) to the extent that such representations and warranties were made as of a
specified date (and as to such representations and warranties the same continue
on the Closing Date to have been true as of the specified date). Seller will
have received a certificate of Buyer, dated as of the Closing Date and signed by
an officer of Buyer, certifying as to the fulfillment of the conditions set
forth in this Section 8.1.
8.2 No Prohibition. No statute, rule or regulation or
order of any court or administrative agency will be in effect which
prohibits Seller from consummating the transactions contemplated
hereby.
8.3 Further Action. All consents, approvals, authorizations, exemptions
and waivers from third parties that are required in order to enable Seller to
consummate the transactions contemplated hereby will have been obtained (except
where the failure to obtain any such actions, consents, approvals,
authorizations, exemptions and waivers would not have a material adverse effect
on Seller or the Business).
8.4 Deliveries. Buyer will have made or caused to be made the delivery
to Seller the documents and other items specified in Section 2.3 and in this
Agreement.
8.5 No Challenges. No action or proceeding by any governmental
authority or other person will have been instituted and not discharged which
would enjoin, restrain or prohibit, or is reasonably likely to result in damages
in respect of, this Agreement or the complete consummation of the transactions
contemplated hereby, and which could, in the reasonable judgment of counsel to
Seller, make it inadvisable to consummate such transactions, and no order or
decree of any court will have been entered in any action or proceeding which
enjoins, restrains or prohibits this Agreement or the complete consummation of
the transactions contemplated hereby.
8.6 Seller Lease Guaranty. Seller will have been released from the
Seller Lease Guaranty, provided that Buyer may transfer to the Winona Lease
Lessor in exchange for such release up to Three Million Eight Hundred Thousand
Dollars ($3,800,000) of the Purchase Price, less aggregate amounts transferred
to the Winona Lease Lessor by Seller on or before the Closing Date in exchange
for such release.
8.7 Seller Enhanced L/Cs. The Seller Enhanced L/Cs will have been
terminated.
8.8 Seller Bank Guaranties. The Seller Bank Guaranties will have been
terminated.
8.9 Intercompany Debt Balance. The Intercompany Debt Balance
(determined in accordance with the instructions listed on Exhibit A and
otherwise in accordance with GAAP on a basis consistent with the Company's
latest audited balance sheet) will not be in excess of the sum of (a) Nine
Million Seven Hundred Thousand Dollars ($9,700,000) plus (b) seventy-five
percent (75%) of the Company's currently payable and net deferred income tax
balances added to the Intercompany Debt Balance for November 1995 in accordance
with Exhibit A, or Buyer will have paid Seller the amount of such excess in
exchange for an assignment thereof.
8.10 Acceptance of Other Agreements. The subordination requirements
required by lenders under the Buyer Financings and by the Winona Lease Lessor
with respect to the Note, the financial covenants contained in the Buyer
Financings and the Winona Lease, the terms of the preferred stock being issued
by Buyer in connection with the transactions contemplated herein, the terms of
the employment agreement to be entered into between the Company and William
Spell, and the redemption and Company guarantee commitments entered into in
connection with Company management purchase of Buyer capital stock are
acceptable to Seller.
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer under this Agreement to consummate the
transactions contemplated hereby are, at the option of Buyer, subject to
satisfaction of the following conditions precedent on or before the Closing.
9.1 Representations, Warranties and Covenants of Sellers. Seller will
have complied in all material respects with all of its agreements and covenants
contained herein to be performed at or prior to the Closing Date, and all the
representations and warranties of Seller contained herein will be true in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date, except (a) as otherwise contemplated hereby,
and (b) to the extent that such representations and warranties were made as of a
specified date (and as to such representations and warranties the same continue
on the Closing Date to have been true as of the specified date). Buyer will have
received a certificate of Seller, dated as of the Closing Date and signed by an
officer of Seller, certifying as to the fulfillment of the conditions set forth
in this Section 9.1.
9.2 No Prohibition. No statute, rule or regulation or order of any
court or administrative agency will be in effect which prohibits Buyer from
consummating the transactions contemplated hereby.
9.3 Further Action. All consents, approvals, authorizations, exemptions
and waivers from third parties that are required in order to enable Buyer to
consummate the transactions contemplated hereby will have been obtained (except
where the failure to obtain any such consents, approvals, authorizations,
exemptions and waivers would not have a material adverse effect on the
Business).
9.4 Deliveries. Seller will have made or caused to be made delivery to
Buyer of the documents and other items set forth in Section 2.2 hereof.
9.5 No Challenges. No action or proceeding by any governmental
authority or other person will have been instituted and not discharged which
would enjoin, restrain or prohibit, or is reasonably likely to result in damages
in respect of, this Agreement or the complete consummation of the transactions
contemplated hereby, and which could, in the reasonable judgment of counsel to
Buyer, make it inadvisable to consummate such transactions, and no order or
decree of any court will have been entered in any action or proceeding which
enjoins, restrains or prohibits this Agreement or the complete consummation of
the transactions contemplated hereby.
9.6 Lessor Consent and Lease Amendments. The Winona Lease Lessor will
have consented to the sale of Stock and will have agreed to amendments to the
financial performance covenants in the Winona Lease consistent with the
financial performance covenants contained in Buyer's senior term loan financing
included in the Buyer Financings, and to an amendment to the Winona Lease
permitting the Company to reduce Consumer Price Index rent adjustments provided
for in the Winona Lease by fifty percent (50%) by payment of not more than One
Million Three Hundred Thousand Dollars ($1,300,000) on or before May 1, 1996.
9.7 Buyer Financings. Buyer will have closed the Buyer Financings.
9.8 Employment Agreements. The Company will have entered into
employment agreements approved by Buyer with such Company employees as Buyer
designates.
9.9 Environmental Review. Buyer is satisfied with the results of its
environmental review of the Company's facility leased under the Winona Lease.
9.10 Due Diligence Review. Buyer is satisfied with its review of the
Disclosure Schedule and the documents identified in its two letters to Seller
dated November 21, 1995.
ARTICLE X
INDEMNIFICATION AND RELATED MATTERS
10.1 Indemnification by Seller. Subject to Section 7.6, Seller will
indemnify and hold harmless Buyer and its officers and directors from and
against any and all damages, loss, cost or expense (including reasonable
attorney's fees and expenses actually incurred), (collectively, "Loss") suffered
by reason of, arising out of or resulting from: (a) any misrepresentation or
breach of warranty made by Seller in or pursuant to this Agreement (other than,
with respect to any such officer or director who is an officer or director of
the Company on the date of this Agreement, any such misrepresentation or breach
of warranty known to such officer or director on the Closing Date); or (b) any
failure by Seller to fulfill any covenants or agreements under this Agreement.
10.2 Additional Indemnifications by Seller. In addition, subject to
Section 7.6, Seller will indemnify and hold harmless Buyer and its officers and
directors as follows.
(a) Six (6) months after the Closing Date, Buyer may provide
to Seller proforma adjustments to the inventory obsolescence and bad debt
reserves on the Closing Balance Sheet resulting from all facts known by Buyer as
of the end of such six (6) month period that existed but were unknown by the
parties as of finalization of the Closing Balance Sheet, with a schedule of all
such facts and the proforma adjustment resulting from each such fact. Such
proforma adjustments and schedule will be prepared by the Buyer Accountants, and
the Seller Accountants will be provided access to review the workpapers of the
Buyer Accountants in connection therewith and full opportunity to raise with the
Buyer Accountants any issues the Seller Accountants may have with respect to
such proforma adjustments. In the event any such issues raised by the Seller
Accountants are not resolved by mutual agreement of the Seller Accountants and
the Buyer Accountants, such unresolved issues will be submitted thereby to the
Accountant Arbitrator, whose decision on any such issues will be final and
binding on the parties. In the event the aggregate of such reserves would have
been increased on the Closing Balance Sheet if all such facts known by Buyer as
of the end of such six (6) month period had been taken into account in setting
such reserves in accordance with GAAP as applied in the preparation of the
Closing Balance Sheet, as determined in accordance with the foregoing procedure,
and to the extent such increase exceeds One Hundred Thousand Dollars ($100,000),
Seller will pay to Buyer the amount of such excess increase promptly upon
determination thereof, subject to the maximum payment limitation provided under
Section 10.6.
(b) In the event that any third party gives written notice to
the Company or Buyer within eighteen (18) months after the Closing Date that
such third party has any claim that would constitute a breach of the
representations and warranties of Seller under Section 3.17 if such
representations and warranties had been made without regard to Seller's
knowledge and without regard to manifests referenced in Schedule 3.17 of the
Disclosure Schedule, to the extent such claim involves sites at which the
manufacturing operations of the Business were conducted prior to relocation of
the Business to the Leased Real Property under the Winona Lease, and provided
that Buyer gives Seller written notice of such claim within such eighteen (18)
month period, promptly upon final adjudication or settlement of such claim,
Seller will pay to Buyer the amount, if any, by which the amount of such finally
adjudicated judgment or settlement, together with all costs, expenses and
reasonable attorneys fees incurred by Buyer or the Company in connection
therewith, net of any insurance proceeds received by the Company thereon,
exceeds the remainder, if any, of Three Hundred Fifty Thousand Dollars
($350,000) less the aggregate liability of the Company or Buyer under all claims
previously submitted to Seller for application of this Section 10.2(b), provided
that Seller's liability under this Section 10.2(b) will not in any event exceed
Seven Hundred Fifty Thousand Dollars ($750,000). For purposes of the foregoing,
written notice by a third party includes without limitation written notice from
any governmental agency that the Company may be responsible for remediation with
respect to an identified release or threatened release of any Environmentally
Regulated Materials under any Environmental Law.
(c) In the event that the aggregate liability of the Company
under all Litigation scheduled at Schedule 3.19 of the Disclosure Schedule, as
finally adjudicated or settled, net of any insurance proceeds received by the
Company thereon, exceeds One Hundred Fifty-Five Thousand Dollars ($155,000),
Seller will promptly pay to Buyer the amount of such excess when and as so
determined, subject to the provisions of Section 10.6.
(d) In the event that any third party gives written notice to
the Company or Buyer within twelve (12) months after the Closing Date that such
third party has any claim for any liability of the Company or the Subsidiary
incurred on or before the Closing Date which is not included in the Closing
Balance Sheet or disclosed in the notes thereto or the Disclosure Schedule, and
which is not within the scope of claims scheduled at Schedule 3.19 of the
Disclosure Schedule, and provided that Buyer gives Seller written notice of such
claim within such twelve (12) month period, promptly upon final adjudication or
settlement of any such claim, Seller will pay to Buyer the amount of such
liability as so determined, net of any insurance proceeds received by the
Company thereon, subject to the provisions of Section 10.6 hereof.
10.3 Indemnification by Buyer. Buyer will indemnify and hold harmless
Seller and its officers and directors from and against any and all Loss suffered
by reason of, arising out of or resulting from: (a) any material
misrepresentation or breach of warranty made by Buyer in or pursuant to this
Agreement; (b) any failure by Buyer to fulfill any covenants or agreements under
this Agreement; or (c) any and all liabilities of the Company or the Subsidiary,
or third party claims therefor, for which Seller is not obligated to indemnify
Buyer under this Agreement.
10.4 Notice of Indemnification. In the event any legal proceeding is
threatened or instituted or any claim or demand is asserted by any person
(including a party hereto) in respect of which payment may be sought by one
party hereto from the other party under the provisions of this Article X, the
party seeking indemnification (the "Indemnitee") will promptly cause written
notice of the assertion of any such claim of which it has knowledge which is
covered by this indemnity to be forwarded to the other party (the "Indemnitor").
Any notice of a claim by reason of any of the representations, warranties or
covenants contained in this Agreement will state specifically the
representation, warranty or covenant with respect to which the claim is made,
the facts giving rise to an alleged basis for the claim, and the amount of the
liability asserted against the Indemnitor by reason of the claim.
10.5 Indemnification Procedure for Third-Party Claims. In the event of
the initiation of any legal proceeding against an Indemnitee by a third party,
the Indemnitor will have the absolute right after the receipt of notice, at its
option and at its own expense, to be represented by counsel of its choice, and
to defend against, negotiate, settle or otherwise deal with any proceeding,
claim, or demand which relates to any loss, liability or damage indemnified
against hereunder; provided, however, that the Indemnitee may participate in any
such proceeding with counsel of its choice and at its expense. The parties will
cooperate fully with each other in connection with the defense, negotiation or
settlement of any such legal proceeding, claim or demand. To the extent the
Indemnitor elects not to defend such proceeding, claim or demand, and the
Indemnitee defends against or otherwise deals with any such proceeding, claim or
demand, the Indemnitee may retain counsel, at the expense of the Indemnitor, and
control the defense of such proceeding. Neither the Indemnitor nor the
Indemnitee may settle any such proceeding without the consent of the other
party, such consent not to be unreasonably withheld. After any final judgment or
award has been rendered by a court, arbitration board or administrative agency
of competent jurisdiction and the time in which to appeal therefrom has expired,
or a settlement has been consummated, or the Indemnitee and the Indemnitor have
arrived at a mutually binding agreement with respect to each separate matter
alleged to be indemnified by the Indemnitor hereunder, the Indemnitee will
forward to the Indemnitor notice of any sums due and owing by it with respect to
such matter and, subject to the last sentence of Section 10.6, the Indemnitor
will pay all of the sums so owing to the Indemnitee by wire transfer, certified
or bank cashier's check within thirty (30) days after the date of such notice.
10.6 Limitation on Indemnification Liabilities. The indemnifications
and payment obligations in favor of Buyer contained in Sections 10.1 and 10.2(c)
and (d) hereof will not be effective until the aggregate dollar amount of all
Loss and payment obligations within the scope of such Sections exceeds Three
Hundred Fifty Thousand Dollars ($350,000) (the "Threshold Amount"), and then
only to the extent such aggregate amount exceeds the Threshold Amount; provided,
however, that indemnifications with respect to covenants of Seller under Section
7.2 are not subject to the foregoing restriction and will not be aggregated
against the Threshold Amount. The liability of Seller under Section 10.1
(exclusive of indemnifications with respect to covenants of Seller under Section
7.2), under Section 10.2(a) hereof in excess of One Hundred Thousand Dollars
($100,000), and under Sections 10.2(c) and (d) hereof, in the combined
aggregate, is limited to Seven Hundred Fifty Thousand Dollars ($750,000). Any
liability of Seller under Sections 10.1 and 10.2 (exclusive of indemnifications
with respect to covenants of Seller under Section 7.2) will be offset against
Buyer's obligations under the Note to the extent of the balance outstanding
thereunder as of the final determination of such liability.
10.7 Survival of Representations, Warranties and Covenants. The
representations and warranties made at Section 3.6 will not survive Closing. The
representations and warranties otherwise made in this Agreement and the
covenants and agreements contained herein to be performed or complied with at or
prior to the Closing Date will survive for twelve (12) months after the Closing
Date, and no legal action or arbitration proceeding may be commenced thereafter
with respect to any alleged breach thereof except as a counterclaim in any
action or proceeding commenced hereunder prior to the expiration of such period,
provided that nothing in this sentence limits the period during which claims of
indemnification may be brought pursuant to Section 10.2(b). The covenants
contained in Sections 7.2 and 7.3 will survive for a period of seven (7) years
after the later of the Closing Date or the filing date of the Tax Return with
respect to which such covenants relate, and no legal action or arbitration
proceeding may be commenced thereafter with respect to any alleged breach
thereof except as a counterclaim in any action or proceeding commenced hereunder
prior to the expiration of such period.
10.8 Exclusive Remedy. The exclusive remedy available to a party hereto
in respect of the matters covered by Section 10.1 or Section 10.2 hereof is to
proceed in the manner and subject to the limitations contained in this Article
X.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Buyer and Seller; or
(b) by either Seller or Buyer in writing (provided the
conditions to such party's obligations stated in the applicable sections of
Article VIII or IX are not then satisfied or waived) if the Closing has not
occurred on or before December 1, 1995; or
(c) by either Seller or Buyer in writing, if there is in
effect a non-appealable order of a court of competent jurisdiction prohibiting
the consummation of the transactions contemplated hereby; or
(d) by Seller at any time after November 24, 1995 unless prior
to such termination the conditions precedent of Buyer under Section 9.6 have
been waived by Buyer in writing and Seller has received written assurances
satisfactory to Seller that the Seller Lease Guaranty will be terminated at
Closing for an aggregate payment not to exceed Three Million Eight Hundred
Thousand Dollars ($3,800,000); or
(e) by Seller at any time after November 24, 1995 unless prior
to such termination the conditions precedent of Buyer under Section 9.7 have
been waived by Buyer in writing and Seller has received Buyer Financing
Commitments for all of the Buyer Financings; or
(f) by Seller at any time after November 24, 1995 unless prior
to such termination, Buyer has designated in writing each Company employee
required to enter into an employment agreement pursuant to Section 9.8 and Buyer
and each such employee have agreed in writing to the terms of the applicable
employment agreement, or the conditions precedent of Buyer under Section 9.8
have been waived by Buyer in writing.
11.2 Effect on Obligations. Termination of this Agreement pursuant to
this Article will terminate all obligations of the parties hereunder; provided,
however, that termination pursuant to clause (b) of Section 11.1 hereof will not
relieve any defaulting or breaching party from any liability to the other party
hereto, and provided, further, that the provisions of Article XII will survive
termination of this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement; Amendments. This Agreement (including the
Disclosure Schedule delivered pursuant hereto) constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. No amendment,
modification, supplement or waiver of any provision of this Agreement will be
binding unless executed in writing by the party to be bound thereby.
12.2 Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties hereto. This Agreement may not be assigned by
either party without the prior written consent of the other party hereto.
12.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will for all purposes be deemed to be an original
and all of which will constitute the same instrument.
12.4 Headings. The headings of the sections of this Agreement are
included for convenience only and will not be deemed to constitute part of this
Agreement or to affect the construction hereof.
12.5 Modifications and Waivers. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement will
be deemed to or will constitute a waiver of any other provisions hereof (whether
or not similar).
12.6 Expenses. Seller and Buyer will each pay all costs and expenses
incurred by them or on their behalf in connection with this Agreement and the
transactions contemplated hereby, including without limitation fees and expenses
of their own brokers, finders, financial consultants, accountants and counsel.
If any dispute between Seller and Buyer, either occurring under, relating to or
in connection with any of the provisions of this Agreement, is submitted to a
court, arbitrator, tribunal or other appropriate entity, then all costs and
expenses of the parties (including reasonable attorneys' fees) will be paid by
the party against whom a determination by such court, arbitrator, tribunal or
entity is made or, in the absence of a determination wholly against one party,
as such court, arbitrator, tribunal or entity directs.
12.7 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party will be in writing and
delivered personally or by telephonic facsimile transmission or sent by
registered or certified mail, postage prepaid (and if by telephonic facsimile
transmission with a copy sent by mail),
if to Seller to:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, California 90067
Attn: Lori Poulos
Facsimile No.: 310-552-3446
with a copy to:
Oppenheimer Wolff & Donnelly
Suite 3400, Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Douglas L. Hemer
Facsimile No.: 612-344-9376
if to Buyer to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
32
<PAGE>
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
12.8 Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this
Agreement or the breach hereof, unless resolved by mutual agreement of the
parties, will be finally settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
on the effective date of this Agreement by a single arbitrator appointed in
accordance with said Rules. The determination of the arbitrator will be final
and binding upon the parties to the arbitration and judgment upon the award
rendered by the arbitrator will be entered in any court of competent
jurisdiction. The place of arbitration will be Minneapolis, Minnesota.
Notwithstanding the foregoing, either party may seek injunctive relief with
respect to any controversy or claim arising out of or relating to any provisions
of this Agreement in any court of competent jurisdiction.
12.9 Governing Law; Consent to Jurisdiction. This Agreement will be
construed in accordance with and governed by the laws of the State of Minnesota
applicable to agreements made and to be performed in such jurisdiction without
reference to conflicts of law principles. Buyer and Seller each irrevocably
consents that any legal action or proceeding against it under, arising out of or
in any manner relating to this Agreement or any other agreement, document or
instrument arising out of or executed in connection with this Agreement may be
brought only in an arbitration proceeding as provided in Section 12.8 or in a
court of the State of Minnesota or in the United States District Court for the
District of Minnesota. Each of Buyer and Seller by the execution and delivery of
this Agreement, expressly and irrevocably assents and submits to the personal
jurisdiction of the arbitrators selected pursuant to Section 12.8 or any of such
courts in any such action or proceeding. Each of Buyer and Seller further
irrevocably consents to the service of any complaint, summons, notice or other
process relating to any such action or proceeding by delivery
33
<PAGE>
thereof to it by hand or by mail in the manner provided for in Section 12.7
hereof. Each of Buyer and Seller hereby expressly and irrevocably waives any
claim or defense in any action or proceeding based on any alleged lack of
personal jurisdiction, improper venue or forum non conveniens or any similar
basis.
12.10 Public Announcements. Neither Seller (nor any of its affiliates)
nor Buyer (nor any of its affiliates) will make any public statements, including
without limitation any press releases, with respect to this Agreement and the
transactions contemplated hereby without the prior written consent of the other
party (which consent may not be unreasonably withheld), except as may be
required by law and except that the party required to make such announcement
will, whenever practicable, consult with the other party concerning the timing
and content of such announcement before such announcement is made.
12.11 Confidentiality and Nonsolicitation.
(a) "Information") means information received by Buyer
or any of its agents, directors, officers, employee, counsel, consultants,
affiliates or advisors ("Representatives") from Seller or the Company or their
Representatives in the course of Buyer's investigation of the Company and
negotiation and performance of this Agreement, including without limitation
trade secret and other proprietary technical, financial and other information
relating to the Business or the Company's products, whether past, present or
anticipated, including information about the Company's research, development,
manufacturing, purchasing, accounting, engineering, marketing, selling or
servicing, and any analyses, compilations, studies, materials, memoranda, data,
notes or documents prepared by Buyer or its Representatives and concerning such
information received by Buyer or its Representatives.
(b) The Information will be kept confidential and will
not, without the prior written consent of Seller, be disclosed by Buyer or its
Representatives in any manner whatsoever, in whole or in part, and will not be
used by Buyer or its Representatives other than in connection with the
transactions contemplated hereunder. The Information will be disclosed by Buyer
and its Representatives only to Buyer's Representatives who have a "need to
know" such Information and who have been informed by Buyer of the confidential
nature of the Information and who have first agreed to be bound by the terms and
conditions of this Section 12.11.
(c) Immediately upon termination of this Agreement,
the Information which consists of analyses, compilations, studies, material,
memoranda, data, notes or other documents prepared by Buyer or its
Representatives in that capacity will be destroyed and such destruction will be
certified in writing to Seller by an authorized officer supervising such
destruction, and all other Information will be returned to Seller without Buyer
retaining any copies thereof.
34
<PAGE>
(d) In the event that Buyer or anyone to whom Buyer
transmits the Information pursuant to the provisions of this Section 12.11
becomes legally compelled to disclose any of the Information, Buyer will provide
Seller with prompt notice before such Information is disclosed so that Seller
may seek a protective order or other appropriate remedy and/or waive compliance
with the provisions of this Section 12.11. In the event that such protective
order or other remedy is not obtained, Buyer will furnish only that portion of
the Information which Buyer is advised by written reasonable opinion of counsel
is legally required and will exercise Buyer's best efforts to assist Seller in
obtaining a protective order or other reliable assurance that confidential
treatment will be accorded to the Information that is disclosed.
(e) Nothing contained in this Section 12.11 will in
any way restrict or impair Buyer's right to use, disclose or otherwise deal
with: (i) Information which at the time of its disclosure is, or which
thereafter becomes through no fault of Buyer or its Representatives, part of the
public domain by publication or otherwise; and (ii) Information which Buyer can
show was in Buyer's possession or the possession of one or more of its
Representatives at the time of disclosure, and was not acquired, directly or
indirectly, under any secrecy obligation to Seller or another party.
(f) Buyer will not directly or indirectly solicit the
employment of any employee, customer, supplier, distributor or licensee of the
Company during the term of this Agreement and for a period of two (2) years
after termination hereof, except to the extent contemplated under Section 9.8.
(g) The provisions of this Section 12.11 will lapse
and be of no further force or effect upon Closing.
12.12 Further Assurances. Subject to the other provisions of this
Agreement after the execution and delivery hereof, either party will, at the
request of the other party and at such other party's expense, execute and
deliver any further instruments or documents of conveyance, transfer, assignment
or assumption and take all such further action as such party reasonably may
request in order to consummate and make effective the transactions contemplated
by this Agreement.
12.13 Severability. Upon a finding of the invalidity or
unenforceability of any particular provision of this Agreement, the remaining
provisions hereof will be construed in all respects as if such invalid or
unenforceable provisions were omitted. All provisions of this Agreement will be
enforced to the fullest extent permitted by law.
35
<PAGE>
12.14 Definition of Seller's "Best Knowledge". For purposes of this
Agreement, "best knowledge" of Seller includes only matters actually known by
Lori Poulos or John van Osnabrugge and executive management staff of the Company
reporting directly to John van Osnabrugge.
12.15 No Third Party Beneficiaries. Except as expressly
permitted by this Agreement, nothing in this Agreement will confer
any rights upon any person or entity which is not a party or
permitted assignee of a party to this Agreement.
12.16 Rule of Construction. The parties hereto acknowledge and agree
that each has negotiated and reviewed the terms of this Agreement, assisted by
such legal and tax counsel as they desired, and has contributed to its
revisions. The parties further agree that the rule of construction that any
ambiguities are resolved against the drafting party will be subordinated to the
principle that the terms and provisions of this Agreement will be construed
fairly as to all parties and not in favor of or against any party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
DISCUS ACQUISITION CORPORATION
By /s/ William H. Spell
Its CEO
BRIDGEWATER RESOURCES CORP.
By Lori J. Poulos
Its CEO
Exhibit A
INSTRUCTIONS FOR CLOSING BALANCE SHEET
1. The Closing Balance Sheet will be prepared in accordance with GAAP
on a basis consistent with the Company's latest audited balance sheet, but
without taking into account the effect of the Election, the contribution to
capital of the Intercompany Debt Balance or the Redemption, and provided that
the Closing Balance Sheet will be prepared in accordance with the following
instructions regardless of whether such instructions comply with GAAP or are
consistent with the Company's latest audited balance sheet as included in
Seller's latest audited balance sheet:
(a) Property and equipment will be accounted for according to
the allocation of purchase price by the Company at the time the Company acquired
the Business.
(b) The reserve for supplies inventory obsolescence in the
Closing Balance Sheet will be the same as such reserves included in the October
Balance Sheet.
(c) The reserve for inventory obsolescence will be determined
in accordance with the Company's inventory obsolescence methodology as applied
in preparation of the Company's latest audited balance sheet, provided that no
reserve for inventory obsolescence will be made with respect to import bulk
chain, import traction products, import plastic chain or import cordage.
(d) With respect to accrual of postretirement medical benefits
and pension benefit obligations, the assumptions with respect thereto disclosed
in Seller's year-end disclosures in its financial statements for the year ended
December 31, 1994 will apply.
(e) The reserves for pending litigation in the Closing Balance
Sheet will be the same as such reserves included in the October Balance Sheet.
(f) The reserves for obsolescence and returns for domestic
traction products in the Closing Balance Sheet will be the same as such reserves
included in the October Balance Sheet.
(g) The lease of premises at 621 Grant Street, Manchester,
Iowa, if reflected in the Closing Balance Sheet, will be accounted for as an
operating lease.
(h) The Intercompany Debt Balance will contain the Company's
currently payable and net deferred income tax balances computed using a
thirty-seven percent (37%) effective income tax rate consistent with the
Company's interim accounting procedure used from January 1, 1995 to October 31,
1995 as reflected in the October Balance Sheet.
2. The Closing Net Worth will be determined in accordance with the
following instructions regardless of whether such instructions comply with GAAP
or are consistent with the Company's latest audited balance sheet or related
statement of operations and retained earnings as included in Seller's latest
audited balance sheet and related statement of operations and retained earnings:
(a) The Closing Net Worth will be the Company's consolidated
stockholder's equity as of the Closing as reported on the Closing Balance Sheet
adjusted to exclude the effect of revenues of traction products accrued from
November 1, 1995 through the Closing Date and cost of goods sold with respect
thereto, and all discounts, returns, write-offs and other set-offs and reserves
therefor accrued during such period on traction products.
Exhibit B
COMMITMENTS NOT IN THE COMPANY'S NAME
1. Fleet Lease Agreement between Associates Leasing, Inc. and
Seller dated August 6, 1990.
2. Master Lease and related Supplements dated January 23, 1992
between Norwest Equipment Financing and Seller.
3. Option To Purchase Agreement dated January 23, 1992 between
Norwest Equipment Financing and Seller.
4. Software License Agreement, dated October 15, 1990, as
amended, including related software support services, between
QuestComp, Inc. and Seller.
5. Software License Agreement dated October 5, 1990, as upgraded,
between Michaels, Ross and Cole Ltd. and Seller.
6. Agreement dated June 29, 1990 regarding the purchase or license of
certain software between Computer Associates (f/k/a Data 3 Systems,
Inc., a division of ASK Computer Systems Inc.)
and Seller.
7. License Agreement dated June 29, 1990, as amended, between
Software Plus (f/k/a SYSGEN, Inc. or Integral) and Seller to
the Company.
8. License Agreement dated June 28, 1990, as amended, between
Synon, Inc. and Seller.
9. Agreement regarding maintenance of a tape drive between
Decision One Corp. (f/k/a Bell Atlantic) and Seller.
10. The following Agreements between International Business
Machines and Seller:
a. Agreement for Exchange of Confidential Information dated
September 11, 1995.
b. Agreement for Exchange of Confidential Information, dated
February 2, 1995.
c. Equipment and Program Loan Agreement dated October 12,
1995.
d. IBM Customer Agreement dated December 9, 1994 regarding
support line services.
e. IBM Hardware Maintenance Agreement originally effective
December 1, 1987, as supplemented.
f. Blanket Order with IBM regarding maintenance services.
g. Agreement for Exchange of Confidential Information dated
June 28, 1995.
h. Equipment Program Loan Agreement with International Business
Machines Corporation, dated February 16, 1995, regarding the
Company's use of computer hardware relating to the AS/400-40S
System.
11. Software License Agreement (105002) dated November 30, 1990, as amended
by the Software License Agreement (116749) dated October 24, 1991 and
Software License Agreement (117737) dated May 4, 1992, between ACS
Network Systems, a division of
Premenos Corporation, and Seller.
Exhibit C
FORM OF OPINION OF COUNSEL FOR SELLER
At the Closing, Buyer will receive an opinion from counsel for Sellers,
dated the Closing Date and substantially to the effect that [conform to
representations and warranties in Agreement]:
(i) The Disclosure Schedule sets forth the name and
jurisdiction of incorporation of the Company and the Subsidiary. Each
of the Company and the Subsidiary is a corporation duly organized,
validly existing and in good standing under the law of the state of its
incorporation.
(ii) The authorized capital stock of the Company consists of
one thousand (1,000) shares of common stock, par value $.01 per share,
of which ten (10) shares are outstanding, all of which are in the
record name of Seller. All issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid,
nonassessable and are without and were not issued in violation of
preemptive rights. To the knowledge of such counsel, there are
outstanding no securities convertible into, exchangeable for, or
carrying the right to acquire, equity securities of the Company, or
subscriptions, warrants, options, rights or other arrangements or
commitments obligating the Company to issue or acquire any of its
equity securities or any ownership interest therein. In the case of the
Subsidiary: (a) all of the issued and outstanding shares of capital
stock are duly authorized, validly issued, fully paid, nonassessable
and are without and were not issued in violation of preemptive rights;
(b) all outstanding capital stock and other equity securities are in
the record name of the Company; (c) to the knowledge of such counsel,
there are outstanding no securities convertible into, exchangeable for,
or carrying the right to acquire, equity securities of the Subsidiary,
or subscriptions, warrants, options, rights or other arrangements or
commitments obligating the Subsidiary to issue or acquire any of its
equity securities or any ownership interest therein.
(iii) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and has all
requisite corporate power and authority to execute, deliver and perform
the Agreement and to consummate the transactions contemplated thereby.
The execution, delivery and performance by Seller of the Agreement and
the consummation by Seller of the transactions contemplated thereby
have been duly authorized by all necessary corporate action on the part
of Seller. The Agreement has been duly and validly executed by Seller
and constitutes the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except to the
extent that such enforceability (a) may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to creditors' rights generally, and (b) is subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iv) Except as set forth in Schedule 3.4 of the Disclosure
Schedule, neither the execution, delivery and performance of the
Agreement nor the consummation of the transactions contemplated therein
will: (a) violate or be in conflict with any provision of the articles
or certificates of incorporation or bylaws of the Company, the
Subsidiary or Seller; or (b) be in conflict with, or constitute a
default, however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a default),
under, or cause or permit the acceleration of the maturity of, or give
rise to any right of termination, cancellation, imposition of fees or
penalties under, any debt, instrument, commitment, contract or other
agreement or obligation known to such counsel to which the Company, the
Subsidiary or Seller is a party or by which the Company, the Subsidiary
or Seller or any of the Company's, the Subsidiary's or Seller's
properties or assets is or may be bound or result in the creation or
imposition of any Encumbrance upon any property or assets of the
Company or the Subsidiary under any debt, instrument, commitment,
contract or other agreement or obligation known to such counsel, except
such as may result from actions of Buyer; or (c) violate any provision
of law, rule or regulation to which the Company, the Subsidiary or
Seller is subject or any order, judgment or decree known to such
counsel applicable to the Company, the Subsidiary or Seller.
(v) With respect to the Company, the Subsidiary and Seller,
except as set forth in Schedule 3.5 of the Disclosure Schedule, and
assuming the correctness of Buyer's representations and warranties
contained in Section 4.4, no Consent from any governmental or
regulatory authority or under any Commitment known to such counsel is
required in connection with the execution, delivery or performance of
the Agreement by Seller or the consummation by Seller of the
transactions contemplated therein.
(vi) To the knowledge of such counsel, except as set forth in
Schedule 3.19 of the Disclosure Schedule, there is no Litigation
outstanding or pending or threatened (a) by or against or involving the
Company or the Subsidiary or any of their properties or any of their
officers, directors, agents or employees (but only in such capacities)
or the Business, or (b) which seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated by the
Agreement.
Exhibit D
FORM OF OPINION OF COUNSEL FOR BUYER
At the Closing, Seller will receive an opinion from counsel for Buyer,
dated the Closing Date and substantially to the effect that:
(i) Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota, and has
all requisite corporate power and authority to carry on its business as
it is now being conducted, and to execute, deliver and perform the
Agreement and the Note and to consummate the transactions contemplated
thereby.
(ii) The Company has all requisite corporate power and
authority to execute, deliver and perform, as applicable, the
Redemption and the Note and to consummate the transactions contemplated
thereby.
(iii) The execution, delivery and performance by Buyer of the
Agreement and the Note and the consummation by Buyer of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Buyer. The Agreement and the
Note have been duly and validly executed and delivered by Buyer and
constitute the legal, valid and binding obligations of Buyer,
enforceable against it in accordance with their terms, except to the
extent that such enforceability (a) may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to creditors' rights generally, and (b) is subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Neither the execution,
delivery and performance of the Agreement or the Note nor the
consummation of the transactions contemplated therein will: (i) violate
or be in conflict with any provision of the articles of incorporation
or bylaws of Buyer; or (ii) be in conflict with, or constitute a
default, however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a default),
under, or cause or permit the acceleration of the maturity of, or give
rise to any right of termination, cancellation, imposition of fees or
penalties under, any debt, instrument, commitment, contract or other
agreement or obligation known to such counsel to which Buyer is a party
or by which Buyer or any of its properties or assets is or may be bound
or result in the creation or imposition of any Encumbrance upon any
property or assets of Buyer under any debt, instrument, commitment,
contract or other agreement or obligation known to such counsel; or
(iii) violate any provision of law, rule or regulation to which Buyer
is subject or any order, judgment or decree known to such counsel
applicable to Buyer.
(iv) The execution, delivery and performance, as applicable,
by the Company of the Redemption and the Note and the consummation by
the Company of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of the
Company. The Note has been duly and validly executed and delivered by
the Company and constitutes the legal, valid and binding obligations of
the Company enforceable against it in accordance with their terms,
except to the extent that such enforceability (a) may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally, and (b) is subject to
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law). Neither the
execution, delivery or performance, as applicable, of the Redemption or
the Note nor the consummation of the transactions contemplated therein
or in the Agreement will: (i) violate or be in conflict with any
provision of the articles of incorporation or bylaws of the Company; or
(ii) be in conflict with, or constitute a default, however defined (or
an event which, with the giving of due notice or lapse of time, or
both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to any right of
termination, cancellation, imposition of fees or penalties under, any
debt, instrument, commitment, contract or other agreement or obligation
known to such counsel to which the Company is a party or by which the
Company or any of its properties or assets is or may be bound or result
in the creation or imposition of any Encumbrance upon any property or
assets of the Company under any debt, instrument, commitment, contract
or other agreement or obligation known to such counsel; or (iii)
violate any provision of law, rule or regulation to which the Company
is subject or any order, judgment or decree known to such counsel
applicable to the Company.
(v) No Consent from any governmental or regulatory authority
or under any commitment, contract or other agreement or obligation
known to such counsel to which Buyer or the Company is a party or by
which Buyer or the Company or any of their respective properties is
bound is required in connection with the execution, delivery or
performance by Buyer of the Agreement or by Buyer or the Company of the
Note or the taking of any other action contemplated thereby.
(vi) For purposes of determining whether the purchase of the
outstanding capital stock of the Company contemplated under the
Agreement requires compliance with the filing and waiting period
requirements of the HSR Act, Buyer is the "acquiring person" within the
meaning of Rule 801.2(a) of the HSR Act with respect to such
transaction, and, based upon relevant financial statements of Buyer
provided to such counsel, Buyer has total assets of less than Ten
Million Dollars ($10,000,000) and annual net sales of less than Ten
Million Dollars ($10,000,000) as determined under Rule 801.11 of the
HSR Act.
(vii) To the knowledge of such counsel, there is no Litigation
pending or threatened which seeks to enjoin or obtain damages in
respect of the consummation of the transactions contemplated by the
Agreement.
Exhibit E
PURCHASE MONEY NOTE
$2,500,000 November ___, 1995
FOR VALUE RECEIVED, the undersigned, Peerless Chain Company (the
"Company"), a Minnesota corporation, hereby promises to pay to the order of
Bridgewater Resources Corp. ("Seller"), a Texas corporation, at the address
provided under Section 8 in lawful money of the United States in accordance with
the terms hereof the sum of Two Million Five Hundred Thousand Dollars
($2,500,000) plus interest thereon at the rate provided herein from the date
hereof until paid in full.
1. Purchase Agreement. This Note is given pursuant to that certain
Stock Purchase Agreement dated November __, 1995 (the "Purchase Agreement") by
and between Discus Acquisition Corporation ("Buyer"), a Minnesota corporation,
and Seller for the sale of all of the outstanding capital stock of the Company
by Seller to Buyer, and as partial payment under the Redemption (as defined in
the Purchase Agreement). Capitalized terms not otherwise defined herein will
have the meanings set forth in the Purchase Agreement. To the extent the terms
of this Note as executed vary from Exhibit A to the Purchase Agreement or the
description hereof contained in the Purchase Agreement, the terms hereof govern.
2. Definitions. Unless the context otherwise requires, the following
terms have the following meanings:
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, Buyer, (ii) which beneficially owns or holds five percent
(5%) or more of any class of the capital stock of Buyer or (iii) five percent
(5%) or more of the capital stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interest) of which is
beneficially owned or held by Buyer or a Subsidiary. The term "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 capital stock, by contract or otherwise.
"CIT" means The CIT Group/Business Credit, Inc.
"Guarantee" means any obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of Buyer or the Company guaranteeing in any manner, whether directly
or indirectly, any obligation, direct or indirect, absolute, contingent or
inchoate, whether existing now or in the future, of any other Person.
"Indebtedness" means any and all amounts owing or which may
become owing by the Company pursuant to the terms of this Note.
"Permitted Investments" means:
(a) Investments in commercial paper maturing in two hundred
seventy (270) days or less from the date of issuance which, at the time of
acquisition, is accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Services, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating commercial paper);
(b) Investments in direct obligations of the United States of
America or any agency thereof maturing within one (1) year from the date of
acquisition thereof;
(c) Investments in bank accounts or certificates of deposit
maturing within one (1) year from the date of origin and issued by a bank or
trust company having capital, surplus and undivided profits aggregating at least
One Hundred Million Dollars ($100,000,000); and
(d) Investments in money market preferred stocks for so long
as the same are accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Service, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating such preferred stocks).
"Person" means an individual, partnership, corporation, trust
or unincorporated organization, and a governmental agency or political
subdivision.
"Pledged Stock" is as defined in Section 6.2.
"Preferred Stock" means shares of Buyer's Series A convertible
Preferred Stock issued to Northland Business Capital, L.L.P. pursuant to Stock
Purchase Agreement dated November __, 1995.
"Senior Credit Facility" means the credit facilities with CIT
under that certain Financing Agreement dated November __, 1995, or any
replacement credit facility.
"Senior Obligations" means the Senior Credit Facility and
the Winona Lease.
"Senior Pledge" means the security interest in the Pledged
Stock granted pursuant to that certain Stock Pledge Agreement by and between
Buyer and CIT dated November __, 1995, and any security interest in the Pledged
Stock granted to the holder of any replacement Senior Credit Facility pursuant
to which such holder agrees to deliver the stock certificates representing the
Collateral, upon satisfaction of such Senior Credit Facility, to the holder of
this Note or the holder of a succeeding replacement Senior Credit Facility
taking a security interest in the Pledged Stock including such terms.
"Subordination Agreement" means the Subordination Agreement
dated November __, 1995 by and among CIT, Seller, Buyer, the Company and
Peerless Chain of Iowa, Inc.
"Subsidiary" means any corporation of which more than fifty
percent (50%) (by number of votes) of the voting stock is owned by Buyer and/or
one or more corporations which are themselves Subsidiaries of Buyer.
"Winona Lease" means that certain Lease Agreement by and
between PRC Corp. (formerly Peerless Chain Company) and Corporate Property
Associates 6 dated June 18, 1986, as assigned to the Company by Assignment and
Assumption Agreement dated September 26, 1989, as amended by Lease Amendment
dated September 26, 1989, Letter Amendment dated August 2, 1994 and Amendment to
Lease dated November __, 1995.
"Winona Lease Obligations" means the obligations of the
Company under the Winona Lease.
3. Payment Terms.
3.1 Interest. Interest will accrue on the unpaid principal of
this Note at the annual rate of eight percent (8%) until maturity; provided that
in the event any amount due hereunder is past due, interest will accrue on the
unpaid principal of this Note at the annual rate of thirteen percent (13%),
compounded annually. Accrued interest will be due quarterly on the last day of
December, March, June and September commencing December 31, 1995 until maturity
of all principal of this Note (by acceleration or otherwise).
3.2 Principal. The principal of this Note, together with all
accrued and unpaid interest not then otherwise due, will be due November __,
1998, unless maturity thereof is accelerated pursuant to the terms hereof;
provided, however, that to the extent any claims are pending for indemnification
under Section 7.2, 10.1 or 10.2 of the Purchase Agreement on such stated
maturity date, with respect to each such claim, the maturity date with respect
to an amount of principal of this Note equal to the amount of such claim will be
extended until such claim is finally resolved; provided, further, that in the
event the amount of any such claim is reduced prior to final resolution of such
claim, an amount of principal of this Note equal to such reduction will become
due upon such reduction; and provided, further, that no such extension will be
made in the event of a prior acceleration, and any such extension will terminate
upon acceleration, of maturity of the principal of this Note pursuant to the
terms hereof.
3.3 Prepayments; Application of Payments. This Note may be
prepaid, in whole or in part, at any time and from time to time without premium
or penalty. Payments on, and credits under Section 3.4 against, this Note will
be applied first to accrued interest due and unpaid, next (to the extent such
payment is a prepayment) to accrued interest unpaid and not yet due, next to
costs and expenses accrued hereunder, with the balance to principal.
3.4 Offsets. Any liability of Seller under Sections 7.2, 10.1,
10.2 or 10.5 of the Purchase Agreement will be offset against Indebtedness
(whether or not then due) to the extent of the balance outstanding hereunder as
of the final determination of such liability.
4. Buyer and Company Covenants. From the date hereof and continuing so
long as any amount remains unpaid on this Note:
4.1 Corporate Existence, etc. Buyer and the Company each will
preserve and keep in force and effect its corporate existence and all licenses
and permits necessary to the proper conduct of the business of Buyer and the
Company taken as a whole.
4.2 Restricted Buyer Distributions. Buyer will not declare or
pay any dividends or make any other payment or distribution, either in cash or
property, on or in purchase, redemption or retirement of any shares of Buyer's
capital stock of any class or any warrants, rights or options to acquire any
such shares by purchase, conversion or otherwise, except (i) provided that when
made, no Default exists hereunder, dividends then due and unpaid on Buyer's
outstanding shares of Preferred Stock and amounts due [UNDER REDEMPTION
PROVISIONS APPROVED BY SELLER IN MANAGEMENT STOCK AGREEMENTS], and (ii)
issuances of options for the common stock of Buyer under [AN INCENTIVE STOCK
OPTION PLAN APPROVED BY SELLER] and issuances of shares of such common stock
upon exercise thereof.
4.3 Restricted Company Issuances and Distributions. The
Company will not:
(a) issue any shares of the Company's capital stock of any
class or any warrants, rights or options to purchase any shares of the Company's
capital stock, whether by reason of stock split or combination or
reclassification, dividend, exchange, new consideration or otherwise;
(b) declare or pay any dividends or make any other payment or
distribution, either in cash or property, on or in purchase, redemption or
retirement of any shares of the Company's capital stock, or make any other
payment or distribution, either directly or indirectly, in respect of the
Company's capital stock or otherwise, including without limitation for goods or
services, to Buyer or to any Affiliate of Buyer, except (i) payments equal to
state and federal income tax liability on Buyer's consolidated tax returns
resulting from the Company's operations, made on the due date of the applicable
return, (ii) payments when and as due under that certain Employment Agreement
dated November __, 1995 by and between the Company and William Spell, and (iii)
provided that when made, no Default exists hereunder, payments equal to
dividends then due and unpaid on Buyer's outstanding shares of Preferred Stock
and payments equal to amounts due [UNDER REDEMPTION PROVISIONS APPROVED BY
SELLER IN MANAGEMENT STOCK AGREEMENTS].
4.4 Mergers, Consolidations and Sales of Assets. The Company
will not (i) consolidate with or be a party to a merger with any other
corporation, or (ii) sell, lease or otherwise dispose of all or any substantial
part of its assets.
4.5 Guarantees. The Company will not become or be liable in
respect of any Guarantee except Guarantees entered into in the ordinary course
of the Business and [GUARANTEES APPROVED BY SELLER OF LOANS FOR MANAGEMENT STOCK
PURCHASES].
4.6 Transactions with Affiliates. Buyer and the Company each
will not enter into or be a party to any transaction or arrangement with any
Affiliate (including without limitation the purchase from, sale to or exchange
of property with, or the rendering of any service by or for, any such
Affiliate), except pursuant to the reasonable requirements of such party's
business and upon fair and reasonable terms no less favorable to such party than
would obtain in a comparable arm's-length transaction with a person other than
an Affiliate. That certain Employment Agreement dated November __, 1995 by and
between the Company and William Spell is deemed to meet the requirements of this
Section 4.6.
4.7 Reports and Rights of Inspection. Buyer and the Company
each will keep proper books of record and account in which full and correct
entries will be made of all dealings or transactions of or in relation to the
business and affairs of Buyer or the Company, in accordance with generally
accepted accounting principles consistently applied (except for changes in
application disclosed in the financial statements furnished to the holder hereof
pursuant to this Section 4.7 and concurred in by the independent public
accountants referred to in (b) hereof), and will furnish to the holder hereof:
(a) As soon as available and in any event within forty-five
(45) days after the end of each quarterly fiscal period of each fiscal year
consolidated and consolidating balance sheets of Buyer and the Company as of the
close of such period, and consolidated and consolidating statements of income
and retained earnings and statements of cash flows of Buyer and the Company for
the quarterly fiscal period then ending and for the portion of the fiscal year
ending with such period in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and certified by an authorized financial officer of Buyer to
the effect that (except for the exclusion in unaudited quarterly financial
statements of certain footnote and other information normally presented with
annual audited financial statements, and subject to changes resulting from
year-end adjustments) such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied (except for
changes in application in which the accountants referred to in clause (b) hereof
concur) and present fairly the financial condition of Buyer and the Company.
(b) As soon as available and in any event within ninety (90)
days after the close of each fiscal year of Buyer consolidated and consolidating
balance sheets of Buyer and the Company as of the close of such fiscal year, and
consolidated and consolidating statements of income and retained earnings and
statements of cash flows of Buyer and the Company for such fiscal year, in each
case setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an opinion thereon of a firm
of independent public accountants of recognized national standing selected by
Buyer to the effect that the financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except for changes in application in which such accountants concur and as are
noted therein) and present fairly the financial condition of Buyer and the
Company and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, includes such tests of the accounting
records and such other auditing procedures as were considered necessary in the
circumstances.
(c) Promptly upon receipt thereof, each interim or special
audit made by independent accountants of the books of Buyer or the Company.
(d) Promptly upon their becoming available, each financial
statement, report, notice or proxy statement sent by Buyer to stockholders
generally, and each report and any registration statement or prospectus filed by
Buyer with Nasdaq or any securities exchange or the Commission or any successor
agency, and copies of any orders in any proceedings to which Buyer or the
Company is a party issued by any governmental agency, federal or state, having
jurisdiction over Buyer or the Company.
(e) Within the periods provided in paragraphs (a) and (b)
above, a certificate of an authorized financial officer of Buyer stating that
such officer has reviewed the provisions of this Note and setting forth, to the
best of such officer's knowledge, whether there existed as of the date of such
financial statements and whether there exists on the date of the certificate or
existed at any time during the period covered by such financial statements any
Default or any condition which but for the passage of time or the giving of
notice or both would constitute a Default and, if any such condition or event
existed during such period or exists on the date of the certificate, specifying
the nature and period of existence thereof and the action Buyer has taken or is
taking and proposes to take with respect thereto;
(f) The annual plans and operating projections Buyer and the
Company furnish to CIT when and as so furnished.
5. Subordination. Anything in this Note to the contrary
notwithstanding, the Indebtedness evidenced by this Note will be subordinate and
junior in right of payment to the Senior Obligations, whether outstanding on the
date of this Note or incurred after the date of this Note, to the extent and in
the manner hereinafter set forth:
(a) Notwithstanding anything to the contrary contained herein,
this Note is in all respects subject to the terms and provisions of the
Subordination Agreement.
(b) In the event of any sale under or in accordance with any
judgment or decree rendered with respect to this Note in any proceeding by or on
behalf of the holder hereof or in the event of any distribution, division or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of the Company, or the proceeds
thereof, to creditors of the Company occurring by reason of any liquidation,
dissolution or winding up of the Company or in the event of any execution sale,
receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization
or other similar proceeding relative to the Company or its debts or properties,
then in any such event the Winona Lease Obligations will be preferred in
payment, and the Winona Lease Obligations will be first paid and satisfied in
full before any payment or distribution of any kind or character, whether in
cash, property or securities (other than securities which are subordinate and
junior in right of payment to the payment of the Winona Lease which may at the
time be outstanding), will be made upon this Note; and in any such event any
distribution of any kind or character, whether in cash, property or securities
(other than in securities which are subordinate and junior in right of payment
to the payment of the Winona Lease which may at the time be outstanding), which
is made upon or in respect of the Indebtedness will be paid over to the lessor
under the Winona Lease for application to the Winona Lease Obligations unless
and until the Winona Lease Obligations is paid and satisfied in full, and such
amounts so paid over will be deemed not to be made upon or in respect of the
Indebtedness, or the holder of this Note will be subrogated to the rights of the
lessor under the Winona Lease to the extent thereof, as elected by the holder of
this Note;
(c) In the event that pursuant to the provisions hereof this
Note is declared or becomes due and payable before its expressed maturity
because of an occurrence of a Default (under circumstances when the foregoing
clause (b) is not applicable) or otherwise, no amount will be paid by the
Company in respect of Indebtedness in excess of current interest payments as
provided herein, except at the stated maturity thereof (all subject to the
foregoing clause (b) above), unless and until the Winona Lease Obligations has
been paid in full or payment thereof has been provided for in a manner
satisfactory to the lessor under the Winona Lease;
(d) Without limiting the effect of any of the other provisions
hereof, during the continuance of any default in the payment of rent or any
other amount with respect to the Winona Lease, no payment will be made on or
with respect to the Indebtedness, if either (i) notice of such default in
writing has been given to the Company by the lessor under the Winona Lease,
provided that judicial proceedings are commenced with respect to such default
within one hundred eighty (180) days thereafter, or (ii) judicial proceedings
are pending in respect of such default.
(e) The holder hereof irrevocably authorizes and empowers the
holder of the Winona Lease, in any proceeding under Title 11 of the United
States Code in which the Company is subject, to file a proof of claim in behalf
of the holder hereof with respect to the obligations hereunder if the holder
hereof fails to file a proof of its claims prior to 30 days before the
expiration of the time period during which such claims must be submitted, to
accept and receive any payment or distribution which may be payable or
deliverable at any time upon or in respect of the obligations hereunder in an
amount not in excess of that portion of the Winona Lease Obligation then
outstanding (unless CIT is entitled to such payment under the terms of the
Subordination Agreement) and to take such other action as may be reasonably
necessary to effectuate the foregoing. Unless CIT has filed a proof of claim or
has otherwise sought the same information or documents, the holder hereof will
provide to the lessor of the Winona Lease all information and documents
necessary to present claims or seek enforcement as aforesaid.
(f) To the extent that the lessor under the Winona Lease
receives any amounts from the holder hereof in accordance with the provisions of
the Note which, when added to the total amount received directly by the lessor
under the Winona Lease from any other source, exceeds the total Winona Lease
Obligation, the lessor under the Winona Lease will be obligated to pay the
excess to the holder hereof. In the event that as a result of an avoidance
action under Title 11 of the United States Code (including, but not necessarily
limited to, any action under 11 U.S.C. ss.ss. 544, 545, 547, 548, 549 and/or
550), the holder hereof is required to return to the Company or its bankruptcy
estate any payment received by the holder hereof and paid over to the lessor
under the Winona Lease pursuant to this Section 5, thereupon the lessor of the
Winona Lease will pay back to the holder hereof such amount paid over to the
lessor of the Winona Lease.
(g) The provisions of this Section 5 will be subject and
subordinate to the rights of CIT under the Subordination Agreement. The holder
hereof will not be required to take any action, perform any obligation or make
any payment hereunder which it reasonably believes would: (i) be in conflict
with or contrary to the terms of the Subordination Agreement; and/or (ii)
prevent it from performing any of its obligations under the Subordination
Agreement; and/or (iii) prevent or frustrate CIT from exercising any of its
rights under the Subordination Agreement. The lessor under the Winona Lease will
not exercise any rights hereunder to the extent doing so would: (x) be in
conflict with or contrary to the terms of the Subordination Agreement; and/or
(y) prevent the holder hereof from performing any of its obligations under the
Subordination Agreement; and/or (z) prevent or frustrate CIT from exercising any
of its rights under the Subordination Agreement.
(h) No right of any present or future holder of the Senior
Obligations to enforce subordination as herein provided will at any time or in
any way be prejudiced or impaired by any failure to act on the part of Buyer or
the Company, or by any noncompliance by Buyer or the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof that
any such holders of the Senior Obligations may have or with which they may be
otherwise charged. The provisions of this Section 5 are solely for the purpose
of defining the relative rights of the holders of the Senior Obligations on the
one hand, and the holder hereof on the other hand, and nothing in this Section 5
will impair, as between Buyer or the Company and the holder hereof as
applicable, the obligations of Buyer and the Company to pay to the holder hereof
Indebtedness in accordance with the remaining terms of this Note, nor will
anything herein prevent the holder hereof from exercising all remedies otherwise
permitted by applicable law or hereunder upon any Default, subject to the
rights, if any, of the holders of the Senior Obligations as herein provided.
Without limiting the foregoing, no suspension of any payment of Indebtedness
pursuant to the provisions of this Section 5 will suspend or defer the due date
of such payment as determined by the remaining provisions of this Note.
6. Buyer Guaranty and Security Agreement.
6.1 Guaranty. Buyer absolutely, irrevocably and
unconditionally guarantees to the holder hereof the payment of the Indebtedness
promptly when due, by acceleration or otherwise.
6.2 Security Interest. In order to secure the Indebtedness,
Buyer hereby grants to the holder hereof a security interest in all shares of
stock owned by Buyer in the Company (and any and all additions thereto,
substitutions therefor, and proceeds thereof) (the "Pledged Stock").
6.3 Warranties and Obligations of Buyer. Buyer hereby warrants
and covenants to the holder hereof:
(a) The Pledged Stock represents 100% of the issued and
outstanding shares of capital stock of the Company.
(b) Buyer has and will maintain during the term of the Note
sole title to and beneficial ownership of the Pledged Stock, free of all liens,
charges, security interests and encumbrances (other than the security interest
created hereby and under the Senior Pledge), and has full power and authority to
subject the Pledged Stock to the security interest created hereby.
(c) Buyer will hereafter from time to time execute and deliver
such financing statements, assignments separate from certificates and other
instruments or documents, deliver the certificates representing the Pledged
Stock to the holder hereof upon termination of the Senior Pledge and perform
such other acts as the holder hereof may reasonably request to establish,
protect and maintain a perfected security interest in the Pledged Stock and an
ability to effectively enforce its remedies hereunder with respect to the
Pledged Stock. Buyer will at all times cause all certificates representing the
Pledged Stock to include a legend referencing this Note and the security
interest of the holder hereof provided hereunder.
6.4 Priority. The holder of this Note by acceptance hereof
agrees that the security interest granted hereunder in the Pledged Stock is
subordinate and junior in interest and priority to the Senior Pledge.
6.5 Nonimpairment. The holder hereof may from time to time,
without notice to Buyer, and without impairing or affecting the security
interest created hereby: (a) acquire a security interest in any property in
addition to the Pledged Stock, or release any such interest so acquired or
release any security interest in any of the Pledged Stock, or permit any
substitution or exchange for such property or any part thereof; (b) acquire the
primary or secondary liability of any party or parties with respect to all or
any of the Indebtedness, or release, modify, or compromise the same or any part
thereof; (c) modify, extend or renew for any period any of the Indebtedness; and
(d) resort to the Pledged Stock for payment of the Indebtedness whether or not
the holder hereof has resorted to any other collateral or proceeding against any
party primarily or secondarily liable on the Indebtedness.
6.6 Voting Rights. Buyer hereby grants to the holder hereof an
irrevocable proxy, coupled with an interest, to vote any or all of the Pledged
Stock, which proxy may be exercised by the holder hereof only at such time as a
Default in the payment of principal under this Note is continuing and no Senior
Pledge is in effect. Such proxy will remain in effect until the Note is
satisfied in full. Except for those instances where the holder hereof exercises
such proxy, Buyer will be entitled to exercise the voting power with respect to
the Pledged Stock consistent with the terms or purposes of this Note.
6.7 Remedies. In the event a Default hereunder has occurred
and is continuing, the holder hereof will have, in addition to any other rights
and remedies a secured party can assert under the Minnesota Uniform Commercial
Code and to the extent not inconsistent with nonwaivable provisions thereof, the
following rights and remedies, without having to give notice except as is
hereinafter specifically provided:
(a) The holder hereof may sell the Pledged Stock, or any part
thereof, at a public or private sale, following the notice hereinafter provided,
for cash, upon credit, or for future delivery at such price or prices as the
holder hereof deems satisfactory. The holder hereof, or any parties related to
or affiliated with the holder hereof, may purchase any or all of the Pledged
Stock sold at a public sale. The holder hereof is authorized at any sale, if the
holder hereof deems it advisable to do so, to restrict the prospective bidders
or purchasers to persons who will represent and agree that they are purchasing
for their own account for investment, and not with a view to the distribution or
sale of any of the Pledged Stock. Upon any such sale, the holder hereof will
have the right to deliver, assign, and transfer to the purchaser thereof the
Pledged Stock so sold. Each purchaser at any such sale will hold the property
sold absolutely free from any claim or right of Buyer of whatsoever kind,
including any equity or right of redemption of Buyer which Buyer has under any
rule of law or statute now existing or hereafter adopted; and as to such
purchaser, Buyer hereby specifically waives all such rights of redemption, of
stay, or of appraisal, which might in any way affect such purchaser. The holder
hereof will give Buyer at least ten (10) days' written notice of intention to
make such public or private sale, which notice will state the time and place
fixed for such public sale or the time after which such private sale may be
consummated and whether the sale is to be public or private. At any such sale
the Pledged Stock may be sold in one lot as an entirety or in separate parcels,
as the holder hereof may determine. In case of any sale on credit or for future
delivery, the Pledged Stock so sold may be retained by the holder hereof until
the selling price is paid by the purchaser thereof, and the holder hereof will
not incur any liability in case of the failure of such purchaser to take up and
pay for the Pledged Stock so sold, and in case of any such failure, such Pledged
Stock may be again sold upon like notice. The holder hereof will not be
obligated to complete any sale for which the holder hereof sends out notice and
may, without notice or publication, adjourn any sale or cause the same to be
adjourned by announcement at the time and place fixed for such sale, and such
sale may thereafter be made at the time and place to which the same has been so
adjourned.
(b) The holder hereof, instead of exercising the power of
nonjudicial sale herein conferred, may proceed by a suit or suits at law or in
equity to foreclose the pledge and sell the Pledged Stock, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(c) Without limiting the rights of the holder hereof under any
other provision of this Note, and in addition thereto, Buyer will be obligated,
to the maximum extent permitted by law, if a Default is continuing and if
counsel for the holder hereof determines that it is necessary for the lawful
sale of the Pledged Stock in a commercially reasonable manner, upon written
request from the holder hereof, to vote its shares to cause the Company, at the
Company's or Buyer's expense, to prepare, file and cause to become effective
promptly, a registration statement complying with the Securities Act for the
public sale of such of the Pledged Stock as the holder hereof may elect, and to
take comparable action to permit such sales under the securities laws of such
state jurisdictions as the holder hereof may designate. If such registration
statement is filed, Buyer further will be obligated to vote its shares to cause
the Company, at the Company's or Buyer's expense, to enter into and perform its
obligations under one or more underwriting agreements in connection therewith,
containing customary representations, warranties, covenants, and indemnities and
contribution provisions if requested by the holder hereof. Buyer will be
obligated to vote its shares to cause the Company, at the Company's or Buyer's
expense, (i) to keep any such registration statement and related prospectus
current and in compliance with applicable federal and state securities laws so
long as required to satisfy applicable prospectus delivery requirements and (ii)
at the request of the holder hereof at any time after the effective date of any
such registration statement, to file post-effective amendments to such
registration statement so that sales of Pledged Stock by the holder hereof will
be covered by a current prospectus and can be made in compliance with all
applicable federal and state securities laws.
(d) Buyer further will be obligated to (i) take such action as
is necessary to cause the Company to delivery to the holder hereof such
information as the holder hereof reasonably requests for inclusion in any
registration statement, prospectus or offering memorandum or in any preliminary
prospectus or preliminary offering memorandum or any amendment or supplement to
any thereof or in any other writing prepared in connection with the offer, sale
or resale of all or any portion of the Pledged Stock and to deliver such
information regarding Buyer as the holder hereof reasonably requests, which
information will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make such
information not misleading, and (ii) vote its shares to do or cause to be done
all such other acts and things as may be necessary to make such offer, sale or
resale of all or any portion of the Pledged Stock valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental agencies or instrumentalities, domestic or foreign, having
jurisdiction over any such offer, sale or resale.
(e) Without limiting paragraphs (c) and (d) of this Section
6.7, if the holder hereof decides to exercise its right to sell all or any of
the Pledged Stock, upon written request Buyer will from time to time take such
action as is necessary to cause to be furnished to the holder hereof all such
information as the holder hereof may request and as is accessible to Buyer in
order to qualify such Pledged Stock as exempt securities, or the sale or release
of such Pledged Stock as exempt transactions, under federal or state securities
laws. Buyer will be obligated to take such action as is necessary to cause the
Company to allow the holder hereof and any underwriter access at reasonable
times and places to the books, records and premises of the Company; Buyer
further will be obligated to assist, and take such action as is necessary to
cause the Company to assist the holder hereof, any underwriter, any agent of any
thereof, and any counsel, accountant or other expert for any thereof, in
inspection, evaluation, and any other "due diligence" action of or with respect
to any such books, records and premises; and Buyer further will be obligated to
cause any independent public accountant for the Company to furnish a letter to
the holder hereof and underwriters in customary form and covering matters of the
type customarily covered by letters of accountants for issuers to underwriters.
(f) Buyer further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by the holder hereof
by reason of the failure by Buyer to perform any of the covenants contained in
this Section and, consequently, agrees that, if Buyer fails to perform any of
such covenants, the holder hereof will be entitled to equitable relief for the
enforcement of the provisions of this Section 6.7. Buyer will indemnify the
holder hereof for any and all fees, charges, reimbursements, judgments or other
expenses incurred by the holder hereof due to any failure of Buyer to perform
its obligations under this Section 6.7.
(g) Notwithstanding the foregoing provisions of this Section
6.7, the holder of this Note will not be permitted to exercise any of the
foregoing rights or remedies contained or referenced in this Section 6.7 for so
long as any Senior Pledge remains in effect without the prior written consent of
the holder thereof.
6.8 Application of Proceeds. The proceeds of any sale of the
Pledged Stock hereunder will be applied by the holder hereof:
(a) first, to the payment of the costs and expenses of such
sale, including reasonable attorneys' fees and all expenses and advances made or
incurred by it in connection therewith;
(b) second, to the payment of the Indebtedness;
(c) finally, to the payment to Buyer or its successors and
assigns of any surplus then remaining from such proceeds.
(d) The holder hereof will not be required to make any
allocation or distribution to Buyer of proceeds from sale except from collected
funds after satisfaction or release of all indemnification or other payment
obligations that may be asserted against the holder hereof or such proceeds in
connection with such sale. Any collected funds retained pursuant to this
provision will be promptly deposited or invested in Permitted Investments until
disbursed in accordance herewith.
6.9 Waivers. The holder hereof may at any time and from time
to time, without the consent of or notice to Buyer, without incurring
responsibility to Buyer, without releasing, impairing or affecting the liability
of Buyer hereunder, upon or without any terms or conditions and in whole or in
part: (a) sell, pledge, surrender, compromise, settle, release, renew,
subordinate, extend, substitute, exchange, change, or otherwise dispose of or
deal with in any manner and in any order any Indebtedness, any evidence thereof,
or any security therefor; (b) accept any security for or other guarantors of any
Indebtedness; and (c) fail, neglect or omit to obtain, realize upon or protect
any Indebtedness or any security therefor, to exercise any lien upon or right to
any money, credit or property toward the liquidation of the Indebtedness, or to
exercise any other right against Buyer, the Company or any other person. No act
or thing, except full payment and discharge of the Indebtedness, which but for
this provision could act as a release or impairment of the liability of Buyer
hereunder, will in any way release, impair or affect such liability.
6.10 Primary Obligation. This guaranty is a primary obligation
of Buyer and the holder hereof will not be required to first resort for payment
of the Indebtedness to the Company or any other person, their properties or
estates, or any security or other rights or remedies whatsoever. Buyer will be
and remain liable for any deficiency remaining after foreclosure of any mortgage
or security interest securing Indebtedness, whether or not the liability of the
Company or any other person for such deficiency is discharged pursuant to
statute, judicial decision or otherwise. If any payment applied by the holder
hereof to the Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including without limitation the
bankruptcy, insolvency or reorganization of Buyer or any other person), the
Indebtedness to which such payment was applied will for the purposes of Buyer's
guaranty be deemed to have continued in existence, notwithstanding such
application, and this guaranty will be enforceable as to such Indebtedness as
fully as if such application had never been made.
6.11 Additional Waivers. Buyer waives: (a) notice of
acceptance of its guaranty hereunder and of the creation and existence of the
Indebtedness; (b) presentment, demand for payment, notice of dishonor, notice of
nonpayment, and protest of any instrument evidencing the Indebtedness; and (c)
all other demands and notices to Buyer, the Company or any other person and all
other actions to establish the liability of Buyer hereunder.
7. Default, Remedies
7.1 Default. Any one or more of the following constitutes a
Default as that term is used herein:
(a) Failure of the Company to pay any principal amount or
interest hereunder when due and continuation of such condition for fifteen (15)
days after written notice thereof by the holder hereof to the Company;
(b) Failure to perform any obligation of the Company hereunder
other than for the payment of money and continuation of such condition for
thirty (30) days after written notice thereof by the holder hereof to the
Company;
(c) Failure of the Company to pay any amount under the Senior
Obligations when due for so long as such condition continues;
(d) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against Buyer or the
Company and, if instituted against Buyer or the Company are consented to or are
not dismissed within sixty (60) days after such institution; or
(e) Buyer or the Company becomes insolvent or bankrupt,
generally does not pay its debts as they become due or makes an assignment for
the benefit of creditors, or Buyer or the Company applies for or consents to the
appointment of a custodian, trustee or receiver for Buyer or the Company or for
the major part of the property of either, or a custodian, trustee or receiver is
appointed for Buyer or the Company or for the major part of the property of
either and is not discharged within sixty (60) days after such appointment.
7.2 Acceleration of Maturity. When any Default described in
Sections 7.1(b) or (e) has happened and is continuing, and in the case of
Section 7.1(b) provided no Senior Obligation is then outstanding, the holder
hereof may, by written notice to the Company, declare the entire principal and
all interest accrued hereunder to be, and the same will thereupon become,
immediately due and payable, without any presentment, demand, protest or other
notice of any kind. When a Default described in Section 7.1 (d) has occurred,
the entire principal and all interest accrued hereunder will thereupon become
immediately due and payable without presentment, demand, protest or other notice
of any kind.
7.3 Costs of Enforcement. Upon a Default, the Company will be
obligated to pay all costs of collection and enforcement of the rights and
remedies of the holder hereof, including court costs and attorneys fees, whether
or not legal proceedings are commenced.
7.4 Waivers. The Company waives presentment for payment,
demand, protest, notice of protest and notice of dishonor. No delay by the
holder hereof in exercising any right or remedy hereunder, at law or in equity
will operate as a waiver of such right or remedy and no single or partial
exercise of any such right or remedy will preclude any further exercise thereof,
or the exercise of any other rights or remedies.
8. Notices. Any notice, request, instruction or other document to be
given hereunder by Buyer, the Company or the holder of this Note to any such
other party will be in writing and delivered personally or by telephonic
facsimile transmission or sent by registered or certified mail, postage prepaid
(and if by telephonic facsimile transmission with a copy sent by mail),
if to the holder of this Note to:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, California 90067
Attn: Lori Poulos
Facsimile No.: 310-552-3446
with a copy to:
Oppenheimer Wolff & Donnelly
Suite 3400, Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Douglas L. Hemer
Facsimile No.: 612-344-9376
if to Buyer or the Company to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
9. Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this Note
or the breach hereof, unless resolved by mutual agreement of the parties, will
be finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the effective date of
this Agreement by a single arbitrator appointed in accordance with said Rules.
The determination of the arbitrator will be final and binding upon the parties
to the arbitration and judgment upon the award rendered by the arbitrator will
be entered in any court of competent jurisdiction. The place of arbitration will
be Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Agreement in any court of competent
jurisdiction.
10. Governing Law; Consent to Jurisdiction. This Note will be construed
in accordance with and governed by the laws of the State of Minnesota applicable
to agreements made and to be performed in such jurisdiction without reference to
conflicts of law principles. Buyer and the Company by execution and delivery of
this Note, and the holder of this Note by acceptance hereof, each irrevocably
consents that any legal action or proceeding against it under, arising out of or
in any manner relating to this Note may be brought only in an arbitration
proceeding as provided in Section 9 or in a court of the State of Minnesota or
in the United States District Court for the District of Minnesota. Each of
Buyer, the Company and the holder of this Note further expressly and irrevocably
assents and submits to the personal jurisdiction of the arbitrators selected
pursuant to Section 9 or any of such courts in any such action or proceeding.
Each of Buyer, the Company and the holder of this Note further irrevocably
consents to the service of any complaint, summons, notice or other process
relating to any such action or proceeding by delivery thereof to it by hand or
by mail in the manner provided for in Section 8 hereof. Each of Buyer, the
Company and the holder of this Note further hereby expressly and irrevocably
waives any claim or defense in any action or proceeding based on any alleged
lack of personal jurisdiction, improper venue or forum non conveniens or any
similar basis.
IN WITNESS WHEREOF, Buyer has caused this Note to be duly executed and
delivered on the day and year first above written.
PEERLESS CHAIN COMPANY
By
Its
IN CONSIDERATION of Seller's acceptance of the Note and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Buyer hereby agrees to the guaranty and grant of security interest
and all other terms of Sections 4, 5, 6, 7, 8, 9 and 10 and, to the extent
applicable to such Sections, Section 2 of the foregoing Note.
DISCUS ACQUISITION CORPORATION
By
Its
Exhibit F
BUYER FINANCINGS
TRANSACTION SOURCES AND USES
(thousands)
<TABLE>
<CAPTION>
SOURCES: USES:
<S> <C> <C> <C>
Revolver $ 9,543,000 Cash to Seller $21,250,000
Sr. Term Loan 6,700,000 Seller Sub Debt 2,500,000
Seller Sub Debt 2,500,000 Transaction Costs 1,043,000
Preferred Stock 1,800,000
Common Stock 4,250,000
----------- -----------
Total $24,793,000 Total $24,793,000
=========== ===========
</TABLE>
EQUITY SOURCES:
Preferred Shareholders $1,800,000
New Common Shareholders 2,000,000
Discus Acquisition 2,250,000
FINANCING AGREEMENT
The CIT Group/Business Credit, Inc.
(as Lender)
And
Peerless Chain Company and
Peerless Chain of Iowa, Inc.
(as Borrowers)
Dated: December 13, 1995
TABLE OF CONTENTS
SECTION 1. Definitions .................................................. 1
SECTION 2. Conditions Precedent ......................................... 13
SECTION 3. Revolving Loans .............................................. 16
SECTION 4. Term Loans and CAPEX Term Loans .............................. 19
SECTION 5. Letters of Credit ............................................ 22
SECTION 6. Collateral ................................................... 25
SECTION 7. Representations, Warranties and Covenants .................... 28
SECTION 8. Interest, Fees and Expenses .................................. 37
SECTION 9. Powers ....................................................... 41
SECTION 10. Events of Default and Remedies ............................... 41
SECTION 11. Termination .................................................. 45
SECTION 12. Miscellaneous ................................................ 45
EXHIBIT
Exhibit A - Form of Promissory Note A
Exhibit B - Form of Promissory Note B
Exhibit C - Form of Capex Term Loan Note
SCHEDULES
Schedule 1 - List of Leased Locations and Monthly Rental Amounts
Schedule 2 - Existing Liens
Schedule 3 - Collateral Locations and Chief Executive Office
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation,
(hereinafter "CITBC") with offices located at 10 South LaSalle Street, Chicago,
IL 60603, is pleased to confirm the terms and conditions under which CITBC shall
make revolving loans, term loans and other financial accommodations to Peerless
Chain Company (herein the "PCC"), a Minnesota corporation with a principal place
of business at 1416 East Sanborn Street and Peerless Chain of Iowa, Inc. (herein
"PCII"), an Iowa corporation with a principal place of business at 1416 East
Sanborn Street, Winona, MN 55987-5349 (PCC and PCII may be referred to herein
individually as a "Company" and collectively as the "Companies").
SECTION 1. DEFINITIONS
ACCOUNTS shall mean all of the Companies' now existing and future: (a) accounts
(as defined in the U.C.C.) and any and all other receivables (whether or not
specifically listed on schedules furnished to CITBC), including, without
limitation, all accounts created by or arising from all of their sales of goods
or rendition of services to their customers, and all accounts arising from sales
or rendition of services made under any of their trade names or styles, or
through any of their divisions; (b) any and all instruments (as defined in the
U.C.C.), documents (as defined in the U.C.C.), contract rights (as defined in
the U.C.C.) and chattel paper (as defined in the U.C.C.); (c) unpaid seller's
rights (including rescission, replevin, reclamation and stoppage in transit)
relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned or repossessed
goods; (e) reserves and credit balances arising hereunder; (f) guarantees or
collateral for any of the foregoing; (g) insurance policies or rights relating
to any of the foregoing; and (h) cash and non-cash proceeds of any and all the
foregoing.
ACCOUNTS RECEIVABLE ADVANCE PERCENTAGE shall mean eighty-five percent (85%),
provided that Accounts arising from sales to Walmart under the Companies'
guarantied sales programs shall be subject to a reduced advance percentage equal
to sixty percent (60%) and no dilution reserve shall be applicable to such sales
to Walmart.
ACQUISITION shall mean the purchase by Parent of all of the remaining
outstanding common stock of PCC after giving effect to the Redemption.
ADDITIONAL SELLER SUBORDINATED NOTE shall mean the promissory note in the
principal amount of $1,200,000 dated on or about the date hereof executed by
Parent to the order of Bridgewater Resources Corp. in connection with the
Acquisition.
ANNIVERSARY DATE shall mean the date occurring three (3) years from the date
hereof and the same date in every year thereafter.
AVAILABILITY shall mean, as to any Company, at any time the excess of the sum of
a) Eligible Accounts Receivable of such Company multiplied by the Accounts
Receivable Advance Percentage and b) the lesser of (i) Eligible Inventory of
such Company multiplied by the Inventory Advance Percentage or (ii) the
Inventory Loan Cap over the sum of x) the outstanding aggregate amount of all
Obligations of such Company, including, without limitation, all Obligations with
respect to Revolving Loans and Letters of Credit but excluding the Term Loans,
CAPEX Term Loans and all Obligations with respect to the $150,000 additional
Loan Facility Fee until such time as such fee is due and payable and y) the
Availability Reserve of such Company.
AVAILABLE RESERVE shall mean, as to any Company, the sum of two (2) months
rental payments on all of its leased premises (determined in accordance with
Schedule 1 hereto) for which it has not delivered to CITBC a landlord's waiver
(in form and substance satisfactory to CITBC in the exercise of its reasonable
business judgment), provided that such amount shall be adjusted from time to
time hereafter upon (i) delivery to CITBC of any such acceptable waiver, (ii)
the opening or closing of a Collateral location and/or (iii) and change in
rental payment.
BUSINESS DAY shall mean any day that CITBC is open for business in New York, New
York, which is not (i) a Saturday, Sunday or legal holiday in the state of New
York or (ii) a day on which banking institution chartered by the state of New
York or the United States are legally required to close.
CAPEX TERM LOANS shall mean the term loans made and to be made to the Companies
by CITBC in the aggregate principal amount of up to $4,000,000 as more fully
described in Section 4 of this Financing Agreement.
CAPEX TERM LOANS LIMITATION shall mean the sum of (a) $500,000, provided that
such amount set forth in this clause (a) shall apply only during the period from
the date hereof through and including the date occurring 12 months after the
date hereof, plus (b) an amount equal to (i) the Companies actual EBITDA for the
12 month period ending on the last day of the month preceding the request for a
CAPEX Term Loan (or in case of any calculation date occurring prior to one (1)
year after the date of this Financing Agreement the period from the date of this
Financing Agreement to such calculation date) minus (ii) the sum of (x) the
minimum EBITDA amount required by Section 7, Paragraph 10(d) hereof as at such
month end plus (y) $500,000, provided that such amount set forth in this clause
(y) shall apply only during the period from the date hereof through and
including the date occurring 12 months after the date hereof, plus (z) the
aggregate amount of CAPEX Term Loans theretofore borrowed by the Companies
during such 12 month period.
CAPEX TERM LOAN LINE OF CREDIT shall mean the commitment of CITBC to make CAPEX
Term Loans to the Companies pursuant to Section 4 of this Financing Agreement in
the aggregate amount of $4,000,000 for the Companies.
CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures
of the Companies during such period that in conformity with GAAP are required to
be included in or reflected by the property, plant or equipment or similar fixed
asset account reflected in the balance sheet of the Companies.
CAPITAL IMPROVEMENTS shall mean operating Equipment and facilities (other than
land) acquired or installed for use in the Companies' business operations.
CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure on the balance sheet of the Companies.
CHEMICAL BANK RATE shall mean the rate of interest per annum announced by
Chemical Bank from time to time as its prime rate in effect at its principal
office in the City of New York. (The prime rate is not intended to be the lowest
rate of interest charged by Chemical Bank to its borrowers).
CITBC COMMITMENT LETTER shall have the mean the commitment letter dated November
7, 1995 issued by CITBC to, and accepted by, Parent.
CLOSING DATE shall mean the date on or after the date hereof upon which CITBC
makes the initial extension of credit hereunder whether in the form of Revolving
Loans, Letters of Credit, Term Loans or CAPEX Term Loans.
COLLATERAL shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, and Other Collateral of the Companies.
COLLATERAL MANAGEMENT FEE shall mean the sum of $30,000.00 which shall be paid
to CITBC in accordance with Section 8, Paragraph 11 hereof to offset the
expenses and costs of CITBC in connection with record keeping, periodic
examinations, analyzing and evaluating the Collateral.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for Parent,
the Companies and the consolidated subsidiaries of each eliminating all
inter-company transactions and prepared in accordance with GAAP.
CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus
individual balance sheets for Parent, the Companies, and the subsidiaries of
each showing all eliminations of inter-company transactions and prepared in
accordance with GAAP and including a balance sheet for each Company exclusively.
CURRENT ASSETS shall mean those assets which in accordance with GAAP are
classified as current.
CURRENT LIABILITIES shall mean, wherever used through out this Financing
Agreement, those liabilities which in accordance with GAAP, are classified as
"current", provided, however, that notwithstanding GAAP, the Revolving Loans and
the current portion of Permitted Indebtedness shall be considered "current
liabilities".
CUSTOMARILY PERMITTED LIENS shall mean
(a) liens of local or state authorities for franchise or other like
taxes provided the aggregate amounts of such liens shall not exceed $100,000.00
in the aggregate for the Companies at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of
business (including, without limitation, security deposits for leases, surety
bonds and appeal bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; and
(d) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, minor defects or
irregularities in title, variation and other restrictions, charges or
encumbrances (whether or not recorded) affecting the Real Estate and which in
the aggregate (i) do no materially interfere with the occupation, use or
enjoyment by the Companies in their business of the property so encumbered and
(ii) in the reasonable business judgment of CITBC does not materially and
adversely affect the value of such Real Estate.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the
sum of: a) two percent (2%) plus b) the applicable contract rate of interest
based upon an increment over the Chemical Bank Rate as determined in accordance
with Section 8 hereof, which CITBC shall be entitled to charge the Company on
all Obligations due CITBC by the Companies to the extent provided in Section 10,
Paragraph 2 of this Financing Agreement.
DEPOSITORY ACCOUNTS shall have the meaning specified in Section 3, Paragraph 4
hereof.
DOCUMENTATION FEE shall mean i) the sum of $15,015 which is intended to
compensate CITBC for the use of CITBC's in-house Legal Department and facilities
in documenting, in whole or in part, the initial transaction solely on behalf of
CITBC, exclusive of Out-of-Pocket Expenses, and ii) CITBC's standard fees
relating to any and all modifications, waivers, releases, amendments or
additional collateral with respect to this Financing Agreement, the Collateral
and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined in
the U.C.C.) including, without limitation all warehouse receipts, bills of
lading, shipping documents, chattel paper, instruments and similar documents,
all whether negotiable or not and all goods and Inventory relating thereto and
all cash and non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean the date on which the Companies terminate this
Financing Agreement or the Line of Credit which date is prior to an Anniversary
Date.
EARLY TERMINATION FEE shall: i) mean the fee CITBC is entitled to charge the
Companies in the event they terminate the Line of Credit or this Financing
Agreement on a date prior to an Anniversary Date; and ii) be determined by
calculating the sum of (x) the average daily loan balance of the Revolving Loans
of the Companies plus (y) the average daily balance of outstanding Letters of
Credit of the Companies for the period from the date of this Financing Agreement
to the Early Termination Date and multiplying that sum by two percent (2%) per
annum for the number of days from the Early Termination Date to the next
succeeding Anniversary Date.
EBIT shall mean, in any period, all earnings before all interest and tax
obligations for said period, determined in accordance with GAAP.
EBITDA shall mean, in any period, all earnings before all (i) interest and tax
obligations, (ii) depreciation, (iii) amortization for said period, and (iv) the
non-cash accrual for FASB106 for said period, all determined in accordance with
GAAP on a basis consistent with the latest audited financial statements of the
Companies, provided that for the purposes of this definition the effect of the
non-cash impact resulting from APB16 (inventory write-up) shall be excluded.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean, as to any Company, the gross amount
such Company's Trade Accounts Receivable that are subject to a valid, first
priority and fully perfected security interest in favor of CITBC and which
conform to the warranties contained herein and at all times continue to be
acceptable to CITBC in the exercise of its reasonable business judgment, less,
without duplication, the sum of a) any returns, discounts, claims, credits and
allowances of any nature (whether issued, owing, granted or outstanding) and b)
reserves for: i) sales to the United States of America or to any agency,
department or division thereof; ii) foreign sales other than sales x) secured by
stand-by letters of credit (in form and substance satisfactory to CITBC) issued
or confirmed by, and payable at, banks having a place of business in the United
States of America and payable in United States currency, or y) to customers
residing in Canada provided such sales otherwise comply with all of the other
criteria for eligibility hereunder, are payable in United States currency and
such sales do not exceed $1,000,000.00 in the aggregate at any one time; iii)
(x) Accounts arising from Sales Subject To Acceptable Extended Dating Terms
provided that no payment due thereunder or with respect thereto remains unpaid
more than 30 days after the respective due date thereof and (y) Accounts (other
than Accounts arising from Sales Subject To Acceptable Extended Dating Terms)
that remain unpaid more than ninety (90) days from invoice date; iv) contras; v)
sales to Parent, any subsidiary, or to any company affiliated with the Companies
or Parent in any way; vi) bill and hold (deferred shipment) or consignment sales
or Accounts generated from sales under the Companies guaranteed sales programs
(other than those to Walmart which meet all of the other relevant criteria of
eligibility hereunder not to exceed $500,000 in the aggregate at any time); vii)
sales to any customer which is a) insolvent, b) the debtor in any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceedings
under any federal or state law, c) negotiating, or has called a meeting of its
creditors for purposes of negotiating, a compromise of its debts or d)
financially unacceptable to CITBC or has a credit rating unacceptable to CITBC;
viii) all sales to any customer if fifty percent (50%) or more of either x) all
outstanding invoices or y) the aggregate dollar amount of all outstanding
invoices, are unpaid more than the applicable time periods specified in clause
iii) above; ix) any other reasons deemed necessary by CITBC in its reasonable
business judgment and which are customary either in the commercial finance
industry or in the lending practices of CITBC; and x) an amount representing,
historically, returns, discounts, claims, credits and allowances.
ELIGIBLE INVENTORY shall mean, as to any Company, the gross amount of such
Company's Inventory that is subject to a valid, first priority and fully
perfected security interest in favor of CITBC and which conform to the
warranties contained herein and which at all times continue to be acceptable to
CITBC in the exercise of its reasonable business judgment less any
work-in-process, supplies (other than raw material), goods not present in the
United States of America, goods returned or rejected by its customers other than
goods that are undamaged and resalable in the normal course of business, goods
to be returned to its suppliers, goods in transit to third parties (other than
its agents or warehouses), Inventory in possession of a warehouseman, bailee or
other third party unless such warehouseman, bailee or third party has executed a
notice of security interest agreement (in form and substance satisfactory to
CITBC) and CITBC has taken all other action required to perfect its security
interest in such Inventory, and less any reserves required by CITBC in its
reasonable discretion for special order goods, market value declines and bill
and hold (deferred shipment) or consignment sales.
EQUIPMENT shall mean all present and hereafter acquired equipment (as defined in
the U.C.C.) including, without limitation, all machinery, equipment, furnishings
and fixtures, and all additions, substitutions and replacements thereof,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto and all proceeds of
whatever sort.
ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended
from time to time and the rules and regulations promulgated thereunder from time
to time.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this
Financing Agreement.
EXECUTIVE OFFICERS shall mean the Chairman, President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Executive Vice President(s),
Senior Vice President(s), Treasurer, Controller and Secretary of the Company.
FISCAL QUARTER shall mean each three (3) month period ending on March 31, June
30, September 30, and December 31 of each year.
FISCAL YEAR shall mean each twelve (12) month period commencing on January 1 of
each year and ending on the following December 31.
FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio
determined by dividing EBITDA by the sum of (i) all interest obligations paid or
due, (ii) the amount of principal repaid or scheduled to be repaid on the Term
Loans, Capex Term Loans, Capital Leases and Subordinated Debt, (iii) Capital
Expenditures expended in cash, and (iv) all federal, state and local income tax
expenses due and payable after giving effect to applicable net operating losses.
GAAP shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such
accounting principles are to apply.
GENERAL INTANGIBLES shall have the meaning set forth in the U.C.C. and shall
include, without limitation, all present and future right, title and interest in
and to all tradenames, Trademarks (together with the goodwill associated
therewith), Patents, licenses, customer lists, distribution agreements, supply
agreements and tax refunds, together with all monies and claims for monies now
or hereafter due and payable in connection with any of the foregoing or
otherwise, and all cash and non-cash proceeds thereof.
GUARANTORS shall mean i) Parent, and ii) the Companies.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of money
(borrowed or otherwise) or for the deferred purchase price of property, services
or assets, other than Inventory, or (b) lease obligations which, in accordance
with GAAP, have been, or which should be capitalized.
INVENTORY shall mean all of the Companies' present and hereafter acquired
inventory (as defined in the U.C.C. including, without limitation all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same; in all
stages of production- from raw materials through work-in-process to finished
goods - and all proceeds thereof of whatever sort.
INVENTORY ADVANCE PERCENTAGE shall mean sixty percent (60%).
INVENTORY LOAN CAP shall mean $7,000,000.
ISSUING BANK shall mean the bank issuing Letters of Credit for the Companies.
LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of
CITBC by the Issuing Bank for or on behalf of the Companies.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by CITBC to the
Issuing Bank of the Companies' reimbursement obligation under the Issuing Bank's
Reimbursement Agreement, Application for Letter of Credit or other like
document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge the Companies
under Section 8, Paragraph 6 of this Financing Agreement for: i) issuing the
Letter of Credit Guaranty or ii) otherwise aiding the Company in obtaining
Letters of Credit.
LETTER OF CREDIT SUB-LINE shall mean $2,000,000 in the aggregate for the
Companies.
LEVERAGE RATIO shall mean the ratio determined by dividing Total Liabilities by
Net Worth.
LIBOR shall mean at any time of determination, and subject to availability, for
each interest period the higher of the applicable London Interbank Offered rate
paid in London on dollar deposits from other banks as (x) quoted by Chemical
Bank, (y) published under "Money Rates" in the new York City edition of the Wall
Street Journal or if there is no such publication or statement therein as to
Libor then in any publication used in the New York City financial community or
(z) determined by CITBC based upon information presented on Telerate Systems at
Page 3750 as of 11:00 a.m. (London Time).
LIBOR LOAN shall mean those Revolving Loans, Term Loans and/or CAPEX Term Loans
for which the Company has elected to use Libor for interest rate computations.
LIBOR PERIOD shall mean the Libor for one month, two month, three month or six
month U.S. dollar deposits, as selected by the Companies.
LINE OF CREDIT shall mean the commitment of CITBC to make Revolving Loans
pursuant to Section 3 of this Financing Agreement and to assist the Company in
opening Letters of Credit pursuant to Section 5 of this Financing Agreement, in
the aggregate amount equal to $13,000,000 for the Companies.
LINE OF CREDIT FEE shall: i) mean the fee due CITBC at the end of each month for
the Line of Credit, and ii) be determined by multiplying the difference between
the sum of (x) the Line of Credit and (y) the CAPEX Term Loan Line of Credit,
and the sum of (x) the average daily balance of Revolving Loans of the Companies
plus (y) the average daily balance of Letters of Credit of the Companies and (z)
the average daily balance of CAPEX Term Loans of the Companies for said month by
one half of one percent (1/2 of 1%) per annum for the number of days in said
month.
LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with, and
pursuant to, the provisions of Section 8, Paragraph 10 of this Financing
Agreement.
MANDATORY PREPAYMENT shall: i) mean the amount by which the Companies must
prepay the Term Loans on or before the 90th day after the end of their Fiscal
Year; and ii) be determined as set forth in Section 4, Paragraph 16 of this
Financing Agreement.
NET WORTH shall mean assets in excess of liabilities, and shall be determined in
accordance with GAAP, on a consistent basis with the latest audited statements,
provided that for the purpose of this definition the effect of the non-cash
impact to retained earnings resulting from APB16 (inventory write-up) shall be
excluded.
OBLIGATIONS shall mean all loans and advances made or to be made by CITBC to the
Companies or to others for the Companies' account (including, without
limitation, all Revolving Loans, Letters of Credit, Term Loans and CAPEX Term
Loans); any and all indebtedness and obligations which may at any time be owing
by the Companies to CITBC howsoever arising, whether now in existence or
incurred by the Companies from time to time hereafter; whether secured by
pledge, lien upon or security interest in any of the Companies' assets or
property or the assets or property of any other person, firm, entity or
corporation; whether such indebtedness is absolute or contingent, joint or
several, matured or unmatured, direct or indirect and whether the Companies are
liable to CITBC for such indebtedness as principal, surety, endorser, guarantor
or otherwise. Obligations shall also include indebtedness owing to CITBC by the
Companies under this Financing Agreement or under any other agreement or
arrangement now or hereafter entered into between the Companies and CITBC;
indebtedness or obligations incurred by, or imposed on, CITBC as a result of
environmental claims (other than as a result of actions of CITBC) arising out of
the Companies' operation, premises or waste disposal practices or sites; the
Companies' liability to CITBC as maker or endorser on any promissory note or
other instrument for the payment of money; the Companies' liability to CITBC
under any instrument of guaranty or indemnity, or arising under any guaranty,
endorsement or undertaking which CITBC may make or issue to others for the
Companies' account, including any accommodation extended with respect to
applications for Letters of Credit, CITBC's acceptance of drafts or CITBC's
endorsement of notes or other instruments for the Companies' account and
benefit.
OPERATING LEASES shall mean all leases of property (whether real, personal or
mixed) other than Capital Leases, provided that leases of Real Estate for more
than one (1) year shall be treated as Capital Leases hereunder.
OTHER COLLATERAL shall mean all now owned and hereafter acquired deposits
accounts maintained with any bank or financial institutions; all cash and other
monies and property in the possession or control of CITBC; all books, records,
ledger cards, disks and related data processing software at any time evidencing
or containing information relating to any of the Collateral described herein or
otherwise necessary or helpful in the collection thereof or realization thereon,
and all cash and non-cash proceeds of the foregoing.
OUT-OF-POCKET EXPENSES shall mean all of CITBC's present and future expenses
incurred relative to this Financing Agreement, whether incurred heretofore or
hereafter, which expenses shall include, without being limited to, the cost of
record searches, all costs and expenses incurred by CITBC in opening bank
accounts, depositing checks, receiving and transferring funds, and any charges
imposed on CITBC due to "insufficient funds" of deposited checks and CITBC's
standard fee relating thereto, any amounts paid by CITBC, incurred by or charged
to CITBC by the Issuing Bank under the Letter of Credit Guaranty or the
Company's Reimbursement Agreement, Application for Letter of Credit or other
like document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, reasonable local counsel fees, fees and taxes relative to the
filing of financing statements and all expenses, costs and fees set forth in
Section 10, Paragraph 3 of this Financing Agreement.
PARENT shall mean Discus Acquisition Corporation, a Minnesota corporation.
PERMITTED ENCUMBRANCES shall mean: i) liens on specific items of Equipment
listed on Schedule 2 hereto and other liens expressly permitted, or consented
to, by CITBC; ii) Purchase Money Liens; iii) Customarily Permitted Liens; iv)
liens granted CITBC by the Companies; v) liens of judgment creditors provided
such liens do not exceed, in the aggregate for the Companies, at any time,
$50,000.00 (other than liens bonded or insured to the reasonable satisfaction of
CITBC); and vi) liens for taxes not yet due and payable or which are being
diligently contested in good faith by the Companies by appropriate proceedings
and which liens are not x) other than with respect to Real Estate, senior to the
liens of CITBC or y) for taxes due the United States of America.
PERMITTED INDEBTEDNESS shall mean: i) current indebtedness maturing in less than
one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, taxes or labor; ii) the indebtedness secured by
the Purchase Money Liens; iii) Subordinated Debt; iv) indebtedness arising under
the Letters of Credit and this Financing Agreement; v) deferred taxes and other
expenses incurred in the ordinary course of business; and vi) other indebtedness
existing on the date of execution of this Financing Agreement and listed in the
most recent financial statement delivered to CITBC or otherwise disclosed to
CITBC in writing.
PREPAYMENT PREMIUM shall: i) mean the amount due CITBC by the Companies upon a
voluntary prepayment, in whole or in part, of the Term Loans, and/or the CAPEX
Term Loans, and ii) be computed by multiplying the amount so prepaid by two
percent (2%).
PROMISSORY NOTES shall mean the notes, in the form of Exhibits A, B and C
attached hereto, delivered by the Companies to CITBC to evidence the Term Loans
and CAPEX Term Loans pursuant to, and repayable in accordance with, the
provisions of Section 4 of this Financing Agreement.
PURCHASE MONEY LIENS shall mean liens on any item of equipment acquired after
the date of this Financing Agreement provided that i) each such lien shall
attach only to the property to be acquired, ii) a description of the property so
acquired is furnished to CITBC, and iii) the debt incurred in connection with
such acquisitions shall not exceed in the aggregate $100,000.00 in any fiscal
year.
REAL ESTATE shall mean the Companies' fee and/or leasehold interests in real
property.
REDEMPTION shall mean the redemption by PCC of 17,750 shares of its common stock
for an aggregate redemption price not to exceed $15,200,000 in cash and a
promissory note in principal amount of $2,500,000, all subject to, and in
accordance with the laws of the State of Minnesota.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to or
for the account of the Companies by CITBC pursuant to Section 3 of this
Financing Agreement.
REVOLVING LOAN ACCOUNT(S) shall have the meaning specified in Section 3,
Paragraph 6 hereof.
SALES SUBJECT TO ACCEPTABLE EXTENDED DATING TERMS shall mean traction chain
sales by the Companies which (i) are made between October 1 and February 28, or
29 (as the case may be) of each year, (ii) grant the Companies' normal extended
dating terms in accordance with their past practices in the ordinary course of
their business and (iii) are due in three (3) installments, the last of which
shall be due and payable no later than the following April 10, provided that (i)
the maximum amount of the Accounts arising from such sales which may be included
in Eligible Accounts Receivable shall not exceed $800,000 in the aggregate at
any time and (ii) no such Accounts which are evidenced by chattel paper shall be
included in Eligible Accounts Receivable unless all originals of such chattel
paper are delivered to CITBC.
SELLER SUBORDINATED NOTE shall mean the note in the original principal amount of
$2,500,000 dated on or about the date hereof executed by PCC to the order of
Bridgewater Resources Corp. in connection with the Redemption.
SUBORDINATED DEBT shall mean the debt due a Subordinating Creditor (and the note
evidencing such) which has been subordinated, by a Subordination Agreement, to
the prior payment and satisfaction of the Obligations of the Companies to CITBC
(in form and substance satisfactory to CITBC).
SUBORDINATING CREDITOR shall mean Bridgewater Resources Corp. and any other
party hereafter executing a Subordination Agreement.
SUBORDINATION AGREEMENT shall mean the agreement among the Companies, a
Subordinating Creditor and CITBC pursuant to which a Subordinated Debt is
subordinated to the prior payment and satisfaction of the Companies' Obligations
to CITBC (in form and substance satisfactory to CITBC).
SURPLUS CASH shall mean for any Fiscal Year EBITDA less the sum of a) all
interest obligations paid or due CITBC by the Companies and interest obligations
paid or due on Subordinated Debt, b) the amount of principal repaid CITBC on the
Term Loans and CAPEX Term Loans, c) Capital Expenditures by the Companies, and
d) all federal, state and local tax obligations of the Companies.
TERM LOANS shall mean the term loans in the respective principal amounts of
$4,200,000.00 and $2,500,000.00 made by CITBC pursuant to, and repayable in
accordance with, the provisions of Section 4 of this Financing Agreement.
TOTAL LIABILITIES shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited statements of the Companies.
TRADE ACCOUNTS RECEIVABLE shall mean that portion of Accounts which arises from
the sale of Inventory or the rendition of services in the ordinary course of
business.
TRADEMARKS shall mean all present and hereafter acquired trademarks and/or
trademark rights (together with the goodwill associated therewith) and all cash
and non-cash proceeds thereof.
U.C.C. shall mean the Uniform Commercial Code as in effect from time to time in
the state of Illinois.
WORKING CAPITAL shall mean Current Assets in excess of Current Liabilities.
SECTION 2. CONDITIONS PRECEDENT
The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such loans, the following conditions precedent:
a) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform
Commercial Code searches satisfactory to CITBC for all locations presently
occupied or used by the Companies.
b) CASUALTY INSURANCE - The Companies shall have delivered to CITBC
evidence satisfactory to CITBC that casualty insurance policies listing CITBC as
loss payee or mortgagee, as the case may be, are in full force and effect, all
as set forth in Section 7, Paragraph 5 of this Financing Agreement.
c) UCC FILINGS - Any documents (including without limitation, financing
statements) required to be filed in order to create, in favor of CITBC, a first
and exclusive perfected security interest in the Collateral with respect to
which a security interest may be perfected by a filing under the Uniform
Commercial Code shall have been properly filed in each office in each
jurisdiction required in order to create in favor of CITBC a perfected lien on
the Collateral. CITBC shall have received acknowledgement copies of all such
filings (or, in lieu thereof, CITBC shall have received other evidence
satisfactory to CITBC that all such filings have been made); and CITBC shall
have received evidence that all necessary filing fees and all taxes or other
expenses related to such filings have been paid in full.
d) GUARANTIES - The Guarantors shall have executed and delivered to
CITBC guaranties, in form acceptable to CITBC, guaranteeing all present and
future obligations of the Companies to CITBC.
e) OPINIONS - Counsel for the Companies and the Guarantors shall have
delivered to CITBC opinions satisfactory to CITBC opining, inter alia, that,
subject to the i) filing, priority and remedies provisions of the Uniform
Commercial Code, ii) the provisions of the Bankruptcy Code, insolvency statutes
or other like laws, iii) the equity powers of a court of law and iv) such other
matters as may be agreed upon with CITBC: (A)(a) this Financing Agreement, (b)
the Guaranty of the Guarantors, and (c) all other loan documents of the
Companies and the Guarantors are x) valid, binding and enforceable according to
their terms, y) are duly authorized and z) do not violate any terms, provisions,
representations or covenants in the charter or by-laws of the Companies or the
Guarantors or, to the best knowledge of such counsel, of any loan agreement,
mortgage, deed of trust, note, security or pledge agreement or indenture to
which the Companies or the Guarantors is a signatory or by which the Companies
or the Guarantors or their assets are bound; and (B) the Redemption is in
compliance with, and does not violate, any applicable provision of any state or
federal laws; and (C) the provisions of all federal and state securities laws
and the Hart-Scott-Rodino Anti-Trust Improvements Act have been fully complied
with or that compliance is not legally required and the reasons supporting such
non-compliance. In addition, counsel for the Subordinating Creditor shall have
delivered an opinion to CITBC (in form and substance satisfactory to CITBC) with
respect to the matters contained in Section 2.3 the Subordination Agreement(s)
f) PLEDGE AGREEMENT - Parent and PCC shall a) execute and deliver to
CITBC a pledge and security agreement and stock powers pledging to CITBC as
additional collateral for the Obligations of the Companies all of the issued and
outstanding stock of PCC and PCII, respectively and, b) deliver to CITBC the
stock certificates evidencing such stock together with duly executed stock
powers with respect thereto.
g) ADDITIONAL DOCUMENTS - The Companies shall have executed and
delivered to CITBC all loan documents necessary to consummate the lending
arrangement contemplated between the Companies and CITBC.
h) EQUITY INVESTMENT - Parent and/or the Companies shall provide CITBC
with documentation evidencing a contribution to the capital of (x) the Parent in
the amount of $4,850,000.00 and (y) PCC in the amount of $313,000.
i) SUBORDINATION AGREEMENT - The Subordinating Creditor with respect to
the Seller Subordinated Note and the Additional Seller Subordinated Note shall
have executed and delivered to CITBC a Subordination Agreement, in form and
substance satisfactory to CITBC, subordinating the debt due such Subordinating
Creditor by the Companies to the prior payment and satisfaction of the
Obligations of the Companies to CITBC.
j) ENVIRONMENTAL REPORT - CITBC shall have received, environmental
audit reports on i) all of the Companies' leasehold and fee interests, and ii)
the Companies' waste disposal practices. The reports must x) be satisfactory to
CITBC and y) not disclose or indicate any liability (real or potential) stemming
from the Companies' premises, operations, waste disposal practices or waste
disposal sites used by Companies'.
k) BOARD RESOLUTION - CITBC shall have received a copy of the
resolutions of the Board of Directors of the Companies and the Guarantors (as
the case may be) authorizing the execution, delivery and performance of (i) this
Financing Agreement, (ii) the Guaranties and (iii) any related agreements, in
each case certified by the Secretary or Assistant Secretary of the Companies and
the Guarantors (as the case may be) as of the date hereof, together with a
certificate of the Secretary or Assistant Secretary of the Companies and the
Guarantors (as the case may be) as to the incumbency and signature of the
officers of the Companies and/or the Guarantors executing such agreements and
any certificate or other documents to be delivered by them pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
l) CORPORATE ORGANIZATION - CITBC shall have received (i) a copy of the
Certificate of Incorporation of the Companies and the Guarantors certified by
the Secretary of State of its incorporation, and (ii) a copy of the By-Laws (as
amended through the date hereof) of the Companies and the Guarantors certified
by the Secretary or Assistant Secretary thereof.
m) OFFICER'S CERTIFICATE - CITBC shall have received an executed
Officer's Certificate of the Companies, satisfactory in form and substance to
CITBC, certifying that (i) the representations and warranties contained herein
are true and correct in all material respects on and as of the date hereof; (ii)
the Companies are in compliance with all of the terms and provisions set forth
herein; and (iii) no Default or Event of Default has occurred.
n) ABSENCE OF DEFAULT - No Default, Event of Default or material
adverse change in the financial condition, business, prospects, profits,
operations or assets of the Companies shall have occurred.
o) APPRAISALS - CITBC shall have received appraisals on the Companies'
Equipment which appraisals shall be by an appraiser acceptable to CITBC and
shall indicate an Orderly Liquidation Value of not less than $5,209,078. with
respect to Equipment.
p) ACQUISITION - Parent shall have x) consummated the Acquisition of
all of the issued and outstanding stock of Peerless Chain Company and y)
delivered to CITBC a fully executed copy of the Purchase Agreement executed in
connection with the Acquisition.
q) REDEMPTION - PCC shall have consummated the Redemption and delivered
to CITBC an executed copy of all documentation executed in connection therewith,
which documentation shall be satisfactory to CITBC in all respects.
r) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this
Financing Agreement, there shall be no x) litigation, investigation or
proceeding (judicial or administrative) pending or threatened against the
Companies or the Guarantors or their assets, by any agency, division or
department of any county, city, state or federal government arising out the
Acquisition, the Redemption or this Financing Agreement, y) injunction, writ or
restraining order restraining or prohibiting the Acquisition and/or the
Redemption or the consummation of the financing arrangements contemplated under
this Financing Agreement or z) to the best knowledge of the Companies, suit,
action, investigation or proceeding (judicial or administrative) pending or
threatened against the Companies or the Guarantors or their assets, which, in
the opinion of CITBC, if adversely determined could have a material adverse
effect on the business, operation, assets, financial condition or Collateral of
the Companies and/or the Guarantors
s) DISBURSEMENT AUTHORIZATION - The Companies shall have delivered to
CITBC all information necessary for CITBC to issue wire transfer instructions on
behalf of the Companies for the initial and subsequent loans and/or advances to
be made under this Agreement including, but not limited to, disbursement
authorizations in form acceptable to CITBC.
t) EXAMINATION & VERIFICATION - CITBC shall have completed to the
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, books and records of the Companies and the Guarantors which
examination shall indicate that, after giving effect to all loans, advances and
extensions of credit to be made at closing, the Companies shall have an opening
additional Availability of $1,500,000 all as more fully required by the CITBC
Commitment Letter. It is understood that such requirement contemplates that all
debts, obligations and payables are current.
u) CASH BUDGET PROJECTIONS - CITBC shall have received, reviewed and be
satisfied with a 12 month cash budget projection prepared by the Companies in
the form provided by CITBC.
v) COLLECTION ACCOUNTS - The Companies shall have established a system
of bank accounts with respect to the collection of Accounts and the deposit of
proceeds of Inventory as shall be acceptable to CITBC in all respects.
w) CITBC COMMITMENT LETTER - The Companies shall have fully complied,
to the satisfaction of CITBC, with all of the terms and conditions of the CITBC
Commitment Letter.
Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, all of the above Conditions Precedent shall have been deemed
satisfied except as the Company and CITBC shall otherwise agree herein or in a
separate writing.
SECTION 3. REVOLVING LOANS
1. CITBC agrees, subject to the terms and conditions of this Financing
Agreement from time to time, and within x) the Availability and y) the Line of
Credit, but subject to CITBC's right to make "overadvances", to make loans and
advances to each of the Companies on a revolving basis (i.e. subject to the
limitations set forth herein, the Companies may borrow, repay and re-borrow
Revolving Loans). Such loans and advances to each Company shall be in amounts up
to the sum of: a) outstanding Eligible Accounts Receivable of such Company
multiplied by the Accounts Receivable Advance Percentage, plus b) the lesser of
(x) the Inventory Loan Cap and (y) the aggregate value of Eligible Inventory of
such Company as determined at the lower of cost or market, and excluding the
effect of the non-cash impact resulting from APB16 (inventory write-up),
multiplied by the Inventory Advance Percentage. Each request shall constitute,
unless otherwise disclosed in writing to CITBC, a representation and warranty by
the Companies that (i) after giving effect to the requested advance, no Default
or Event of Default has occurred and (ii) such requested Revolving Loan is
within the Line of Credit and Availability. All requests for loans and advances
must be received by an officer of CITBC no later than 1:00 p.m., New York time,
of the day on which such loans and advances are required. Should CITBC for any
reason honor requests for advances in excess of the limitations set forth
herein, such advances shall be considered "overadvances" and shall be made in
CITBC's sole discretion, subject to any additional terms CITBC deems necessary.
2. In furtherance of the continuing assignment and security interest in
the Companies' Accounts, the Companies will, upon the creation of Accounts,
execute and deliver to CITBC in such form and manner as CITBC may reasonably
require, solely for CITBC's convenience in maintaining records of collateral,
such confirmatory schedules of Accounts as CITBC may reasonably request, and
such other appropriate reports designating, identifying and describing the
Accounts as CITBC may reasonably require. In addition, upon CITBC's request the
Companies shall provide CITBC with copies of agreements with, or purchase orders
from, the Companies' customers, and copies of invoices to customers, proof of
shipment or delivery and such other documentation and information relating to
said Accounts and other collateral as CITBC may reasonably require. Failure to
provide CITBC with any of the foregoing shall in no way affect, diminish, modify
or otherwise limit the security interests granted herein. The Companies hereby
authorize CITBC to regard the Companies' printed name or rubber stamp signature
on assignment schedules or invoices as the equivalent of a manual signature by
one of the Companies' authorized officers or agents.
3. Each of the Companies hereby represents and warrants that: each of
its Trade Accounts Receivable is based on an actual and bona fide sale and
delivery of goods or rendition of services to customers, made by them in the
ordinary course of their business; the goods and Inventory being sold and the
Trade Accounts Receivable created are their exclusive property and are not and
shall not be subject to any lien, consignment arrangement, encumbrance, security
interest or financing statement whatsoever, other than the Permitted
Encumbrances; the invoices evidencing such Trade Accounts Receivable are in
their name; and their customers have accepted the goods or services, owe and are
obligated to pay the full amounts stated in the invoices according to their
terms, without dispute, offset, defense, counterclaim or contra, except for
disputes and other matters arising in the ordinary course of business with
respect to which they have complied with the notification requirements of
Paragraph 5 of this Section 3. Each of the Companies confirms to CITBC that any
and all taxes or fees relating to its business, its sales, the Accounts or goods
relating thereto, are its sole responsibility and that same will be paid by them
when due and that none of said taxes or fees represent a lien on or claim
against the Accounts. Each of the Companies also warrants and represents that it
is a duly and validly existing corporation and is qualified in all states where
the failure to so qualify would have a adverse effect on their business or their
ability to enforce collection of Accounts due from customers residing in that
state. Each of the Companies agrees to maintain such books and records regarding
Accounts as CITBC may reasonably require and agrees that such books and records
will reflect CITBC's interest in the Accounts. All of the books and records of
the Companies will be available to CITBC at normal business hours, including any
records handled or maintained for the Companies by any other company or entity.
4. Until CITBC has advised the Companies to the contrary after the
occurrence of an Event of Default, the Companies may and will enforce, collect
and receive all amounts owing on the Accounts for CITBC's benefit and on CITBC's
behalf, but at the Companies' expense; such privilege shall terminate
automatically upon the institution by or against the Companies of any proceeding
under any bankruptcy or insolvency law or, at the election of CITBC, upon the
occurrence of any other Event of Default and until such Event of Default is
waived or cured to CITBC's satisfaction. Any checks, cash, notes or other
instruments or property received by the Companies with respect to any Accounts
shall be held by them in trust for CITBC, separate from their own property and
funds, and immediately turned over to CITBC with proper assignments or
endorsements by deposit to the special depository accounts in CITBC's name
designated by CITBC for such purposes (the "Depository Accounts"). All amounts
received by CITBC in payment of Accounts will be credited to the Companies'
appropriate Revolving Loan Account upon CITBC's receipt of "collected funds" at
CITBC's bank account in New York, New York on the business day of receipt if
received no later than 1:00 pm or on the next succeeding business day if
received after 1:00 pm. No checks, drafts or other instrument received by CITBC
shall constitute final payment to CITBC unless and until such instruments have
actually been collected.
5. Each of the Companies agrees to notify CITBC promptly of any matters
materially affecting the value, enforceability or collectibility of any Account
and of all material customer disputes, offsets, defenses, counterclaims,
returns, rejections and all reclaimed or repossessed merchandise or goods. Each
of the Companies agrees to issue credit memoranda promptly (with duplicates to
CITBC upon request after the occurrence of an Event of Default) upon accepting
returns or granting allowances, and may continue to do so until CITBC has
notified the Companies that an Event of Default has occurred and that all future
credits or allowances are to be made only after CITBC's prior written approval.
Upon the occurrence of an Event of Default and until such time as such Event of
Default is waived in writing by CITBC or cured to CITBC's satisfaction and on
notice from CITBC, the Companies agree that all returned, reclaimed or
repossessed merchandise or goods shall be set aside by the Companies, marked
with CITBC's name and held by the Companies for CITBC's account as owner and
assignee.
6. CITBC shall maintain a separate account on its books in each of the
Companies' names (herein each a "Revolving Loan Account" and collectively the
"Revolving Loan Accounts") in which the Companies will be charged with loans and
advances made by CITBC to them or for their account, and with any other
Obligations, including any and all costs, expenses and reasonable attorney's
fees which CITBC may incur in connection with the exercise by or for CITBC of
any of the rights or powers herein conferred upon CITBC, or in the prosecution
or defense of any action or proceeding to enforce or protect any rights of CITBC
in connection with this Financing Agreement or the Collateral assigned
hereunder, or any Obligations owing to CITBC by the Companies. Each of the
Companies will be credited with all amounts received by CITBC from them or from
others for their account, including, as above set forth, all amounts received by
CITBC in payment of assigned Accounts and such amounts will be applied to
payment of the Obligations. In no event shall prior recourse to any Accounts or
other security granted to or by the Companies be a prerequisite to CITBC's right
to demand payment of any Obligation. Further, it is understood that CITBC shall
have no obligation whatsoever to perform in any respect any of the Companies'
contracts or obligations relating to the Accounts.
7. After the end of each month, CITBC shall promptly send the Companies
a statement showing the accounting for the charges, loans, advances and other
transactions occurring between CITBC and the Companies during that month. The
monthly statements shall be deemed correct and binding upon the Companies and
shall constitute an account stated between the Companies and CITBC unless CITBC
receives a written statement of the exceptions within thirty (30) days of the
date of the monthly statement.
8. In the event that the sum of (i) the outstanding balance of
Revolving Loans and (ii) outstanding balance of Letters of Credit exceeds (x) as
to any Company the maximum amount thereof available to such Company under
Sections 3 and 5 hereof or (y) for all of the Companies the Line of Credit
(herein the amount of any such excess under clauses (i) or (ii) shall be
referred to as the "Excess") such Excess shall be due and payable to CITBC
immediately upon CITBC's demand therefor.
SECTION 4. TERM LOANS AND CAPEX TERM LOANS
TERM LOAN A
1. PCC hereby agrees to execute and deliver to CITBC Promissory Note A,
in the form of Exhibit A attached hereto, to evidence Term Loan A to be extended
by CITBC.
2. Upon receipt of such Promissory Note A, CITBC hereby agrees to
extend to PCC Term Loan A in the principal amount of $4,200,000.
3. The principal amount of Term Loan A shall be repaid to CITBC by PCC
by eighty-four (84) equal monthly principal installments of $50,000.00 each,
whereof the first installment shall be due and payable on January 1, 1996 and
the subsequent installments shall be due and payable on the first Business Day
of each month thereafter until paid in full.
TERM LOAN B
4. PCC hereby agrees to execute and deliver to CITBC Promissory Note B,
in the form of Exhibit B attached hereto, to evidence Term Loan B to be extended
by CITBC.
5. Upon receipt of such Promissory Note B, CITBC hereby agrees to
extend to PCC Term Loan B in the principal amount of $2,500,000.00.
6. The principal amount of Term Loan B shall be repaid to CITBC by PCC
by: i) thirty-five (35) equal monthly principal installments of $69,444.00 each,
followed by ii) one (1) installment of $69,460.00, whereof the first installment
shall be due and payable on January 1, 1996 and the subsequent installments
shall be due and payable on the first Business Day of each month thereafter
until paid in full.
CAPEX TERM LOANS
7. Within the CAPEX Term Loan Line of Credit and upon receipt of a
Promissory Note in the form of Exhibit C attached hereto, from either of the
Companies in the amount of the CAPEX Term Loan, CITBC will extend to them a
CAPEX Term Loan, provided: a) no Default or Event of Default has occurred or
would occur after giving effect to such CAPEX Term Loan, b) all of the
conditions listed below are fulfilled to the sole but reasonable satisfaction of
CITBC.
8. CAPEX Term Loan proceeds: x) are to be used exclusively to pay for,
or reimburse the Companies for, the acquisition by the Companies of newly
acquired Capital Improvements (other than Real Estate) which are not subject to
Purchase Money Liens; and (y) will be disbursed upon completion of the delivery,
assembly and installation of the capital improvement.
9. The Companies must give CITBC thirty (30) days prior written notice
of its intention to enter into a CAPEX Term Loan and draw down the CAPEX Term
Loans no later than the close of business on the date occurring two (2) years
from the date hereof.
10. The Companies shall be entitled to four (4) CAPEX Term Loans per
Fiscal Year but no more than one (1) CAPEX Term Loan in any Fiscal Quarter.
11. No CAPEX Term Loan may exceed (i) seventy-five percent (75%) of the
total acquisition costs of the Capital Improvements (other than land) exclusive
of assembly costs, installation expenses, maintenance, shipping costs, taxes and
import or custom charges for which the CAPEX Term Loan is sought or (ii) the
CAPEX Term Loans Limitation in any Fiscal Year. In addition, with respect to
Company assembled Capital Improvements, CITBC's obligation to extend any
requested CAPEX Term Loan hereunder shall be subject to (x) CITBC's reasonable
discretion and (y) CITBC's receipt of and satisfaction with, an appraisal of
such Capital Improvement performed by an appraiser mutually acceptable to CITBC
and the Companies, which appraiser will be retained by CITBC and paid for by the
Companies.
12. The CAPEX Term Loans must be in increments of $250,000.00 or whole
multiples thereof.
13. Each CAPEX Term Loan will be repaid to CITBC by the Companies in
sixty (60) equal monthly installments of principal commencing on the next
monthly Term Loan installment payment date and each equal to the amount derived
by dividing such CAPEX Term Loan amount by sixty (60). To the extent repaid,
CAPEX Term Loans may not be reborrowed under this Section 4 of this Financing
Agreement.
ADDITIONAL PROVISIONS FOR TERM LOANS AND CAPEX TERM LOANS
14. In the event this Financing Agreement or the Line of Credit is
terminated by either CITBC or the Companies for any reason whatsoever, the Term
Loans and CAPEX Term Loans shall become due and payable on the effective date of
such termination notwithstanding any provision to the contrary in the Promissory
Notes or this Financing Agreement.
15. The Companies may prepay at any time, at its option, in whole or in
part, the Term Loans and/or the CAPEX Term Loans, provided that on each such
prepayment, the Companies shall pay: i) accrued interest on the principal so
prepaid to the date of such prepayment and ii) the Prepayment Premium, if any.
16. In the event the Companies have Surplus Cash in any Fiscal Year
beginning with the Fiscal Year ending December 31, 1996 the Companies must make
a Mandatory Prepayment of the Term Loans and the CAPEX Terms Loans by an amount
equal to fifty percent (50%) of said Surplus Cash.
17. Each prepayment (whether voluntary or mandatory) shall be applied
to the then last maturing installments of principal of the Term Loans and CAPEX
Loans in the following order:
(i) to Term Loan B until paid in full, and then (ii) to Term Loan A
until paid in full, and then (iii) to the CAPEX Term Loans until paid
in full.
18. Each of the Companies hereby authorizes CITBC to charge its
Revolving Loan Account with the amount of all amounts due under this Section 4
as such amounts become due. Each of the Companies confirms that any charges
which CITBC may so make to its account as herein provided will be made as an
accommodation to the Companies and solely at CITBC's discretion.
SECTION 5. LETTERS OF CREDIT
In order to assist the Companies in establishing or opening Letters of
Credit with an Issuing Bank to cover the importation of inventory under
documentary Letters of Credit, the purchase of equipment or other general
corporate purposes acceptable to CITBC, the Companies have requested CITBC to
join in the applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts or acceptances thereunder
through the issuance of the Letters of Credit Guaranty, thereby lending CITBC's
credit to the Companies and CITBC has agreed to do so. These arrangements shall
be handled by CITBC subject to the terms and conditions set forth below.
1. Within the Line of Credit and Availability, CITBC shall assist the
Companies in obtaining Letter(s) of Credit in an amount not to exceed the Letter
of Credit Sub-Line in the aggregate outstanding at any one time. CITBC's
assistance for amounts in excess of the limitation set forth herein shall at all
times and in all respects be in CITBC's sole discretion. It is understood that
the form and purpose of each Letter of Credit must be acceptable to CITBC in its
reasonable business judgment. Any and all outstanding Letters of Credit shall be
treated as a Revolving Loan for Availability purpose. Notwithstanding anything
herein to the contrary, upon the occurrence of a Default and/or Event of
Default, CITBC's assistance in connection with the Letter of Credit Guaranty
shall be in CITBC's sole discretion unless such Default and/or Event of Default
is cured to CITBC's satisfaction or waived by CITBC in writing.
2. CITBC shall have the right, without notice to the Companies, to
charge the Companies' Revolving Loan Accounts on CITBC's books with the amount
of any and all indebtedness, liability or obligation of any kind incurred by
CITBC under the Letters of Credit Guaranty at the earlier of a) payment by CITBC
under the Letters of Credit Guaranty, or b) the occurrence of an Event of
Default. Any amount charged to Companies' Revolving Loan Accounts shall be
deemed a Revolving Loan hereunder and shall incur interest at the rate provided
in Section 8, Paragraph 1 of this Financing Agreement.
3. Each of the Companies jointly and severally unconditionally
indemnifies CITBC and holds CITBC harmless from any and all loss, claim or
liability incurred by CITBC arising from any transactions or occurrences
relating to Letters of Credit established or opened for the Companies' account,
the collateral relating thereto and any drafts or acceptances thereunder, and
all Obligations thereunder, including any such loss or claim due to any action
taken by any Issuing Bank, other than for any such loss, claim or liability
arising out of the gross negligence or willful misconduct by CITBC under the
Letters of Credit Guaranty. Each of the Companies further agrees to jointly and
severally hold CITBC harmless from any errors or omission, negligence or
misconduct by the Issuing Bank, provided that nothing contained herein shall, or
shall be deemed to, affect, modify or release any claim that the Companies may
now or hereafter have against the Issuing Bank. The Companies' unconditional
obligation to CITBC hereunder shall not be modified or diminished for any reason
or in any manner whatsoever, other than as a result of CITBC's gross negligence
or willful misconduct. Each of the Companies agrees that any charges incurred by
CITBC for their account by the Issuing Bank shall be conclusive on CITBC and may
be charged to their account.
4. CITBC shall not be responsible for: the existence, character,
quality, quantity, condition, packing, value or delivery of the goods purporting
to be represented by any documents; any difference or variation in the
character, quality, quantity, condition, packing, value or delivery of the goods
from that expressed in the documents; the validity, sufficiency or genuineness
of any documents or of any endorsements thereon, even if such documents should
in fact prove to be in any or all respects invalid, insufficient, fraudulent or
forged; the time, place, manner or order in which shipment is made; partial or
incomplete shipment, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or documents; any deviation from
instructions; delay, default, or fraud by the shipper and/or anyone else in
connection with the Collateral or the shipping thereof; or any breach of
contract between the shipper or vendors and the Companies. Furthermore, without
being limited by the foregoing, CITBC shall not be responsible for any act or
omission with respect to or in connection with any Collateral covered by any
Letter of Credit.
5. Each of the Companies agrees that any action taken by CITBC, if
taken in good faith, or any action taken by any Issuing Bank, under or in
connection with the Letters of Credit, the guarantees, the drafts or
acceptances, or the Collateral, shall be binding on the them and shall not put
CITBC in any resulting liability to the Companies. In furtherance thereof, CITBC
shall have the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute any and all steamship or airways
guaranties (and applications therefore), indemnities or delivery orders; to
grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled
to comply with and honor any and all such documents or instruments executed by
or received solely from CITBC, all without any notice to or any consent from the
Companies.
6. Without CITBC's express consent and endorsement in writing, each of
the Companies agrees: a) not to execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders; to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the applications, Letters of Credit, drafts or acceptances; and b) after the
occurrence of an Event of Default which is not cured within any applicable grace
period, if any, or waived by CITBC, not to i) clear and resolve any questions of
non-compliance of documents, or ii) give any instructions as to acceptances or
rejection of any documents or goods.
7. Each of the Companies agrees that any necessary import, export or
other licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or the
financing thereof will have been promptly and full complied with; and any
certificates in that regard that CITBC may at any time request will be promptly
furnished. In this connection, each of the Companies warrants and represents
that all shipments made under any such Letters of Credit are in accordance with
the laws and regulations of the countries in which the shipments originate and
terminate, and are not prohibited by any such laws and regulations. The
Companies assume all risk, liability and responsibility for, and agrees to pay
and discharge, all present and future local, state, federal or foreign taxes,
duties, or levies. Any embargo, restriction, laws, customs or regulations of any
country, state, city, or other political subdivision, where the Collateral is or
may be located, or wherein payments are to be made, or wherein drafts may be
drawn, negotiated, accepted, or paid, shall be solely the Companies' risk,
liability and responsibility.
8. Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Companies to the Issuing Bank
in any application for Letters of Credit, any standing agreement relating to
Letters of Credit or otherwise, all of which shall be deemed to have been
granted to CITBC and apply in all respects to CITBC and shall be in addition to
any rights, remedies, duties or obligations contained herein.
SECTION 6. COLLATERAL
1. As security for the prompt payment in full of all loans and advances
made and to be made to the Companies from time to time by CITBC pursuant hereto,
as well as to secure the payment in full of the other Obligations, each of the
Companies hereby pledges and grants to CITBC a continuing general lien upon and
security interest in all of its:
(a) present and hereafter acquired Inventory;
(b) present and hereafter acquired Equipment;
(c) present and future Accounts;
(d) present and future Documents of Title;
(e) present and future General Intangibles; and
(f) present and future Other Collateral.
2. The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is presently in existence and which is owned
by the Companies or in which the Companies have any interest, whether held by
them or others for their account, and, if any Collateral is Equipment, whether
the Companies' interest in such Equipment is as owner or lessee or conditional
vendee;
(b) All Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, tables, accretions, component parts thereof and
additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with or attached to the Equipment; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or the Companies from the
Companies' customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by the Companies, or to the sale, promotion
or shipment thereof.
3. The Companies agree to safeguard, protect and hold all Inventory for
CITBC's account and make no disposition thereof except in the regular course of
the business of the Companies as herein provided. Until CITBC has given the
Companies notice to the contrary, as provided for below, any Inventory may be
sold and shipped by the Companies to their customers in the ordinary course of
their business, on open account and on terms currently being extended by them to
their customers, provided that all proceeds of all sales (including cash,
accounts receivable, checks, notes, instruments for the payment of money and
similar proceeds) are forthwith transferred, endorsed, and turned over and
delivered to CITBC in accordance with Section 3, Paragraph 4 of this Financing
Agreement. CITBC shall have the right to withdraw this permission at any time
upon the occurrence of an Event of Default and until such time as such Event of
Default is waived or cured to CITBC's satisfaction, in which event no further
disposition shall be made of the Inventory by the Companies without CITBC's
prior written approval. Cash sales or sales of inventory in which a lien upon,
or security interest in, Inventory is retained by the Companies shall be made by
the Companies only with the approval of CITBC, and the proceeds of such sales or
sales of Inventory for cash shall not be commingled with the Companies' other
property, but shall be segregated, held by the Companies in trust for CITBC as
CITBC's exclusive property, and shall be delivered immediately by the Companies
to CITBC in the identical form received by the Companies by deposit to the
Depository Accounts. Upon the sale, exchange, or other disposition of Inventory,
as herein provided, the security interest in the Companies' Inventory provided
for herein shall, without break in continuity and without further formality or
act, continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sale, exchange or disposition. As to any such sale, exchange or other
disposition, CITBC shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin, rescission and reclamation. Notwithstanding the
foregoing the Companies may make cash sales of Inventory, provided that (i) the
aggregate amount thereof for the Companies during any Fiscal Year does not
exceed $50,000 or such Fiscal Year and (ii) the proceeds of such sales are
turned over to CITBC by deposit in the Depository Accounts.
4. Each of the Companies agrees at its own cost and expense to keep the
Equipment in as good and substantial repair and condition as the same is now or
at the time the lien and security interest granted herein shall attach thereto,
reasonable wear and tear excepted, making any and all repairs and replacements
when and where necessary. Each of the Companies also agrees to safeguard,
protect and hold all Equipment for CITBC's account and make no disposition
thereof unless they first obtain the prior written approval of CITBC. Any sale,
exchange or other disposition of any Equipment shall only be made by the
Companies with the prior written approval of CITBC, and the proceeds of any such
sales shall not be commingled with the Companies' other property, but shall be
segregated, held by the Companies in trust for CITBC as CITBC's exclusive
property, and shall be delivered immediately by the Companies to CITBC in the
identical form received by the Companies by deposit to the Depository Accounts.
Upon the sale, exchange, or other disposition of the Equipment, as herein
provided, the security interest provided for herein shall, without break in
continuity and without further formality or act, continue in, and attach to, all
proceeds, including any instruments for the payment of money, accounts
receivable, contract rights, documents of title, shipping documents, chattel
paper and all other cash and non-cash proceeds of such sales, exchange or
disposition. As to any such sale, exchange or other disposition, CITBC shall
have all of the rights of an unpaid seller, including stoppage in transit,
replevin, rescission and reclamation. Notwithstanding anything hereinabove
contained to the contrary, the Companies may sell, exchange or otherwise dispose
of obsolete Equipment or Equipment no longer needed in the Companies'
operations, provided, however, that (a) the then book value of the Equipment so
disposed of does not exceed $150,000 in the aggregate for the Companies in any
Fiscal Year and (b) the proceeds of such sales or dispositions are delivered to
CITBC in accordance with the foregoing provisions of this paragraph, except that
the Companies may retain and use such proceeds to purchase forthwith replacement
Equipment which the Companies determine in their reasonable business judgment to
have a collateral value at least equal to the Equipment so disposed of or sold,
provided, however, that the aforesaid right shall automatically cease upon the
occurrence of an Event of Default which is not cured within any applicable grace
period or waived.
5. The rights and security interests granted to CITBC hereunder are to
continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that any account maintained in the Companies'
name on the books of CITBC may from time to time be temporarily in a credit
position, until the final payment in full to CITBC of all Obligations and the
termination of this Financing Agreement. Any delay, or omission by CITBC to
exercise any right hereunder, shall not be deemed a waiver thereof, or be deemed
a waiver of any other right, unless such waiver be in writing and signed by
CITBC. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right or remedy on any future occasion.
6. To the extent that the Obligations are now or hereafter secured by
any assets or property other than the Collateral or by the guarantee,
endorsement, assets or property of any other person, then CITBC shall have the
right in its sole discretion to determine which rights, security, liens,
security interests or remedies CITBC shall at any time pursue, foreclose upon,
relinquish, subordinate, modify or take any other action with respect to,
without in any way modifying or affecting any of them, or any of CITBC's rights
hereunder.
7. Any reserves or balances to the credit of the Companies and any
other property or assets of the Companies in the possession of CITBC may be held
by CITBC as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due. The liens and security interests
granted herein and any other lien or security interest CITBC may have in any
other assets of the Companies, shall secure payment and performance of all now
existing and future Obligations. CITBC may in its discretion charge any or all
of the Obligations to the Revolving Loan Accounts of the Companies when due.
8. The Companies shall give to CITBC, and/or shall cause the
appropriate party to give to CITBC, from time to time such pledge or security
agreements with respect to General Intangibles and capital stock of the
Companies as CITBC shall require to obtain valid first liens thereon.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
1. Each of the Companies hereby warrants and represents and/or
covenants that: i) the fair value of its assets exceeds the book value of its
liabilities; ii) it is generally able to pay its debts as they become due and
payable; and iii) it does not have unreasonably small capital to carry on its
business as it is currently conducted absent extraordinary and unforeseen
circumstances. Each of the Companies further warrants and represents that
Schedule 2 hereto correctly and completely sets forth its chief executive office
and all of its Collateral locations; and except for the Permitted Encumbrances,
the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral; that, except for the
Permitted Encumbrances, the Companies are or will be at the time additional
Collateral is acquired by them, the absolute owner of the Collateral with full
right to pledge, sell, consign, transfer and create a security interest therein,
free and clear of any and all claims or liens in favor of others; that the
Companies will at their expense forever warrant and, at CITBC's request, defend
the same from any and all claims and demands of any other person other than the
Permitted Encumbrances; that the Companies will not grant, create or permit to
exist, any lien upon or security interest in the Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the Permitted
Encumbrances; and that the Equipment does not comprise a part of its Inventory
and that the Equipment is and will only be used by the Companies in their
business and will not be held for sale or lease, or removed from its premises,
or otherwise disposed of by the Companies without the prior written approval of
CITBC except as otherwise permitted in Section 6, Paragraph 4 of this Financing
Agreement.
2. The Companies agree to maintain books and records pertaining to the
Collateral in such detail, form and scope as CITBC shall reasonably require. The
Companies agree that CITBC or its agents may enter upon the Companies' premises
at any time during normal business hours, and from time to time, for the purpose
of inspecting the Collateral, and any and all records pertaining thereto. The
Companies agree to afford CITBC prior written notice of any change in the
location of any Collateral, other than to locations, that as of the date hereof,
are known to CITBC and at which CITBC has filed financing statements and
otherwise fully perfected its liens thereon. Each of the Companies is also to
advise CITBC promptly, in sufficient detail, of any material adverse change
relating to the type, quantity or quality of the Collateral or on the security
interests granted to CITBC therein.
3. Each of the Companies agrees to: execute and deliver to CITBC, from
time to time, solely for CITBC's convenience in maintaining a record of the
Collateral, such written statements, and schedules as CITBC may reasonably
require, designating, identifying or describing the Collateral pledged to CITBC
hereunder. The Companies' failure, however, to promptly give CITBC such
statements, or schedules shall not affect, diminish, modify or otherwise limit
CITBC's security interests in the Collateral.
4. The Companies agree to comply with the requirements of all state and
federal laws in order to grant to CITBC valid and perfected first security
interests in the Collateral, subject only to the Permitted Encumbrances. CITBC
is hereby authorized by the Companies to file any financing statements covering
the Collateral whether or not the Companies' signature appears thereon. The
Companies agree to do whatever CITBC may reasonably request, from time to time,
by way of: filing notices of liens, financing statements, amendments, renewals
and continuations thereof; cooperating with CITBC's custodians; keeping stock
records; transferring proceeds of Collateral to CITBC's possession; and
performing such further acts as CITBC may reasonably require in order to effect
the purposes of this Financing Agreement.
5.(a) The Companies agree to maintain insurance on the Equipment and
Inventory under such policies of insurance, with such insurance companies, in
such reasonable amounts and covering such insurable risks as are at all times
reasonably satisfactory to CITBC. All policies covering the Equipment and
Inventory are, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, to be made payable to CITBC, in case of loss,
under a standard non-contributory "mortgagee", "lender" or "secured party"
clause and are to contain such other provisions as CITBC may require to fully
protect CITBC's interest in the Inventory and Equipment and to any payments to
be made under such policies. All original policies or true copies thereof are to
be delivered to CITBC, premium prepaid, with the loss payable endorsement in
CITBC's favor, and shall provide for not less than thirty (30) days prior
written notice to CITBC of the exercise of any right of cancellation. At the
Companies' request, or if the Companies fail to maintain such insurance, CITBC
may arrange for such insurance, but at the Companies' expense and without any
responsibility on CITBC's part for: obtaining the insurance, the solvency of the
insurance companies, the adequacy of the coverage, or the collection of claims.
Upon the occurrence of an Event of Default which is not waived or cured to
CITBC's satisfaction, CITBC shall, subject to the rights of any holders of
Permitted Encumbrances holding claims senior to CITBC, have the sole right, in
the name of CITBC or the Companies, to file claims under any insurance policies,
to receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.
(b)(i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory of any Company shall first reduce such
Company's Revolving Loans and then the Term Loans and CAPEX Term Loans;
ii) In the event any part of a Company's Equipment is damaged by fire
or other casualty and the insurance proceeds for such damage or other casualty
(the "Proceeds") is less than or equal to $100,000.00, CITBC shall promptly
apply such Proceeds to reduce such Company's outstanding balance in its
Revolving Loan Account.
iii) As long as an Event of Default has not occurred (which is not
cured to CITBC's satisfaction), the Companies' have sufficient business
interruption insurance to replace the lost profits of any of the Companies'
facilities, and the Proceeds are in excess of $100,000.00, such Company may
elect (by delivering written notice to CITBC) to replace, repair or restore such
Equipment to substantially the equivalent condition prior to such fire or other
casualty as set forth herein. If the Companies do not, or cannot, elect to use
the Proceeds as set forth above, CITBC may, subject to the rights of any holders
of Permitted Encumbrances holding claims senior to CITBC, apply the Proceeds to
the payment of the Obligations in such manner and in such order as CITBC may
reasonably elect.
iv) If a Company elects to use the Proceeds for the repair, replacement
or restoration of any Equipment, and there is then no Event of Default, i)
proceeds of insurance on Equipment in excess of $100,000.00 will be applied to
the reduction of the Revolving Loans of such Company and ii) CITBC may set up a
reserve against Availability for an amount equal to the proceeds referred to in
clause i) hereof. The reserve will be reduced dollar-for-dollar upon receipt of
non-cancelable executed purchase orders, delivery receipts or contracts for the
replacement, repair or restoration of Equipment and disbursements in connection
therewith.
(v) The Companies agree to pay any reasonable costs, fees or expenses
which CITBC may reasonably incur in connection herewith.
6. Each of the Companies agrees to pay, when due, all taxes,
assessments, claims and other charges (herein "taxes") lawfully levied or
assessed upon the Companies or the Collateral and if such taxes remain unpaid
after the date fixed for the payment thereof unless such taxes are being
diligently contested in good faith by the Companies by appropriate proceedings
or if any lien shall be claimed thereunder x) for taxes due the United States of
America or y) which in CITBC's opinion might create a valid obligation having
priority over the rights granted to CITBC herein, CITBC may, on the Companies'
behalf, pay such taxes, and the amount thereof shall be an Obligation secured
hereby and due to CITBC on demand.
7. Each of the Companies: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
the Companies' business; provided that the Companies may contest any acts,
rules, regulations, orders and directions of such bodies or officials in any
reasonable manner which will not, in CITBC's reasonable opinion, materially and
adversely effect CITBC's rights or priority in the Collateral; (b) agrees to
comply with all environmental statutes, acts, rules, regulations or orders as
presently existing or as adopted or amended in the future, applicable to the
ownership and/or use of its real property and operation of its business, which
the failure to comply with would have a material and adverse impact on the
Collateral, or any material part thereof, or on the operation of the business of
the Companies. Each of the Companies hereby jointly and severally indemnifies
CITBC and agrees to defend and hold CITBC harmless from and against any and all
loss, damage, claim, liability, injury or expense which CITBC may sustain or
incur (other than as a result of actions of CITBC) in connection with: any claim
or expense asserted against CITBC as a result of any environmental pollution,
hazardous material or environmental clean-up of the Companies' real property; or
any claim or expense which results from the Companies' operations (including,
but not limited to, the Companies' off-site disposal practices) and the
Companies further agree that this indemnification shall survive termination of
this Financing Agreement as well as the payment of all Obligations or amounts
payable hereunder; and (c) shall not be deemed to have breached any provision of
this Paragraph 7 if (i) the failure to comply with the requirements of this
Paragraph 7 resulted from good faith error or innocent omission, (ii) the
Companies promptly commence and diligently pursues a cure of such breach and
(iii) such failure is cured within fifteen (15) business days following the
Companies' receipt of notice of such failure.
8. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Companies agree that, unless
CITBC shall have otherwise consented in writing, the Companies will furnish to
CITBC, within ninety (90) days after the end of each Fiscal Year of the
Companies, an audited Consolidated Balance Sheet and an audited Consolidating
Balance Sheet as at the close of such year, and statements of profit and loss,
cash flow and reconciliation of surplus of Parent, the Companies and all
subsidiaries of each for such year, audited by independent public accountants
selected by the Companies and satisfactory to CITBC; within sixty (60) days
after the end of each Fiscal Quarter a Consolidated Balance Sheet and
Consolidating Balance Sheet as at the end of such period and statements of
profit and loss, cash flow and surplus of Parent, the Companies and all
subsidiaries of each, certified by an authorized financial or accounting officer
of the Companies; and within thirty (30) days after the end of each month a
Consolidated Balance Sheet as at the end of such period and statements of profit
and loss, cash flow and surplus of the Companies and all subsidiaries for such
period, certified by an authorized financial or accounting officer of the
Companies; and from time to time, such further information regarding the
business affairs and financial condition of the Parent, the Companies and/or any
subsidiaries thereof as CITBC may reasonably request, including without
limitation (a) the accountant's management practice letter and (b) annual cash
flow projections in form satisfactory to CITBC. Each financial statement which
the Companies are required to submit hereunder must be accompanied by an
officer's certificate, signed by the President, Vice President, Controller, or
Treasurer, pursuant to which any one such officer must certify that: (i) the
financial statement(s) fairly and accurately represent(s) the Companies'
financial condition at the end of the particular accounting period, as well as
the Companies' operating results during such accounting period, subject to
year-end audit adjustments; (ii) during the particular accounting period: (x)
there has been no Default or Event of Default under this Financing Agreement,
provided, however, that if any such officer has knowledge that any such Default
or Event of Default, has occurred during such period, the existence of and a
detailed description of same shall be set forth in such officer's certificate;
and (y) the Companies have not received any notice of cancellation with respect
to its property insurance policies; and (iii) the exhibits attached to such
financial statement(s) constitute detailed calculations showing compliance with
all financial covenants contained in this Financing Agreement.
9. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Companies agree that, without
the prior written consent of CITBC, except as otherwise herein provided, the
Companies will not:
A. Mortgage, assign, pledge, transfer or otherwise permit any
lien, charge, security interest, encumbrance or judgment,
(whether as a result of a purchase money or title retention
transaction, or other security interest, or otherwise) to
exist on any of its assets or goods, whether real, personal or
mixed, whether now owned or hereafter acquired, except for the
Permitted Encumbrances;
B. Incur or create any Indebtedness other than the Permitted
Indebtedness;
C. Borrow any money on the security of the Collateral from
sources other than CITBC;
D. Sell, lease, assign, transfer or otherwise dispose of i)
Collateral, except as otherwise specifically permitted by this
Financing Agreement, or ii) either all or substantially all of
their assets, which do not constitute Collateral;
E. Merge, consolidate or otherwise alter or modify its corporate
name, principal place of business, structure, status or
existence, or enter into or engage in any operation or
activity materially different from that presently being
conducted by the Companies, except that the Companies may (i)
merge with each other and/or (ii) change their corporate name
or address; provided that in any instance under clauses (i)
and (ii) (x) the Companies shall give CITBC thirty (30) days
prior written notice thereof and (y) the Companies shall
execute and deliver prior to or simultaneously with any such
action any and all documents and agreements requested by CITBC
(including, without limitation, any and all U.C.C. financing
statements) to confirm (A) the assumption by the surviving
corporation of all Obligations to CITBC of the other company
so merged, (B) the continuation and preservation of all
security interests and liens granted to CITBC hereunder
and (C) that such surviving corporation adopts, ratifies and
confirms its agreement to be bound by and comply with this
Financing Agreement;
F. Assume, guarantee, endorse, or otherwise become liable upon
the obligations of any person, firm, entity or corporation,
except by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business;
G. Declare or pay any dividend of any kind on, or purchase,
acquire, redeem or retire, any of the capital stock or equity
interest, of any class whatsoever, whether now or hereafter
outstanding, except that the Companies may consummate the
Redemption and declare and pay dividends on their capital
stock in an amount sufficient to enable the Parent to a)
redeem the capital stock owned by its retired, deceased or
terminated officers or shareholders which the Parent is
contractually obligated to redeem, provided that in no event
shall the aggregate amount of such dividend under this clause
(a) exceed $75,000.00 in the aggregate in any Fiscal Year; b)
pay income or franchise taxes of the Companies due as a result
of the filing of a consolidated, combined or unitary tax
return in which the operations of the Companies are included,
and c) pay quarterly dividends commencing after the end of the
Fiscal Quarter ending March 31, 1996 to enable the Parent to
make scheduled interest payments on the Additional Seller
Subordinated Note provided that (x) the Companies'
consolidated Fixed Charge Coverage Ratio for the 12 month
period then ending (or in case of any payment date occurring
prior to one (1) year after the date of this Financing
Agreement for the period from the date of this Financing
Agreement to such payment date) is not less than 1.0 to 1.0,
(y) the Companies' average daily Availability for the 90 day
period then ending was $500,000 or more and all of the
Companies' debts, obligations and payables are current in
accordance with their usual business practices and (z) the
total amount of such dividends paid in any Fiscal Year does
not exceed $185,000 in the aggregate provided that clauses (x)
and (y) shall apply only so long as Term Loan B remains
outstanding and unpaid; provided, further, that, in any
instance under this paragraph G, after giving effect to such
payment, no Default or Event of Default has occurred
hereunder;
H. Make any advance or loan to, or any investment in, any firm,
entity, person or corporation, except loans and advances from
PCC to PCII not to exceed $750,000 in the aggregate at any
time outstanding; or
I. Pay (x) total compensation to its Executive Officers, in the
aggregate, in excess of $700,000.00 during any calendar year,
(y) total management, consulting or other fees to Parent in
excess of $200,000 in the aggregate during any calendar year;
provided that each of such amounts shall be increased by an
amount equal to five percent (5%) thereof as of the first day
of each year hereafter commencing on January 1, 1997.
10. Until termination of the Financing Agreement and payment and
satisfaction in full of all Obligations hereunder, the Companies shall:
(a) maintain at the end of each month below a consolidated Net Worth of
the Companies of not less than the amount set forth below for the
applicable month:
Month Ending Net Worth
On the date hereof and
on December 31, 1995 $6,300,000
January 31, 1996 $6,382,000
February 29, 1996 $6,446,000
March 31, 1996 $6,501,000
April 30, 1996 $6,506,000
May 31, 1996 $6,532,000
June 30, 1996 $6,563,000
July 31, 1996 $6,555,000
August 31, 1996 $6,590,000
September 30, 1996 $6,657,000
October 31, 1996 $6,724,000
November 30, 1996 $6,935,000
December 31, 1996 $7,135,000
January 1, 1997 $7,289,000
February 28, 1997 $7,422,000
March 31, 1997 $7,546,000
April 30, 1997 $7,614,000
May 31, 1997 $7,706,000
June 30, 1997 $7,805,000
July 31, 1997 $7,860,000
August 31, 1997 $7,964,000
September 30, 1997 $8,106,000
October 31, 1997 $8,251,000
November 30, 1997 $8,388,000
December 31, 1997 $8,514,000
January 31, 1998 $8,664,000
February 28, 1998 $8,790,000
March 31, 1998 $8,907,000
April 30, 1998 $8,964,000
May 31, 1998 $9,047,000
June 30, 1998 $9,138,000
July 31, 1998 $9,181,000
August 31, 1998 $9,280,000
September 30, 1998 $9,421,000
October 31, 1998 $9,567,000
November 30, 1998 $9,705,000
December 31, 1998 and the last
day of each month in each Fiscal
Year thereafter $9,830,000
(b) maintain at the end of each month during each Fiscal Year a
consolidated Fixed Charge Coverage Ratio of the Companies calculated
for the 12 month period then ending (or in case of any calculation date
occurring prior to one (1) year after the date of this Financing
Agreement for the period from the date of this Financing Agreement to
such calculation date) of not less than 1.0 to 1.0.
(c) maintain at the end of each month set forth below a consolidated
Leverage Ratio of the Companies of no more than the ratio set forth
below for the applicable month:
Months Ending Ratio
January 31, 1996 5.4 to 1.0
February 29, 1996 5.3 to 1.0
March 31, April 30, and May 31, 1996 5.2 to 1.0
June 30, 1996 5.3 to 1.0
July 31 and August 31, 1996 5.4 to 1.0
September 30, 1996 5.5 to 1.0
October 31, 1996 5.4 to 1.0
November 30, 1996 5.3 to 1.0
December 31, 1996 5.1 to 1.0
January 31, 1997 4.9 to 1.0
February 28, 1997 4.7 to 1.0
March 31, April 30, May 31, June 30,
July 31, August 31, and September 30, 1997 4.5 to 1.0
October 31, 1997 4.4 to 1.0
November 30, 1997 4.3 to 1.0
December 31, 1997 4.2 to 1.0
January 31, 1998 4.0 to 1.0
February 28, 1998 3.9 to 1.0
March 31, April 30, and May 31, 1998 3.7 to 1.0
June 30, 1998 3.6 to 1.0
July 31, August 31, and September 30, 1998 3.7 to 1.0
October 31, 1998 3.6 to 1.0
November 30 and December 31, 1998 and
each month end in each Fiscal Year thereafter 3.5 to 1.0
(d) achieve a consolidated EBITDA calculated at the end of each month
below for the 12 month period then ending (or in case of any
calculation date occurring prior to one (1) year after the date of this
Financing Agreement for the period from the date of this Financing
Agreement to such calculation date) of not less than the amount set
forth below for the applicable month:
Month Ending EBITDA
January 31, 1996 $506,000
February 29, 1996 $981,000
March 31, 1996 $1,442,000
April 30, 1996 $1,823,000
May 31, 1996 $2,238,000
June 30, 1996 $2,663,000
July 31, 1996 $3,035,000
August 31, 1996 $3,479,000
September 30, 1996 $3,977,000
October 31, 1996 $4,494,000
November 30, 1996 $5,251,000
December 31,1996 $5,990,000
January 31, 1997 $6,156,000
February 28, 1997 $6,318,000
March 31, 1997 $6,479,000
April 30, 1997 $6,622,000
May 31, 1997 $6,771,000
June 30, 1997 $6,921,000
July 31, 1997 $7,061,000
August 31, 1997 $7,212,000
September 30, 1997 $7,372,000
October 31, 1997 $7,533,000
November 30, 1997 $7,442,000
December 31,1997 $7,350,000
January 31, 1998 $7,371,000
February 28, 1998 $7,388,000
March 31, 1998 $7,403,000
April 30, 1998 $7,406,000
May 31, 1998 $7,414,000
June 30, 1998 $7,424,000
July 31, 1998 $7,424,000
August 31, 1998 $7,435,000
September 30, 1998 $7,452,000
October 31, 1998 $7,471,000
November 30, 1998 $7,489,000
December 31,1998 $7,504,000
11. Without the prior written consent of CITBC, the Companies will not:
a) enter into any Operating Lease if after giving effect thereto the aggregate
obligations with respect to Operating Leases of the Companies during any Fiscal
Year would exceed $100,000.00 or b) contract for, purchase, make expenditures
for, lease pursuant to a Capital Lease or otherwise incur obligations with
respect to Capital Expenditures (whether subject to a security interest or
otherwise) during any period below in the aggregate amount for the Companies in
excess of the amount set forth for said period:
a) $3,700,000.00 for the period commencing on the date hereof and
ending December 31, 1996;
b) $3,400,000.00 for the Fiscal Year ending December 31, 1997;
c) $3,200,000.00 for the Fiscal Year ending December 31, 1998,
and for each Fiscal Year thereafter.
12. The Companies agree to advise CITBC in writing of: a) all
expenditures (actual or anticipated) in excess of $150,000.00 for x)
environmental clean-up, y) environmental compliance or z) environmental testing
and the impact of said expenses on the Companies' Working Capital; and b) any
notices the Companies receive from any local, state or federal authority
advising the Companies of any environmental liability (real or potential)
stemming from the Companies' operations, premises, waste disposal practices, or
waste disposal sites used by the Companies and to provide CITBC with copies of
all such notices if so required.
13. Without the prior written consent of CITBC, the Companies agree
that they will not enter into any transaction, including, without limitation,
any purchase, sale, lease, loan or exchange of property with the Parent, any of
the Companies or any subsidiary or affiliate of either the Companies or Parent.
SECTION 8. INTEREST, FEES AND EXPENSES
1. Interest on the Revolving Loans shall be payable monthly as of the
end of each month and shall be an amount equal to (a) one-half of one percent
(1/2 of 1%) plus the Chemical Bank Rate per annum on the average of the net
balances owing by the Company to CITBC in the Companies' Revolving Loan Accounts
at the close of each day during such month on balances other than Libor Loans
and (b) two and three-quarters percent (2 3/4%) plus the applicable Libor on any
Libor Loan, in each case on a per annum basis on the average of the net balances
owing by the Companies to CITBC in the Companies' Revolving Loan Accounts at the
close of each day during such month. In the event of any change in said Chemical
Bank Rate, the rate hereunder shall change, as of the first of the month
following any change, so as to remain one-half of one percent (1/2 of 1%) above
the Chemical Bank Rate. The rate hereunder shall be calculated based on a
360-day year. CITBC shall be entitled to charge the Companies Revolving Loan
Accounts at the rate provided for herein when due until all Obligations have
been paid in full.
2. Interest on the Term Loan A shall be payable monthly as of the end
of each month on the unpaid balance or on payment in full prior to maturity in
an amount equal to (a) one and one-half percent (1 1/2%) plus the Chemical Bank
Rate per annum on balances other than Libor Loans and (b) three and one-quarter
percent (3 1/4%) plus the applicable Libor on any Libor Loan, in each case on a
per annum basis on the average of the net balance of Term Loan A owing by the
Companies to CITBC at the close of each day during such month. In the event of
any change in said Chemical Bank Rate, the rate hereunder shall change, as of
the first of the month following any change, so as to remain one and one-quarter
percent (1 1/2%) above the Chemical Bank Rate. The rate hereunder shall be
calculated based on a 360 day year. CITBC shall be entitled to charge the
Companies' Revolving Loan Accounts at the rate provided for herein when due
until all Obligations have been paid in full.
3. Interest on the Term Loan B shall be payable monthly as of the end
of each month on the unpaid balance or on payment in full prior to maturity in
an amount equal to two and one-half percent (2 1/2%) plus the Chemical Bank Rate
per annum on the average of the net balance of Term Loan B owing by the Company
to CITBC at the close of each day during such month. In the event of any change
in said Chemical Bank Rate, the rate hereunder shall change, as of the first of
the month following any change, so as to remain two and one-half percent (2
1/2%) above the Chemical Bank Rate. The rate hereunder shall be calculated based
on a 360 day year. CITBC shall be entitled to charge the Companies' Revolving
Loan Accounts at the rate provided for herein when due until all Obligations
have been paid in full.
4. Interest on the CAPEX Term Loans shall be payable monthly as of the
end of each month on the unpaid balance or on payment in full prior to maturity
in an amount equal to (a) one and one-half percent (1 1/2%) plus the Chemical
Bank Rate per annum on balances other than Libor Loans and (b) three and
one-quarter percent (3 1/4%) plus the applicable Libor on any Libor Loan, in
each case on a per annum basis on the average of the net balance of CAPEX Term
Loans owing by the Companies to CITBC at the close of each day during such
month. In the event of any change in said Chemical Bank Rate, the rate hereunder
shall change, as of the first of the month following any change, so as to remain
one and one-half percent (1 1/2%) above the Chemical Bank Rate. The rate
hereunder shall be calculated based on a 360 day year. CITBC shall be entitled
to charge the Companies' Revolving Loan Accounts at the rate provided for herein
when due until all Obligations have been paid in full.
5. The Companies may elect to use Libor as to any other outstanding
Revolving Loans, Term Loans and/or CAPEX Term Loans provided A) there is then no
Default or Event of Default, B) the Companies have so advised CITBC of their
election to use Libor and the Libor Period selected no later than three (3)
Business Days preceding the first day of a Libor Period and C) the election and
Libor shall be effective, provided, there is then no Default or Event of
Default, on the fourth Business Day following said notice. The Libor elections
must be for $1,000,000 or whole multiples thereof and there shall be no more
than three (3) Libor Loans outstanding at one time. If no such election is
timely made or can be made, or if the Libor rate can not be determined, then
CITBC shall use the Chemical Bank Rate to compute interest. In the event the
Companies request any Libor election the Companies shall pay to CITBC a $500
processing fee upon the effective date of each such Libor election hereunder. In
addition, the Companies shall pay to CITBC, upon the request of CITBC such
amount or amounts as shall compensate CITBC for any loss, costs or expenses
incurred by CITBC (as reasonably determined by CITBC) as a result of: (i) any
payment or prepayment on a date other than the last day of a Libor Period for
such Libor Loan, or (ii) any failure of the Companies to borrow a Libor Loan on
the date for such borrowing specified in the relevant notice; such compensation
to include, without limitation, an amount equal to any loss or expense suffered
by CITBC during the period from the date of receipt of such payment or
prepayment or the date of such failure to borrow to the last day of such Libor
Period if the rate of interest obtained by CITBC upon the reemployment of an
amount of funds equal to the amount of such payment, prepayment or failure to
borrow is less than the rate of interest applicable to such Libor Loan for such
Libor Period. The determination by CITBC of the amount of any such loss or
expense, when set forth in a written notice to the Companies, containing CITBC
calculations thereof in reasonable detail, shall be conclusive on the Companies,
in the absence of manifest error.
6. In consideration of the Letter of Credit Guaranty of CITBC, the
Companies shall jointly and severally pay CITBC the Letter of Credit Guaranty
Fee which shall be an amount equal to (i) one and three quarters percent (1
3/4%) of the face amount of each documentary Letters of Credit payable upon date
of issuance thereof and (ii) one and three quarters percent (1 3/4%) per annum,
payable monthly, on the face amount of each standby Letter of Credit.
7. Any charges, fees, commissions, costs and expenses charged to CITBC
for the Companies' account by any Issuing Bank in connection with or arising out
of Letters of Credit issued pursuant to this Financing Agreement or out of
transactions relating thereto will be charged to the Companies' Revolving Loan
Accounts in full when charged to or paid by CITBC and when made by any such
Issuing Bank shall be conclusive on CITBC.
8. The Companies shall jointly and severally reimburse or pay CITBC, as
the case may be, for: i) all Out-of-Pocket Expenses of CITBC and b) any
applicable Documentation Fee.
9. Upon the last Business Day of each month, commencing with the last
day of the month in which this Financing Agreement is executed the Companies
shall jointly and severally pay CITBC the Line of Credit Fee.
10. To induce CITBC to enter into this Financing Agreement and to
extend to the Company the Revolving Loans, Letters of Credit, Term Loans and the
CAPEX Term Loan(s), the Companies shall jointly and severally pay to CITBC (i) a
Loan Facility Fee in the amount of $200,000 payable upon execution of this
Financing Agreement and (ii) an additional Loan Facility Fee in the amount of
$150,000 payable no later than December 31, 1996, provided that in the event
that on such date the Companies (x) are not in compliance with all of the terms
and provisions of this Financing Agreement or after giving effect to such
payment, the Companies would not be in compliance with all of the terms and
provisions of this Financing Agreement or (y) after giving effect to such
payment, would be left with insufficient Availability under the Line of Credit
to meet their obligations as they come due, the due date of such fee shall be
extended from December 31, 1996 to March 31, 1997. Any unpaid portion of such
fee shall be due and payable upon any termination of this Financing Agreement.
The Commitment Fee in the amount of $75,000 paid to CITBC upon execution of the
CITBC Commitment Letter and the Good Faith Deposit in the amount of $15,000 paid
to CITBC in conjunction with a certain financing proposal letter will (in each
case net of CITBC expenses) be credited against the Loan Facility Fee upon the
initial funding hereunder.
11. Upon the date hereof and on such annual anniversary hereof the
Companies shall jointly and severally pay to CITBC the Collateral Management
Fee, which shall be fully earned and not refundable or rebateable when due.
12. The Companies shall jointly and severally pay CITBC's standard
charges for, and the fees and expenses of, the CITBC personnel used by CITBC for
reviewing the books and records of the Companies and for verifying, testing
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral provided, however, that the foregoing shall not be payable until the
occurrence of an Event of Default if the Companies are paying a Collateral
Management Fee.
13. Each of the Companies hereby authorizes CITBC to charge its
Revolving Loan Account with CITBC with the amount of all payments due hereunder
as such payments become due. Each of the Companies confirms that any charges
which CITBC may so make to the Companies' Revolving Loan Accounts as herein
provided will be made as an accommodation to the Companies and solely at CITBC's
discretion. CITBC may in its sole and absolute discretion allocate any of the
above fees and/or any other payments due under this Financing Agreement to the
Companies' respective Revolving Loan Accounts in any proportion that CITBC may
decide.
SECTION 9. POWERS
Each of the Companies hereby constitutes CITBC or any person or agent
CITBC may designate as its attorney-in-fact, at the Companies' cost and expense,
to exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Companies' Obligations to CITBC have been
paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the
name of CITBC or the Companies, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Companies
and to notify postal authorities to change the address for delivery thereof to
such address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of CITBC or the Companies or that of CITBC's designee, information
concerning the amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of CITBC's
interest therein and to notify customers indebted on Accounts to make payment
directly to CITBC for the Companies' account; and
(e) To take or bring, in the name of CITBC or the Companies, all steps,
actions, suits or proceedings deemed by CITBC necessary or desirable to enforce
or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the
powers set forth in (b), (d) and (e) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of Default
is waived or cured to CITBC's satisfaction. In addition, the powers set forth in
(c) above will only be exercised in the name of the Companies or a certified
public accountant designated by CITBC prior to the occurrence of such Event of
Default.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
1. Notwithstanding anything hereinabove to the contrary, CITBC may
terminate this Financing Agreement immediately upon the occurrence of any of the
following (herein "Events of Default"):
a) cessation of the business of the Companies, or any one of
them, or the calling of a meeting of the creditors of the
Companies, or any one of them, for purposes of compromising
their debts and obligations;
b) the failure of the Companies, or any one of them, to generally
meet debts as they mature;
c) the commencement by or against the Companies, or any one of
them, of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any
federal or state law, provided that in the event of any
involuntary proceeding commenced against the Companies such
proceeding is not dismissed or discharged within thirty (30)
days after commencement thereof;
d) breach by the Companies, or any one of them, of any warranty,
representation or covenant contained herein (other than those
referred to in sub-paragraph e below) or in any other written
agreement between the Companies or CITBC, provided that such
breach by the Companies of any of the warranties,
representations or covenants referred in this clause d shall
not be deemed to be an Event of Default unless and until such
breach shall remain unremedied to CITBC's satisfaction for a
period of ten (10) days from the date of such breach;
e) breach by the Companies, or any one of them, of any warranty,
representation or covenant of Section 3, Paragraphs 3 (other
than the third sentence of paragraph 3) and 4; Section 6,
Paragraphs 3 and 4 (other than the first sentence of paragraph
4); Section 7, Paragraphs 1,5,6, and 9 through 11;
f) failure of the Companies to pay any of the Obligations within
five (5) Business Days of the due date thereof, provided that
nothing contained herein shall prohibit CITBC from charging
such amounts to the Companies' Revolving Loan Accounts on the
due date thereof;
g) the Companies, or any one of them, shall i) engage in any
"prohibited transaction" as defined in ERISA, ii) have any
"accumulated funding deficiency" as defined in ERISA, iii)
have any Reportable Event as defined in ERISA, iv) terminate
any Plan, as defined in ERISA or v) be engaged in any
proceeding in which the Pension Benefit Guaranty Corporation
shall seek appointment, or is appointed, as trustee or
administrator of any Plan, as defined in ERISA, and with
respect to this sub-paragraph h such event or condition x)
remains uncured for a period of thirty (30) days from date of
occurrence and y) could, in the reasonable opinion of CITBC,
subject the Companies to any tax, penalty or other liability
material to the business, operations or financial condition of
the Companies;
h) without the prior written consent of CITBC, the Companies
shall x) amend or modify the Subordinated Debt, or y) make any
payment on account of the Subordinated Debt except as
permitted in the Subordination Agreement;
i) the Companies sustain (x) a consolidated loss in excess of
$950,000 in the Fiscal Year ending December 31, 1996 or (y)
any consolidated loss in any Fiscal Year thereafter, all as
determined in accordance with GAAP;
j) the occurrence of any default or event of default (after
giving effect to any applicable grace or cure periods) under
any instrument or agreement evidencing (x) Subordinated Debt
or (y) any other Indebtedness of the Companies having a
principal amount in excess of $250,000; or
k) William Spell or John C. van Osnabrugge ceases for any reason
whatsoever (other than as a result of death) to be actively
engaged in the management of the Companies or the stock of (i)
the Companies presently held (directly or indirectly) by
Parent or (ii) Parent presently held (directly or indirectly)
by William Spell is transferred.
2. Upon the occurrence of a Default and/or an Event of Default, at the
option of CITBC, all loans, advances and extensions of credit provided for in
Sections 3, 4 and 5 of this Financing Agreement shall be thereafter in CITBC's
sole discretion and the obligation of CITBC to make Revolving Loans, open
Letters of Credit, and/or make CAPEX Term Loans shall cease unless such Default
or Event of Default is waived in writing by CITBC or cured to CITBC's
satisfaction, and at the option of CITBC upon the occurrence of an Event of
Default: i) all Obligations shall become immediately due and payable; ii) CITBC
may charge the Companies the Default Rate of Interest on all then outstanding or
thereafter incurred Obligations in lieu of the interest provided for in Section
8 of this Financing Agreement provided that respect to this clause ii) a) CITBC
has given the Company written notice of the Event of Default, provided, however,
that no notice is required if the Event of Default is the Event listed in
paragraph 1(c) of this Section 10 and b) the Companies have failed to cure the
Event of Default within ten (10) days after x) CITBC deposited such notice in
the United States mail or y) the occurrence of the Event of Default listed in
paragraph 1(c) of this Section 10; and iii) CITBC may immediately terminate this
Financing Agreement upon notice to the Companies, provided, however, that no
notice of termination is required if the Event of Default is the Event listed in
paragraph 1(c) of this Section 10. The exercise of any option is not exclusive
of any other option which may be exercised at any time by CITBC.
3. Immediately upon the occurrence of any Event of Default, CITBC may
to the extent permitted by law: (a) remove from any premises where same may be
located any and all documents, instruments, files and records, and any
receptacles or cabinets containing same, relating to the Accounts, or CITBC may
use, at the Companies' expense, such of the Companies' personnel, supplies or
space at the Companies' places of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Companies or CITBC, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to: accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Companies or CITBC; (c) sell,
assign and deliver the Collateral and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at CITBC's sole option and discretion, and CITBC may bid
or become a purchaser at any such sale, free from any right of redemption, which
right is hereby expressly waived by the Companies; (d) foreclose the security
interests created herein by any available judicial procedure, or to take
possession of any or all of the Inventory, Equipment and/or Other Collateral
without judicial process, and to enter any premises where any Inventory,
Equipment and/or Other Collateral may be located for the purpose of taking
possession of or removing the same and (e) exercise any other rights and
remedies provided in law, in equity, by contract or otherwise. CITBC shall have
the right, without notice or advertisement, to sell, lease, or otherwise dispose
of all or any part of the Collateral whether in its then condition or after
further preparation or processing, in the name of the Companies or CITBC, or in
the name of such other party as CITBC may designate, either at public or private
sale or at any broker's board, in lots or in bulk, for cash or for credit, with
or without warranties or representations, and upon such other terms and
conditions as CITBC in its sole discretion may deem advisable, and CITBC shall
have the right to purchase at any such sale. If any Inventory and Equipment
shall require rebuilding, repairing, maintenance or preparation, CITBC shall
have the right, at its option, to do such of the aforesaid as is necessary, for
the purpose of putting the Inventory and Equipment in such saleable form as
CITBC shall deem appropriate. The Companies agree, at the request of CITBC, to
assemble the Inventory and Equipment and to make it available to CITBC at
premises of the Companies or elsewhere and to make available to CITBC the
premises and facilities of the Companies for the purpose of CITBC's taking
possession of, removing or putting the Inventory and Equipment in saleable form.
However, if notice of intended disposition of any Collateral is required by law,
it is agreed that ten (10) days notice shall constitute reasonable notification
and full compliance with the law. The net cash proceeds resulting from CITBC's
exercise of any of the foregoing rights, (after deducting all charges, costs and
expenses, including reasonable attorneys' fees) shall be applied by CITBC to the
payment of the Companies' Obligations, whether due or to become due, in such
order as CITBC may elect, and the Companies shall remain liable to CITBC for any
deficiencies, and CITBC in turn agrees to remit to the Companies or their
successors or assigns, any surplus resulting therefrom. The enumeration of the
foregoing rights is not intended to be exhaustive and the exercise of any right
shall not preclude the exercise of any other rights, all of which shall be
cumulative.
SECTION 11. TERMINATION
Except as otherwise permitted herein, the Companies or CITBC may
terminate this Financing Agreement and the Line of Credit only as of the initial
or any subsequent Anniversary Date and then only by giving the other at least
sixty (60) days prior written notice of termination. Notwithstanding the
foregoing CITBC may terminate the Financing Agreement immediately upon the
occurrence of an Event of Default, provided, however, that if the Event of
Default is an event listed in paragraph 1(c) of Section 10 of this Financing
Agreement, CITBC may regard the Financing Agreement as terminated and notice to
that effect is not required. This Financing Agreement, unless terminated as
herein provided, shall automatically continue from Anniversary Date to
Anniversary Date. Notwithstanding the foregoing, the Companies may terminate
this Financing Agreement and the Line of Credit prior to any applicable
Anniversary Date upon sixty (60) days' prior written notice to CITBC, provided
that the Companies pay to CITBC immediately on demand, an Early Termination Fee
and the Prepayment Premium, if applicable. Termination by either of the
Companies shall constitute termination with respect to all Companies. All
Obligations shall become due and payable as of any termination hereunder or
under Section 10 hereof and, pending a final accounting, CITBC may withhold any
balances in the Companies' accounts (unless supplied with an indemnity
satisfactory to CITBC) to cover all of the Companies' Obligations, whether
absolute or contingent. All of CITBC's rights, liens and security interests
shall continue after any termination until all Obligations have been paid and
satisfied in full.
SECTION 12. MISCELLANEOUS
1. Each of the Companies hereby waives diligence, demand, presentment
and protest and any notices thereof as well as notice of nonpayment. No delay or
omission of CITBC or the Companies to exercise any right or remedy hereunder,
whether before or after the happening of any Event of Default, shall impair any
such right or shall operate as a waiver thereof or as a waiver of any such Event
of Default. No single or partial exercise by CITBC of any right or remedy
precludes any other or further exercise thereof, or precludes any other right or
remedy.
2. This Financing Agreement and the documents executed and delivered in
connection therewith constitute the entire agreement between the Companies and
CITBC; supersede any prior agreements; can be changed only by a writing signed
by both the Companies and CITBC; and shall bind and benefit the Company and
CITBC and their respective successors and assigns.
3. In no event shall the Companies, upon demand by CITBC for payment of
any indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made in
connection herewith, CITBC shall never be entitled to receive, charge or apply,
as interest on any indebtedness relating hereto, any amount in excess of the
maximum amount of interest permissible under applicable law. If CITBC ever
receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Companies. This paragraph shall
control every other provision hereof and of any other agreement made in
connection herewith.
4. If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in full force and effect and shall not be affected by such provision's
severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable
provision as similar in terms to the severed provision as may be possible.
5. THE COMPANIES AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. EACH
OF THE COMPANIES HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED.
6. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered when hand delivered or sent by
telegram or telex, or three days after deposit in the United State mails, with
proper first class postage prepaid and addressed to the party to be notified as
follows:
(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
10 South LaSalle Street
Chicago, IL 60603
Attn: Michael Egan, Vice President and Regional Manager
Fax No.: (312) 443-0139
(B) if to the Companies at:
Peerless Chain Company
1416 East Sanborn Street
Winona, MN 55987-5349
Attn: John C. van Osnabrugge
Fax No.: (507) 457-9241
with copy to:
William Spell
Discus Acquisition Corporation
2430 Metropolitan Center
333 S. Hope Street
Minneapolis, MN 55402
Fax No.: (612) 371-9651
or to such other address as any party may designate for itself by like notice.
7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
FINANCING AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF ILLINOIS.
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By Michael Egan
Vice President
Read and Agreed to:
PEERLESS CHAIN COMPANY
By: William H. Spell
Title: Chairman
PEERLESS CHAIN OF IOWA, INC
By: William H. Spell
Title: Chairman
EXHIBIT A
PROMISSORY NOTE A
December , 1995
$4,200,000
FOR VALUE RECEIVED, the undersigned, PEERLESS CHAIN COMPANY a Minnesota
corporation (the "Company"), promises to pay to the order of THE CIT
GROUP/BUSINESS CREDIT, INC. (herein "CITBC") at its office located at 10 South
LaSalle Street, Chicago, IL 60603, in lawful money of the United States of
America and in immediately available funds, the principal amount of Four Million
Two Hundred Thousand Dollars ($4,200,000) by eighty-four (84) equal monthly
principal installments of $50,000.00 each, whereof the first such installment
shall be due and payable on January 1, 1996 and subsequent installments shall be
due and payable on the first Business Day of each month thereafter until this
Note is paid in full.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the rate specified in Section 8, Paragraph 2 of the Financing
Agreement dated of even date herewith between the Company and CITBC (the
"Financing Agreement"). Capitalized terms used herein and defined in the
Financing Agreement shall have the same meanings as set forth therein unless
otherwise specifically defined herein.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is Promissory Note A referred to in the Financing Agreement, evidences
Term Loan A thereunder, and is subject to, and entitled to, all provisions and
benefits thereof and is subject to optional and mandatory prepayment, in whole
or in part, as provided therein.
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, at the sole
election of CITBC, immediately due and payable as provided in the Financing
Agreement.
PEERLESS CHAIN COMPANY
By:
Title:
EXHIBIT B
PROMISSORY NOTE B
December , 1995
$2,500,000
FOR VALUE RECEIVED, the undersigned, PEERLESS CHAIN COMPANY a Minnesota
corporation (the "Company"), promises to pay to the order of THE CIT
GROUP/BUSINESS CREDIT, INC. (herein "CITBC") at its office located at 10 South
LaSalle Street, Chicago, IL 60603, in lawful money of the United States of
America and in immediately available funds, the principal amount of Two Million
Five Hundred Thousand Dollars ($2,500,000) as follows: 1) thirty-five (35) equal
monthly principal installments of $69,444 each, followed by 2) one (1) final
principal installment of $69,460, whereof the first such installment shall be
due and payable on January 1, 1996 and subsequent installments shall be due and
payable on the first Business Day of each month hereafter until this Note is
paid in full.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the rate specified in Section 8, Paragraph 3 of the Financing
Agreement dated of even date herewith between the Company and CITBC (the
"Financing Agreement"). Capitalized terms used herein and defined in the
Financing Agreement shall have the same meanings as set forth therein unless
otherwise specifically defined herein.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is Promissory Note B referred to in the Financing Agreement, evidences
Term Loan B thereunder, and is subject to, and entitled to, all provisions and
benefits thereof and is subject to optional and mandatory prepayment, in whole
or in part, as provided therein.
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, at the sole
election of CITBC, immediately due and payable as provided in the Financing
Agreement.
PEERLESS CHAIN COMPANY
By:
Title:
EXHIBIT C
PROMISSORY NOTE C
_________________, 199__
$ ______________________
FOR VALUE RECEIVED, the undersigned, _________________ , a __________________
corporation (the "Company"), promises to pay to the order of THE CIT
GROUP/BUSINESS CREDIT, INC. (herein "CITBC") at its office located at 10 South
LaSalle Street, Chicago, IL 60603, in lawful money of the United States of
America and in immediately available funds, the principal amount of
______________ ($ _________ .00) by sixty (60) equal monthly principal
installments of $ _____________.00 each, whereof the first such installment
shall be due and payable on _______________, 199__ and subsequent installments
shall be due and payable on the first Business Day of each month thereafter
until this Note is paid in full.
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder from time to time from the date hereof
on the date and at the rate specified in Section 8, Paragraph 4 of the Financing
Agreement dated December ___, 1995 between the Company and CITBC (the "Financing
Agreement"). Capitalized terms used herein and defined in the Financing
Agreement shall have the same meanings as set forth therein unless otherwise
specifically defined herein.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is Promissory Note C referred to in the Financing Agreement, evidences
a CAPEX Term Loan thereunder, and is subject to, and entitled to, all provisions
and benefits thereof and is subject to optional and mandatory prepayment, in
whole or in part, as provided therein.
Upon the occurrence of any one or more of the Events of Default specified in the
Financing Agreement or upon termination of the Financing Agreement, all amounts
then remaining unpaid on this Note may become, or be declared to be, at the sole
election of CITBC, immediately due and payable as provided in the Financing
Agreement.
By:
Title:
SCHEDULE 1 - LIST OF LEASED LOCATIONS AND MONTHLY RENTAL
AMOUNTS
LEASED LOCATIONS WITHOUT LANDLORD LIEN WAIVERS
PROPERTY ADDRESS MONTHLY RENTAL RATE
1201 East Main Street $1,200.00
Manchester, Iowa (old)
Manana Center $2,685.33
10736 North Stemmons Freeway
Dallas, Texas
WAREHOUSE WITHOUT WAIVER
PROPERTY ADDRESS
460 Sterling Road
E.C.D. Warehouse #3
Camp Hill, Pennsylvania
SCHEDULE 2 - EXISTING LIENS
Location Debtor Secured Party Filing # Collateral
SOS, MN PCC Lease America Corp. 1384082 Specific Equipment
SOS, MN PCC Citicorp Dealer Finance 1734037 Specific Equipment
SOS, MN PCC Citicorp Dealer Finance 1764927 Specific Equipment
SOS, IA PCC Altorfer Machine Company K654068 Specific Equipment
SCHEDULE 3 - COLLATERAL LOCATIONS AND CHIEF EXECUTIVE OFFICE
(a) Chief Executive Office
(i) Peerless Chain Company
1416 East Sanborn Street
Winona, Minnesota 55987-5349
(ii) Peerless Chain of Iowa, Inc.
1416 East Sanborn Street
Winona, Minnesota 55987-5349
Collateral Locations
1. 1416 East Sanborn Street
Winona, Minnesota (Winona County)
2. 52 Walnut Street
Winona, Minnesota (Winona County)
3. 1201 E. Main Street
Manchester, Iowa (Delaware County)
4. 4707 Fulton Industrial Boulevard
Atlanta, Georgia (Fulton County)
5. 10736 North Stemmons Freeway
Dallas, Texas (Dallas County)
6. 245 Freeport Blvd.
Sparks, Nevada (Washoe County)
7. 2244 Old Gettysburg Road
Camp Hills, Pennsylvania (Cumberland County)
8. 4920 Nome Street
Denver, Colorado (Denver County)
REDEMPTION NOTE
$2,500,000 December 13, 1995
FOR VALUE RECEIVED, the undersigned, Peerless Chain Company (the
"Company"), a Minnesota corporation, hereby promises to pay to the order of
Bridgewater Resources Corp. ("Seller"), a Texas corporation, at the address
provided under Section 8 in lawful money of the United States in accordance with
the terms hereof the sum of Two Million Five Hundred Thousand Dollars
($2,500,000) plus interest thereon at the rate provided herein from the date
hereof until paid in full.
1. Purchase Agreement. This Note is given pursuant to that certain
Stock Purchase Agreement dated November 22, 1995 (as amended, the "Purchase
Agreement") by and between Discus Acquisition Corporation ("Buyer"), a Minnesota
corporation, and Seller for the sale of all of the outstanding capital stock of
the Company by Seller to Buyer, and as partial payment under the Redemption (as
defined in the Purchase Agreement). Capitalized terms not otherwise defined
herein will have the meanings set forth in the Purchase Agreement. To the extent
the terms of this Note as executed vary from Exhibit A to the Purchase Agreement
or the description hereof contained in the Purchase Agreement, the terms hereof
govern.
2. Definitions. Unless the context otherwise requires, the following
terms have the following meanings:
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, Buyer, (ii) which beneficially owns or holds five percent
(5%) or more of any class of the capital stock of Buyer or (iii) five percent
(5%) or more of the capital stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interest) of which is
beneficially owned or held by Buyer or a Subsidiary. The term "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 capital stock, by contract or otherwise.
"CIT" means The CIT Group/Business Credit, Inc.
"Guaranty" means any obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of Buyer or the Company guarantying in any manner, whether directly
or indirectly, any obligation, direct or indirect, absolute, contingent or
inchoate, whether existing now or in the future, of any other Person.
"Indebtedness" means any and all amounts owing or which may
become owing by the Company pursuant to the terms of this Note.
"Permitted Investments" means:
(a) Investments in commercial paper maturing in two hundred
seventy (270) days or less from the date of issuance which, at the time of
acquisition, is accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Services, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating commercial paper);
(b) Investments in direct obligations of the United States of
America or any agency thereof maturing within one (1) year from the date of
acquisition thereof;
(c) Investments in bank accounts or certificates of deposit
maturing within one (1) year from the date of origin and issued by a bank or
trust company having capital, surplus and undivided profits aggregating at least
One Hundred Million Dollars ($100,000,000); and
(d) Investments in money market preferred stocks for so long
as the same are accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Service, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating such preferred stocks).
"Person" means an individual, partnership, corporation, trust
or unincorporated organization, and a governmental agency or political
subdivision.
"Pledged Stock" is as defined in Section 6.2.
"Senior Credit Facility" means the credit facilities with CIT
under that certain Financing Agreement dated December 13, 1995, or any
replacement credit facility.
"Senior Obligations" means the Senior Credit Facility and
the Winona Lease.
"Senior Pledge" means the security interest in the Pledged
Stock granted pursuant to that certain Stock Pledge Agreement by and between
Buyer and CIT dated December 13, 1995, and any security interest in the Pledged
Stock granted to the holder of any replacement Senior Credit Facility pursuant
to which such holder agrees to deliver the stock certificates representing the
Collateral, upon satisfaction of such Senior Credit Facility, to the holder of
this Note or the holder of a succeeding replacement Senior Credit Facility
taking a security interest in the Pledged Stock including such terms.
"Spell Employment Agreement" means the Employment Agreement
dated December 13, 1995 by and between the Company and William Spell.
"Stock Purchase Note" means the Stock Purchase Note dated
December 13, 1995 issued by Buyer to the order of Seller pursuant to the
Purchase Agreement.
"Subordination Agreement" means the Subordination Agreement
dated December 13, 1995 by and among CIT, Seller, Buyer, the Company and
Peerless Chain of Iowa, Inc.
"Subsidiary" means any corporation of which more than fifty
percent (50%) (by number of votes) of the voting stock is owned by Buyer and/or
one or more corporations which are themselves Subsidiaries of Buyer.
"Winona Lease" means that certain Lease Agreement by and
between PRC Corp. (formerly Peerless Chain Company) and Corporate Property
Associates 6 dated June 18, 1986, as assigned to the Company by Assignment and
Assumption Agreement dated September 26, 1989, as amended by Lease Amendment
dated September 26, 1989, Letter Amendment dated August 2, 1994 and Amendment to
Lease dated December 13, 1995.
"Winona Lease Obligations" means the obligations of the
Company under the Winona Lease.
3. Payment Terms.
3.1 Interest. Interest will accrue on the unpaid principal of this
Note at the annual rate of eight percent (8%) until maturity; provided that in
the event any amount due hereunder is past due, interest will accrue on the
unpaid principal of this Note at the annual rate of thirteen percent (13%),
compounded annually. Accrued interest will be due quarterly on the last day of
December, March, June and September commencing December 31, 1995 until maturity
of all principal of this Note (by acceleration or otherwise).
3.2 Principal. The principal of this Note, together with all accrued
and unpaid interest not then otherwise due, will be due December 13, 1998,
unless maturity thereof is accelerated pursuant to the terms hereof; provided,
however, that to the extent any claims are pending for indemnification under
Section 7.2, 10.1 or 10.2 of the Purchase Agreement on such stated maturity
date, with respect to each such claim, the maturity date with respect to an
amount of principal of this Note equal to the amount of such claim will be
extended until such claim is finally resolved; provided, further, that in the
event the amount of any such claim is reduced prior to final resolution of such
claim, an amount of principal of this Note equal to such reduction will become
due upon such reduction; and provided, further, that no such extension will be
made in the event of a prior acceleration, and any such extension will terminate
upon acceleration, of maturity of the principal of this Note pursuant to the
terms hereof.
3.3 Prepayments; Application of Payments. This Note may be
prepaid, in whole or in part, at any time and from time to time without premium
or penalty. Payments on, and credits under Section 3.4 against, this Note will
be applied first to accrued interest due and unpaid, next (to the extent such
payment is a prepayment) to accrued interest unpaid and not yet due, next to
costs and expenses accrued hereunder, with the balance to principal.
3.4 Offsets. Any liability of Seller under Sections 7.2, 10.1,
10.2 or 10.5 of the Purchase Agreement will be offset against Indebtedness
(whether or not then due) to the extent of the balance outstanding hereunder as
of the final determination of such liability.
4. Buyer and Company Covenants. From the date hereof and continuing so
long as any amount remains unpaid on this Note:
4.1 Corporate Existence, etc. Buyer and the Company each will
preserve and keep in force and effect its corporate existence and all licenses
and permits necessary to the proper conduct of the business of Buyer and the
Company taken as a whole.
4.2 Restricted Buyer Distributions. Buyer will not declare or
pay any dividends or make any other payment or distribution, either in cash or
property, on or in purchase, redemption or retirement of any shares of Buyer's
capital stock of any class or any warrants, rights or options to acquire any
such shares by purchase, conversion or otherwise, provided that nothing herein
restricts Buyer from making payment under the Stock Purchase Note or any
resulting full or partial termination or expiration of the Warrant for Purchase
of Securities dated December 13, 1995 issued by Buyer to Seller pursuant to the
Stock Purchase Agreement.
4.3 Restricted Company Issuances and Distributions. The Company will
not:
(a) issue any shares of the Company's capital stock of any
class or any warrants, rights or options to purchase any shares of the Company's
capital stock, whether by reason of stock split or combination or
reclassification, dividend, exchange, new consideration or otherwise;
(b) declare or pay any dividends or make any other payment or
distribution, either in cash or property, on or in purchase, redemption or
retirement of any shares of the Company's capital stock, or make any other
payment or distribution, either directly or indirectly, in respect of the
Company's capital stock or otherwise, including without limitation for goods or
services, to Buyer or to any Affiliate of Buyer, except (i) payments equal to
state and federal income tax liability on Buyer's consolidated tax returns
resulting from the Company's operations, made on the due date of the applicable
return, (ii) payments when and as due under the Spell Employment Agreement,
(iii) provided that when made, no Default exists hereunder, payments equal to
amounts due under redemption provisions under Repurchase Agreements entered into
on the Closing Date with management personnel of the Company with respect to an
aggregate of not more than three hundred seventy-seven thousand two hundred
seventy-two (377,272) shares of the common stock of Buyer, (iv) payments applied
by Buyer in payment of the Stock Purchase Note, and (v) payments not to exceed
One Hundred Eighty-Eight Thousand Dollars ($188,000) annually to fund normal
operating expenses of Buyer.
4.4 Mergers, Consolidations and Sales of Assets. The Company
will not (i) consolidate with or be a party to a merger with any other
corporation, or (ii) sell, lease or otherwise dispose of all or any substantial
part of its assets.
4.5 Guaranties. The Company will not become or be liable in
respect of any Guaranty except Guaranties entered into in the ordinary course of
the Business and Guaranties of Buyer of loans to management personnel of the
Company for the purchase of an aggregate of not more than three hundred
seventy-seven thousand two hundred seventy-two (377,272) shares of the common
stock of Buyer.
4.6 Transactions with Affiliates. Buyer and the Company each
will not enter into or be a party to any transaction or arrangement with any
Affiliate (including without limitation the purchase from, sale to or exchange
of property with, or the rendering of any service by or for, any such
Affiliate), except pursuant to the reasonable requirements of such party's
business and upon fair and reasonable terms no less favorable to such party than
would obtain in a comparable arm's-length transaction with a person other than
an Affiliate. The Spell Employment Agreement is deemed to meet the requirements
of this Section 4.6.
4.7 Reports and Rights of Inspection. Buyer and the Company
each will keep proper books of record and account in which full and correct
entries will be made of all dealings or transactions of or in relation to the
business and affairs of Buyer or the Company, in accordance with generally
accepted accounting principles consistently applied (except for changes in
application disclosed in the financial statements furnished to the holder hereof
pursuant to this Section 4.7 and concurred in by the independent public
accountants referred to in (b) hereof), and will furnish to the holder hereof:
(a) As soon as available and in any event within forty-five (45)
days after the end of each quarterly fiscal period of each fiscal year
consolidated and consolidating balance sheets of Buyer and the Company as of the
close of such period, and consolidated and consolidating statements of income
and retained earnings and statements of cash flows of Buyer and the Company for
the quarterly fiscal period then ending and for the portion of the fiscal year
ending with such period in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and certified by an authorized financial officer of Buyer to
the effect that (except for the exclusion in unaudited quarterly financial
statements of certain footnote and other information normally presented with
annual audited financial statements, and subject to changes resulting from
year-end adjustments) such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied (except for
changes in application in which the accountants referred to in clause (b) hereof
concur) and present fairly the financial condition of Buyer and the Company.
(b) As soon as available and in any event within ninety (90)
days after the close of each fiscal year of Buyer consolidated and consolidating
balance sheets of Buyer and the Company as of the close of such fiscal year, and
consolidated and consolidating statements of income and retained earnings and
statements of cash flows of Buyer and the Company for such fiscal year, in each
case setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an opinion thereon of a firm
of independent public accountants of recognized national standing selected by
Buyer to the effect that the financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except for changes in application in which such accountants concur and as are
noted therein) and present fairly the financial condition of Buyer and the
Company and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, includes such tests of the accounting
records and such other auditing procedures as were considered necessary in the
circumstances.
(c) Promptly upon receipt thereof, each interim or special
audit made by independent accountants of the books of Buyer or the Company.
(d) Promptly upon their becoming available, each financial
statement, report, notice or proxy statement sent by Buyer to stockholders
generally, and each report and any registration statement or prospectus filed by
Buyer with Nasdaq or any securities exchange or the Securities Exchange
Commission or any successor agency, and copies of any orders in any proceedings
to which Buyer or the Company is a party issued by any governmental agency,
federal or state, having jurisdiction over Buyer or the Company.
(e) Within the periods provided in paragraphs (a) and (b) above,
a certificate of an authorized financial officer of Buyer stating that such
officer has reviewed the provisions of this Note and setting forth, to the best
of such officer's knowledge, whether there existed as of the date of such
financial statements and whether there exists on the date of the certificate or
existed at any time during the period covered by such financial statements any
Default or any condition which but for the passage of time or the giving of
notice or both would constitute a Default and, if any such condition or event
existed during such period or exists on the date of the certificate, specifying
the nature and period of existence thereof and the action Buyer has taken or is
taking and proposes to take with respect thereto;
(f) The annual plans and operating projections Buyer and the
Company furnish to CIT when and as so furnished.
5. Subordination. Anything in this Note to the contrary
notwithstanding, the Indebtedness evidenced by this Note will be subordinate and
junior in right of payment to the Senior Obligations, whether outstanding on the
date of this Note or incurred after the date of this Note, to the extent and in
the manner hereinafter set forth:
(a) Notwithstanding anything to the contrary contained herein,
this Note is in all respects subject to the terms and provisions of the
Subordination Agreement.
(b) In the event of any sale under or in accordance with any
judgment or decree rendered with respect to this Note in any proceeding by or on
behalf of the holder hereof or in the event of any distribution, division or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of the Company, or the proceeds
thereof, to creditors of the Company occurring by reason of any liquidation,
dissolution or winding up of the Company or in the event of any execution sale,
receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization
or other similar proceeding relative to the Company or its debts or properties,
then in any such event the Winona Lease Obligations will be preferred in
payment, and the Winona Lease Obligations will be first paid and satisfied in
full before any payment or distribution of any kind or character, whether in
cash, property or securities (other than securities which are subordinate and
junior in right of payment to the payment of the Winona Lease which may at the
time be outstanding), will be made upon this Note; and in any such event any
distribution of any kind or character, whether in cash, property or securities
(other than in securities which are subordinate and junior in right of payment
to the payment of the Winona Lease which may at the time be outstanding), which
is made upon or in respect of the Indebtedness will be paid over to the lessor
under the Winona Lease for application to the Winona Lease Obligations unless
and until the Winona Lease Obligations is paid and satisfied in full, and such
amounts so paid over will be deemed not to be made upon or in respect of the
Indebtedness, or the holder of this Note will be subrogated to the rights of the
lessor under the Winona Lease to the extent thereof, as elected by the holder of
this Note;
(c) In the event that pursuant to the provisions hereof this Note
is declared or becomes due and payable before its expressed maturity because of
an occurrence of a Default (under circumstances when the foregoing clause (b) is
not applicable) or otherwise, no amount will be paid by the Company in respect
of Indebtedness in excess of current interest payments as provided herein,
except at the stated maturity thereof (all subject to the foregoing clause (b)
above), unless and until the Winona Lease Obligations has been paid in full or
payment thereof has been provided for in a manner satisfactory to the lessor
under the Winona Lease;
(d) Without limiting the effect of any of the other provisions
hereof, during the continuance of any default in the payment of rent or any
other amount with respect to the Winona Lease, no payment will be made on or
with respect to the Indebtedness, if either (i) notice of such default in
writing has been given to the Company by the lessor under the Winona Lease,
provided that judicial proceedings are commenced with respect to such default
within one hundred eighty (180) days thereafter, or (ii) judicial proceedings
are pending in respect of such default.
(e) The holder hereof irrevocably authorizes and empowers the
holder of the Winona Lease, in any proceeding under Title 11 of the United
States Code in which the Company is subject, to file a proof of claim in behalf
of the holder hereof with respect to the obligations hereunder if the holder
hereof fails to file a proof of its claims prior to 30 days before the
expiration of the time period during which such claims must be submitted, to
accept and receive any payment or distribution which may be payable or
deliverable at any time upon or in respect of the obligations hereunder in an
amount not in excess of that portion of the Winona Lease Obligation then
outstanding (unless CIT is entitled to such payment under the terms of the
Subordination Agreement) and to take such other action as may be reasonably
necessary to effectuate the foregoing. Unless CIT has filed a proof of claim or
has otherwise sought the same information or documents, the holder hereof will
provide to the lessor of the Winona Lease all information and documents
necessary to present claims or seek enforcement as aforesaid.
(f) To the extent that the lessor under the Winona Lease
receives any amounts from the holder hereof in accordance with the provisions of
the Note which, when added to the total amount received directly by the lessor
under the Winona Lease from any other source, exceeds the total Winona Lease
Obligation, the lessor under the Winona Lease will be obligated to pay the
excess to the holder hereof. In the event that as a result of an avoidance
action under Title 11 of the United States Code (including, but not necessarily
limited to, any action under 11 U.S.C. ss.ss. 544, 545, 547, 548, 549 and/or
550), the holder hereof is required to return to the Company or its bankruptcy
estate any payment received by the holder hereof and paid over to the lessor
under the Winona Lease pursuant to this Section 5, thereupon the lessor of the
Winona Lease will pay back to the holder hereof such amount paid over to the
lessor of the Winona Lease.
(g) The provisions of this Section 5 will be subject and
subordinate to the rights of CIT under the Subordination Agreement. The holder
hereof will not be required to take any action, perform any obligation or make
any payment hereunder which it reasonably believes would: (i) be in conflict
with or contrary to the terms of the Subordination Agreement; and/or (ii)
prevent it from performing any of its obligations under the Subordination
Agreement; and/or (iii) prevent or frustrate CIT from exercising any of its
rights under the Subordination Agreement. The lessor under the Winona Lease will
not exercise any rights hereunder to the extent doing so would: (x) be in
conflict with or contrary to the terms of the Subordination Agreement; and/or
(y) prevent the holder hereof from performing any of its obligations under the
Subordination Agreement; and/or (z) prevent or frustrate CIT from exercising any
of its rights under the Subordination Agreement.
(h) No right of any present or future holder of the Senior
Obligations to enforce subordination as herein provided will at any time or in
any way be prejudiced or impaired by any failure to act on the part of Buyer or
the Company, or by any noncompliance by Buyer or the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof that
any such holders of the Senior Obligations may have or with which they may be
otherwise charged. The provisions of this Section 5 are solely for the purpose
of defining the relative rights of the holders of the Senior Obligations on the
one hand, and the holder hereof on the other hand, and nothing in this Section 5
will impair, as between Buyer or the Company and the holder hereof as
applicable, the obligations of Buyer and the Company to pay to the holder hereof
Indebtedness in accordance with the remaining terms of this Note, nor will
anything herein prevent the holder hereof from exercising all remedies otherwise
permitted by applicable law or hereunder upon any Default, subject to the
rights, if any, of the holders of the Senior Obligations as herein provided.
Without limiting the foregoing, no suspension of any payment of Indebtedness
pursuant to the provisions of this Section 5 will suspend or defer the due date
of such payment as determined by the remaining provisions of this Note.
6. Buyer Guaranty and Security Agreement.
6.1 Guaranty. Buyer absolutely, irrevocably and unconditionally
guarantees to the holder hereof the payment of the Indebtedness promptly when
due, by acceleration or otherwise.
6.2 Security Interest. In order to secure the Indebtedness,
Buyer hereby grants to the holder hereof a security interest in all shares of
stock owned by Buyer in the Company (and any and all additions thereto,
substitutions therefor, and proceeds thereof) (the "Pledged Stock").
6.3 Warranties and Obligations of Buyer. Buyer hereby warrants and
covenants to the holder hereof:
(a) The Pledged Stock represents 100% of the issued and
outstanding shares of capital stock of the Company.
(b) Buyer has and will maintain during the term of this Note
sole title to and beneficial ownership of the Pledged Stock, free of all liens,
charges, security interests and encumbrances (other than the security interest
created hereby and under the Senior Pledge), and has full power and authority to
subject the Pledged Stock to the security interest created hereby.
(c) Buyer will hereafter from time to time execute and deliver
such financing statements, assignments separate from certificates and other
instruments or documents, deliver the certificates representing the Pledged
Stock to the holder hereof upon termination of the Senior Pledge and perform
such other acts as the holder hereof may reasonably request to establish,
protect and maintain a perfected security interest in the Pledged Stock and an
ability to effectively enforce its remedies hereunder with respect to the
Pledged Stock. Buyer will at all times cause all certificates representing the
Pledged Stock to include a legend referencing this Note and the security
interest of the holder hereof provided hereunder.
6.4 Priority. The holder of this Note by acceptance hereof agrees
that the security interest granted hereunder in the Pledged Stock is subordinate
and junior in interest and priority to the Senior Pledge.
6.5 Nonimpairment. The holder hereof may from time to time,
without notice to Buyer, and without impairing or affecting the security
interest created hereby: (a) acquire a security interest in any property in
addition to the Pledged Stock, or release any such interest so acquired or
release any security interest in any of the Pledged Stock, or permit any
substitution or exchange for such property or any part thereof; (b) acquire the
primary or secondary liability of any party or parties with respect to all or
any of the Indebtedness, or release, modify, or compromise the same or any part
thereof; (c) modify, extend or renew for any period any of the Indebtedness; and
(d) resort to the Pledged Stock for payment of the Indebtedness whether or not
the holder hereof has resorted to any other collateral or proceeding against any
party primarily or secondarily liable on the Indebtedness.
6.6 Voting Rights. Buyer hereby grants to the holder hereof an
irrevocable proxy, coupled with an interest, to vote any or all of the Pledged
Stock, which proxy may be exercised by the holder hereof only at such time as a
Default in the payment of principal under this Note is continuing and no Senior
Pledge is in effect. Such proxy will remain in effect until this Note is
satisfied in full. Except for those instances where the holder hereof exercises
such proxy, Buyer will be entitled to exercise the voting power with respect to
the Pledged Stock consistent with the terms or purposes of this Note.
6.7 Remedies. In the event a Default hereunder has occurred
and is continuing, the holder hereof will have, in addition to any other rights
and remedies a secured party can assert under the Minnesota Uniform Commercial
Code and to the extent not inconsistent with nonwaivable provisions thereof, the
following rights and remedies, without having to give notice except as is
hereinafter specifically provided:
(a) The holder hereof may sell the Pledged Stock, or any part
thereof, at a public or private sale, following the notice hereinafter provided,
for cash, upon credit, or for future delivery at such price or prices as the
holder hereof deems satisfactory. The holder hereof, or any parties related to
or affiliated with the holder hereof, may purchase any or all of the Pledged
Stock sold at a public sale. The holder hereof is authorized at any sale, if the
holder hereof deems it advisable to do so, to restrict the prospective bidders
or purchasers to persons who will represent and agree that they are purchasing
for their own account for investment, and not with a view to the distribution or
sale of any of the Pledged Stock. Upon any such sale, the holder hereof will
have the right to deliver, assign, and transfer to the purchaser thereof the
Pledged Stock so sold. Each purchaser at any such sale will hold the property
sold absolutely free from any claim or right of Buyer of whatsoever kind,
including any equity or right of redemption of Buyer which Buyer has under any
rule of law or statute now existing or hereafter adopted; and as to such
purchaser, Buyer hereby specifically waives all such rights of redemption, of
stay, or of appraisal, which might in any way affect such purchaser. The holder
hereof will give Buyer at least ten (10) days' written notice of intention to
make such public or private sale, which notice will state the time and place
fixed for such public sale or the time after which such private sale may be
consummated and whether the sale is to be public or private. At any such sale
the Pledged Stock may be sold in one lot as an entirety or in separate parcels,
as the holder hereof may determine. In case of any sale on credit or for future
delivery, the Pledged Stock so sold may be retained by the holder hereof until
the selling price is paid by the purchaser thereof, and the holder hereof will
not incur any liability in case of the failure of such purchaser to take up and
pay for the Pledged Stock so sold, and in case of any such failure, such Pledged
Stock may be again sold upon like notice. The holder hereof will not be
obligated to complete any sale for which the holder hereof sends out notice and
may, without notice or publication, adjourn any sale or cause the same to be
adjourned by announcement at the time and place fixed for such sale, and such
sale may thereafter be made at the time and place to which the same has been so
adjourned.
(b) The holder hereof, instead of exercising the power of
nonjudicial sale herein conferred, may proceed by a suit or suits at law or in
equity to foreclose the pledge and sell the Pledged Stock, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(c) Without limiting the rights of the holder hereof under any
other provision of this Note, and in addition thereto, Buyer will be obligated,
to the maximum extent permitted by law, if a Default is continuing and if
counsel for the holder hereof determines that it is necessary for the lawful
sale of the Pledged Stock in a commercially reasonable manner, upon written
request from the holder hereof, to vote its shares to cause the Company, at the
Company's or Buyer's expense, to prepare, file and cause to become effective
promptly, a registration statement complying with the Securities Act of 1933, as
amended, for the public sale of such of the Pledged Stock as the holder hereof
may elect, and to take comparable action to permit such sales under the
securities laws of such state jurisdictions as the holder hereof may designate.
If such registration statement is filed, Buyer further will be obligated to vote
its shares to cause the Company, at the Company's or Buyer's expense, to enter
into and perform its obligations under one or more underwriting agreements in
connection therewith, containing customary representations, warranties,
covenants, and indemnities and contribution provisions if requested by the
holder hereof. Buyer will be obligated to vote its shares to cause the Company,
at the Company's or Buyer's expense, (i) to keep any such registration statement
and related prospectus current and in compliance with applicable federal and
state securities laws so long as required to satisfy applicable prospectus
delivery requirements and (ii) at the request of the holder hereof at any time
after the effective date of any such registration statement, to file
post-effective amendments to such registration statement so that sales of
Pledged Stock by the holder hereof will be covered by a current prospectus and
can be made in compliance with all applicable federal and state securities laws.
(d) Buyer further will be obligated to (i) take such action as
is necessary to cause the Company to delivery to the holder hereof such
information as the holder hereof reasonably requests for inclusion in any
registration statement, prospectus or offering memorandum or in any preliminary
prospectus or preliminary offering memorandum or any amendment or supplement to
any thereof or in any other writing prepared in connection with the offer, sale
or resale of all or any portion of the Pledged Stock and to deliver such
information regarding Buyer as the holder hereof reasonably requests, which
information will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make such
information not misleading, and (ii) vote its shares to do or cause to be done
all such other acts and things as may be necessary to make such offer, sale or
resale of all or any portion of the Pledged Stock valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental agencies or instrumentalities, domestic or foreign, having
jurisdiction over any such offer, sale or resale.
(e) Without limiting paragraphs (c) and (d) of this Section 6.7,
if the holder hereof decides to exercise its right to sell all or any of the
Pledged Stock, upon written request Buyer will from time to time take such
action as is necessary to cause to be furnished to the holder hereof all such
information as the holder hereof may request and as is accessible to Buyer in
order to qualify such Pledged Stock as exempt securities, or the sale or release
of such Pledged Stock as exempt transactions, under federal or state securities
laws. Buyer will be obligated to take such action as is necessary to cause the
Company to allow the holder hereof and any underwriter access at reasonable
times and places to the books, records and premises of the Company; Buyer
further will be obligated to assist, and take such action as is necessary to
cause the Company to assist the holder hereof, any underwriter, any agent of any
thereof, and any counsel, accountant or other expert for any thereof, in
inspection, evaluation, and any other "due diligence" action of or with respect
to any such books, records and premises; and Buyer further will be obligated to
cause any independent public accountant for the Company to furnish a letter to
the holder hereof and underwriters in customary form and covering matters of the
type customarily covered by letters of accountants for issuers to underwriters.
(f) Buyer further acknowledges the impossibility of ascertaining
the amount of damages which would be suffered by the holder hereof by reason of
the failure by Buyer to perform any of the covenants contained in this Section
and, consequently, agrees that, if Buyer fails to perform any of such covenants,
the holder hereof will be entitled to equitable relief for the enforcement of
the provisions of this Section 6.7. Buyer will indemnify the holder hereof for
any and all fees, charges, reimbursements, judgments or other expenses incurred
by the holder hereof due to any failure of Buyer to perform its obligations
under this Section 6.7.
(g) Notwithstanding the foregoing provisions of this Section 6.7,
the holder of this Note will not be permitted to exercise any of the foregoing
rights or remedies contained or referenced in this Section 6.7 for so long as
any Senior Pledge remains in effect without the prior written consent of the
holder thereof.
6.8 Application of Proceeds. The proceeds of any sale of the Pledged
Stock hereunder will be applied by the holder hereof:
(a) first, to the payment of the costs and expenses of such sale,
including reasonable attorneys' fees and all expenses and advances made or
incurred by it in connection therewith;
(b) second, to the payment of the Indebtedness;
(c) finally, to the payment to Buyer or its successors and
assigns of any surplus then remaining from such proceeds.
(d) The holder hereof will not be required to make any allocation
or distribution to Buyer of proceeds from sale except from collected funds after
satisfaction or release of all indemnification or other payment obligations that
may be asserted against the holder hereof or such proceeds in connection with
such sale. Any collected funds retained pursuant to this provision will be
promptly deposited or invested in Permitted Investments until disbursed in
accordance herewith.
6.9 Waivers. The holder hereof may at any time and from time
to time, without the consent of or notice to Buyer, without incurring
responsibility to Buyer, without releasing, impairing or affecting the liability
of Buyer hereunder, upon or without any terms or conditions and in whole or in
part: (a) sell, pledge, surrender, compromise, settle, release, renew,
subordinate, extend, substitute, exchange, change, or otherwise dispose of or
deal with in any manner and in any order any Indebtedness, any evidence thereof,
or any security therefor; (b) accept any security for or other guarantors of any
Indebtedness; and (c) fail, neglect or omit to obtain, realize upon or protect
any Indebtedness or any security therefor, to exercise any lien upon or right to
any money, credit or property toward the liquidation of the Indebtedness, or to
exercise any other right against Buyer, the Company or any other person. No act
or thing, except full payment and discharge of the Indebtedness, which but for
this provision could act as a release or impairment of the liability of Buyer
hereunder, will in any way release, impair or affect such liability.
6.10 Primary Obligation. This guaranty is a primary obligation
of Buyer and the holder hereof will not be required to first resort for payment
of the Indebtedness to the Company or any other person, their properties or
estates, or any security or other rights or remedies whatsoever. Buyer will be
and remain liable for any deficiency remaining after foreclosure of any mortgage
or security interest securing Indebtedness, whether or not the liability of the
Company or any other person for such deficiency is discharged pursuant to
statute, judicial decision or otherwise. If any payment applied by the holder
hereof to the Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including without limitation the
bankruptcy, insolvency or reorganization of Buyer or any other person), the
Indebtedness to which such payment was applied will for the purposes of Buyer's
guaranty be deemed to have continued in existence, notwithstanding such
application, and this guaranty will be enforceable as to such Indebtedness as
fully as if such application had never been made.
6.11 Additional Waivers. Buyer waives: (a) notice of
acceptance of its guaranty hereunder and of the creation and existence of the
Indebtedness; (b) presentment, demand for payment, notice of dishonor, notice of
nonpayment, and protest of any instrument evidencing the Indebtedness; and (c)
all other demands and notices to Buyer, the Company or any other person and all
other actions to establish the liability of Buyer hereunder.
7. Default, Remedies
7.1 Default. Any one or more of the following constitutes a Default
as that term is used herein:
(a) Failure of the Company to pay any principal amount or
interest hereunder when due and continuation of such condition for fifteen (15)
days after written notice thereof by the holder hereof to the Company;
(b) Failure to perform any obligation of the Company hereunder
other than for the payment of money and continuation of such condition for
thirty (30) days after written notice thereof by the holder hereof to the
Company;
(c) Failure of Buyer to pay any principal amount or interest
under the Stock Purchase Note when due and continuation of such condition for
fifteen (15) days after written notice thereof by the holder thereof to Buyer;
(d) Failure to perform any obligation of Buyer under the Stock
Purchase Agreement other than for the payment of money and continuation of such
condition for thirty (30) days after written notice thereof by the holder
thereof to Buyer;
(e) Failure of the Company to pay any amount under the Senior
Obligations when due for so long as such condition continues;
(f) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against Buyer or the
Company and, if instituted against Buyer or the Company are consented to or are
not dismissed within sixty (60) days after such institution; or
(g) Buyer or the Company becomes insolvent or bankrupt, generally
does not pay its debts as they become due or makes an assignment for the benefit
of creditors, or Buyer or the Company applies for or consents to the appointment
of a custodian, trustee or receiver for Buyer or the Company or for the major
part of the property of either, or a custodian, trustee or receiver is appointed
for Buyer or the Company or for the major part of the property of either and is
not discharged within sixty (60) days after such appointment.
7.2 Acceleration of Maturity. When any Default described in Sections
7.1(b), (d) or (g) has happened and is continuing, and in the case of Section
7.1(b) or (d) provided no Senior Obligation is then outstanding, the holder
hereof may, by written notice to the Company, declare the entire principal and
all interest accrued hereunder to be, and the same will thereupon become,
immediately due and payable, without any presentment, demand, protest or other
notice of any kind. When a Default described in Section 7.1 (f) has occurred,
the entire principal and all interest accrued hereunder will thereupon become
immediately due and payable without presentment, demand, protest or other notice
of any kind.
7.3 Costs of Enforcement. Upon a Default, the Company will be
obligated to pay all costs of collection and enforcement of the rights and
remedies of the holder hereof, including court costs and attorneys' fees,
whether or not legal proceedings are commenced.
7.4 Waivers. The Company waives presentment for payment, demand,
protest, notice of protest and notice of dishonor. No delay by the holder hereof
in exercising any right or remedy hereunder, at law or in equity will operate as
a waiver of such right or remedy and no single or partial exercise of any such
right or remedy will preclude any further exercise thereof, or the exercise of
any other rights or remedies.
8. Notices. Any notice, request, instruction or other document to be
given hereunder by Buyer, the Company or the holder of this Note to any such
other party will be in writing and delivered personally or by telephonic
facsimile transmission or sent by registered or certified mail, postage prepaid
(and if by telephonic facsimile transmission with a copy sent by mail),
if to the holder of this Note to:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, California 90067
Attn: Lori Poulos
Facsimile No.: 310-552-3446
with a copy to:
Oppenheimer Wolff & Donnelly
Suite 3400, Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Douglas L. Hemer
Facsimile No.: 612-344-9376
if to Buyer or the Company to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
9. Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this Note
or the breach hereof, unless resolved by mutual agreement of the parties, will
be finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the effective date of
this Agreement by a single arbitrator appointed in accordance with said Rules.
The determination of the arbitrator will be final and binding upon the parties
to the arbitration and judgment upon the award rendered by the arbitrator will
be entered in any court of competent jurisdiction. The place of arbitration will
be Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Note in any court of competent jurisdiction.
10. Governing Law; Consent to Jurisdiction. This Note will be construed
in accordance with and governed by the laws of the State of Minnesota applicable
to agreements made and to be performed in such jurisdiction without reference to
conflicts of law principles. Buyer and the Company by execution and delivery of
this Note, and the holder of this Note by acceptance hereof, each irrevocably
consents that any legal action or proceeding against it under, arising out of or
in any manner relating to this Note may be brought only in an arbitration
proceeding as provided in Section 9 or in a court of the State of Minnesota or
in the United States District Court for the District of Minnesota. Each of
Buyer, the Company and the holder of this Note further expressly and irrevocably
assents and submits to the personal jurisdiction of the arbitrators selected
pursuant to Section 9 or any of such courts in any such action or proceeding.
Each of Buyer, the Company and the holder of this Note further irrevocably
consents to the service of any complaint, summons, notice or other process
relating to any such action or proceeding by delivery thereof to it by hand or
by mail in the manner provided for in Section 8 hereof. Each of Buyer, the
Company and the holder of this Note further hereby expressly and irrevocably
waives any claim or defense in any action or proceeding based on any alleged
lack of personal jurisdiction, improper venue or forum non conveniens or any
similar basis.
11. Neither this Note nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered on the day and year first above written.
PEERLESS CHAIN COMPANY
By William H. Spell
Its Chairman
IN CONSIDERATION of Seller's acceptance of the Note and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Buyer hereby agrees to the guaranty and grant of security interest
and all other terms of Sections 4, 5, 6, 7, 8, 9 and 10 and, to the extent
applicable to such Sections, Section 2 of the foregoing Note.
DISCUS ACQUISITION CORPORATION
By William H. Spell
Its CEO
STOCK PURCHASE NOTE
$1,200,000 December 13, 1995
FOR VALUE RECEIVED, the undersigned, Discus Acquisition Corporation
("Buyer"), a Minnesota corporation, hereby promises to pay to the order of
Bridgewater Resources Corp. ("Seller"), a Texas corporation, at the address
provided under Section 8 in lawful money of the United States in accordance with
the terms hereof the sum of One Million Two Hundred Thousand Dollars
($1,200,000) plus interest thereon at the rate provided herein from the date
hereof until paid in full.
1. Purchase Agreement. This Note is given pursuant to that certain
Stock Purchase Agreement dated November 22, 1995 (as amended, the "Purchase
Agreement") by and between Buyer and Seller for the sale of all of the
outstanding capital stock of Peerless Chain Company (the "Company"), a Minnesota
corporation, by Seller to Buyer, and as partial payment of the Purchase Price
(as defined in the Purchase Agreement). Capitalized terms not otherwise defined
herein will have the meanings set forth in the Purchase Agreement. To the extent
the terms of this Note as executed vary from Exhibit G to the Purchase Agreement
or the description hereof contained in the Purchase Agreement, the terms hereof
govern.
2. Definitions. Unless the context otherwise requires, the following
terms have the following meanings:
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, Buyer, (ii) which beneficially owns or holds five percent
(5%) or more of any class of the capital stock of Buyer or (iii) five percent
(5%) or more of the capital stock (or in the case of a Person which is not a
corporation, five percent (5%) or more of the equity interest) of which is
beneficially owned or held by Buyer or a Subsidiary. The term "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 capital stock, by contract or otherwise.
"CIT" means The CIT Group/Business Credit, Inc.
"Closing Notes" means promissory notes issued by Buyer on the
date of this Agreement to the order of Harry Spell and Pyramid Partners c/o
Perkins Capital Management in the aggregate principal amount of Two Hundred
Twenty-Five Thousand Dollars ($225,000).
"Guaranty" means any obligations (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection)
of Buyer or the Company guarantying in any manner, whether directly or
indirectly, any obligation, direct or indirect, absolute, contingent or
inchoate, whether existing now or in the future, of any other Person.
"Indebtedness" means any and all amounts owing or which may
become owing by Buyer pursuant to the terms of this Note.
"Permitted Investments" means:
(a) Investments in commercial paper maturing in two hundred
seventy (270) days or less from the date of issuance which, at the time of
acquisition, is accorded the highest rating by Standard & Poor's Corporation or
Moodys Investors Services, Inc. (or other nationally recognized credit rating
agency of similar standing if neither of such corporations is then in the
business of rating commercial paper);
(b) Investments in direct obligations of the United States
of America or any agency thereof maturing within one (1) year from the date of
acquisition thereof;
(c) Investments in bank accounts or certificates of deposit
maturing within one (1) year from the date of origin and issued by a bank or
trust company having capital, surplus and undivided profits aggregating at least
One Hundred Million Dollars ($100,000,000); and
(d) Investments in money market preferred stocks for so
long as the same are accorded the highest rating by Standard & Poor's
Corporation or Moodys Investors Service, Inc. (or other nationally recognized
credit rating agency of similar standing if neither of such corporations is then
in the business of rating such preferred stocks).
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, and a governmental agency or political subdivision.
"Pledged Stock" is as defined in Section 6.1.
"Redemption Note" means the Redemption Note dated December 13,
1995 issued by the Company to the order of Seller pursuant to the Purchase
Agreement.
"Senior Credit Facility" means the credit facilities with CIT
under that certain Financing Agreement dated December 13, 1995, or any
replacement credit facility.
"Senior Obligations" means the Senior Credit Facility and the
Winona Lease.
"Senior Pledge" means the security interest in the Pledged Stock
granted pursuant to that certain Stock Pledge Agreement by and between Buyer and
CIT dated December 13, 1995, and any security interest in the Pledged Stock
granted to the holder of any replacement Senior Credit Facility pursuant to
which such holder agrees to deliver the stock certificates representing the
Collateral, upon satisfaction of such Senior Credit Facility, to the holder of
this Note or the holder of a succeeding replacement Senior Credit Facility
taking a security interest in the Pledged Stock including such terms.
"Spell Employment Agreement" means the Employment Agreement dated
December 13, 1995 by and between the Company and William Spell.
"Subordination Agreement" means the Subordination Agreement dated
December 13, 1995 by and among CIT, Seller, Buyer, the Company and Peerless
Chain of Iowa, Inc.
"Subsidiary" means any corporation of which more than fifty
percent (50%) (by number of votes) of the voting stock is owned by Buyer and/or
one or more corporations which are themselves Subsidiaries of Buyer.
"Winona Lease" means that certain Lease Agreement by and between
PRC Corp. (formerly Peerless Chain Company) and Corporate Property Associates 6
dated June 18, 1986, as assigned to the Company by Assignment and Assumption
Agreement dated September 26, 1989, as amended by Lease Amendment dated
September 26, 1989, Letter Amendment dated August 2, 1994 and Amendment to Lease
dated December 13, 1995.
"Winona Lease Obligations" means the obligations of the Company
under the Winona Lease.
3. Payment Terms.
3.1 Interest. Interest will accrue on the unpaid principal of
this Note at the annual rate of twenty percent (20%) through March 31, 1996,
eight percent (8%) from April 1, 1996 through August 31, 1996, and thirteen
percent (13%), compounded annually, from September 1,1996 until this Note is
paid in full.
3.2 Principal. The principal of this Note, together with all
accrued and unpaid interest not then otherwise due, will be due March 31, 1996.
3.3 Prepayments; Application of Payments. This Note may be
prepaid, in whole or in part, at any time and from time to time without premium
or penalty. Payments on this Note will be applied first to accrued interest due
and unpaid, next (to the extent such payment is a prepayment) to accrued
interest unpaid and not yet due, next to costs and expenses accrued hereunder,
with the balance to principal.
4. Buyer Covenants. From the date hereof and continuing so long as any
amount remains unpaid on this Note:
4.1 Corporate Existence, etc. Buyer will, and will cause the
Company to, preserve and keep in force and effect its corporate existence and
all licenses and permits necessary to the proper conduct of the business of
Buyer and the Company taken as a whole.
4.2 Restricted Buyer Issuances and Distributions. Buyer will not:
(a) issue any shares of Buyer's capital stock of any class
or any warrants, rights or options to purchase any shares of Buyer's capital
stock, whether by reason of stock split or combination or reclassification,
dividend, exchange, new consideration or otherwise, except (i) issuances of
shares of capital stock of Buyer the proceeds of which are applied in payment of
the Indebtedness, (ii) issuances of options for up to six hundred sixteen
thousand five hundred (616,500) shares of the common stock of Buyer under
Buyer's 1994 Stock Option Plan (net of any shares the option for which is
terminated in connection with any such issuance) and issuances of shares of such
common stock upon exercise thereof or of any options scheduled on Exhibit I to
the Purchase Agreement, (iii) consummation of issuance of shares payment for
which has been received by Buyer but not yet cleared as of the date of this
Note, and (iv) issuances of shares of common stock of Buyer the proceeds of
which are applied in payment of the Closing Notes.
(b) declare or pay any dividends or make any other payment
or distribution, either in cash or property, on or in purchase, redemption or
retirement of any shares of Buyer's capital stock of any class or any warrants,
rights or options to acquire any such shares by purchase, conversion or
otherwise, except, provided that when made, no Default exists hereunder, amounts
due under redemption provisions under Repurchase Agreements entered into on the
Closing Date with management personnel of the Company with respect to an
aggregate of not more than four hundred twenty-five thousand four hundred
fifty-one (425,451) shares of the common stock of Buyer.
4.3 Restricted Company Issuances and Distributions. Buyer will
cause the Company to not:
(a) issue any shares of the Company's capital stock of any
class or any warrants, rights or options to purchase any shares of the Company's
capital stock, whether by reason of stock split or combination or
reclassification, dividend, exchange, new consideration or otherwise;
(b) declare or pay any dividends or make any other payment
or distribution, either in cash or property, on or in purchase, redemption or
retirement of any shares of the Company's capital stock, or make any other
payment or distribution, either directly or indirectly, in respect of the
Company's capital stock or otherwise, including without limitation for goods or
services, to Buyer or to any Affiliate of Buyer, except (i) payments equal to
state and federal income tax liability on Buyer's consolidated tax returns
resulting from the Company's operations, made on the due date of the applicable
return, (ii) payments when and as due under the Spell Employment Agreement,
(iii) provided that when made, no Default exists hereunder, payments equal to
amounts due under redemption provisions under Repurchase Agreements entered into
on the Closing Date with management personnel of the Company with respect to an
aggregate of not more than four hundred twenty-five thousand four hundred
fifty-one (425,451) shares of the common stock of Buyer, (iv) payments applied
by Buyer in payment of the Indebtedness, and (v) payments not to exceed One
Hundred EightyEight Thousand Dollars ($188,000) annually to fund normal
operating expenses of Buyer.
4.4 Mergers, Consolidations and Sales of Assets. Buyer will cause
the Company to not (i) consolidate with or be a party to a merger with any other
corporation, or (ii) sell, lease or otherwise dispose of all or any substantial
part of its assets.
4.5 Guaranties. Buyer will not, and will cause the Company to
not, become or be liable in respect of any Guaranty except Guaranties entered
into in the ordinary course of the Business, Buyer's Guaranty of the Redemption
Note, Buyer's Guaranty of any Senior Obligations and Guaranties of Buyer of
loans to management personnel of the Company for the purchase of an aggregate of
not more than four hundred twenty-five thousand four hundred fifty-one (425,451)
shares of the common stock of Buyer.
4.6 Transactions with Affiliates. Buyer will, and will cause the
Company to, not enter into or be a party to any transaction or arrangement with
any Affiliate (including without limitation the purchase from, sale to or
exchange of property with, or the rendering of any service by or for, any such
Affiliate), except pursuant to the reasonable requirements of such party's
business and upon fair and reasonable terms no less favorable to such party than
would obtain in a comparable arm's-length transaction with a person other than
an Affiliate. The Spell Employment Agreement and the Closing Notes are deemed to
meet the requirements of this Section 4.6.
4.7 Reports and Rights of Inspection. Buyer will, and will cause
the Company to, keep proper books of record and account in which full and
correct entries will be made of all dealings or transactions of or in relation
to the business and affairs of Buyer or the Company, in accordance with
generally accepted accounting principles consistently applied (except for
changes in application disclosed in the financial statements furnished to the
holder hereof pursuant to this Section 4.7 and concurred in by the independent
public accountants referred to in (b) hereof), and will furnish to the holder
hereof:
(a) As soon as available and in any event within forty-five
(45) days after the end of each quarterly fiscal period of each fiscal year
consolidated and consolidating balance sheets of Buyer and the Company as of the
close of such period, and consolidated and consolidating statements of income
and retained earnings and statements of cash flows of Buyer and the Company for
the quarterly fiscal period then ending and for the portion of the fiscal year
ending with such period in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and certified by an authorized financial officer of Buyer to
the effect that (except for the exclusion in unaudited quarterly financial
statements of certain footnote and other information normally presented with
annual audited financial statements, and subject to changes resulting from
year-end adjustments) such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied (except for
changes in application in which the accountants referred to in clause (b) hereof
concur) and present fairly the financial condition of Buyer and the Company.
(b) As soon as available and in any event within ninety
(90) days after the close of each fiscal year of Buyer consolidated and
consolidating balance sheets of Buyer and the Company as of the close of such
fiscal year, and consolidated and consolidating statements of income and
retained earnings and statements of cash flows of Buyer and the Company for such
fiscal year, in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied by an opinion
thereon of a firm of independent public accountants of recognized national
standing selected by Buyer to the effect that the financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied (except for changes in application in which such
accountants concur and as are noted therein) and present fairly the financial
condition of Buyer and the Company and that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, includes such tests of
the accounting records and such other auditing procedures as were considered
necessary in the circumstances.
(c) Promptly upon receipt thereof, each interim or special
audit made by independent accountants of the books of Buyer or the Company.
(d) Promptly upon their becoming available, each financial
statement, report, notice or proxy statement sent by Buyer to stockholders
generally, and each report and any registration statement or prospectus filed by
Buyer with Nasdaq or any securities exchange or the Securities Exchange
Commission or any successor agency, and copies of any orders in any proceedings
to which Buyer or the Company is a party issued by any governmental agency,
federal or state, having jurisdiction over Buyer or the Company.
(e) Within the periods provided in paragraphs (a) and (b)
above, a certificate of an authorized financial officer of Buyer stating that
such officer has reviewed the provisions of this Note and setting forth, to the
best of such officer's knowledge, whether there existed as of the date of such
financial statements and whether there exists on the date of the certificate or
existed at any time during the period covered by such financial statements any
Default or any condition which but for the passage of time or the giving of
notice or both would constitute a Default and, if any such condition or event
existed during such period or exists on the date of the certificate, specifying
the nature and period of existence thereof and the action Buyer has taken or is
taking and proposes to take with respect thereto;
(f) The annual plans and operating projections Buyer and
the Company furnish to CIT when and as so furnished.
5. Subordination. Notwithstanding anything to the contrary contained
herein, this Note is in all respects subject to the terms and provisions of the
Subordination Agreement. No right of any present or future holder of the Senior
Credit Facility to enforce subordination as herein provided will at any time or
in any way be prejudiced or impaired by any failure to act on the part of Buyer
or the Company, or by any noncompliance by Buyer or the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof that
any such holders of the Senior Credit Facility may have or with which they may
be otherwise charged. The provisions of this Section 5 are solely for the
purpose of defining the relative rights of the holders of the Senior Credit
Facility on the one hand, and the holder hereof on the other hand, and nothing
in this Section 5 will impair, as between Buyer or the Company and the holder
hereof as applicable, the obligations of Buyer and the Company to pay to the
holder hereof Indebtedness in accordance with the remaining terms of this Note,
nor will anything herein prevent the holder hereof from exercising all remedies
otherwise permitted by applicable law or hereunder upon any Default, subject to
the rights, if any, of the holders of the Senior Credit Facility as herein
provided. Without limiting the foregoing, no suspension of any payment of
Indebtedness pursuant to the provisions of this Section 5 will suspend or defer
the due date of such payment as determined by the remaining provisions of this
Note.
6. Security Agreement.
6.1 Security Interest. In order to secure the Indebtedness, Buyer
hereby grants to the holder hereof a security interest in all shares of stock
owned by Buyer in the Company (and any and all additions thereto, substitutions
therefor, and proceeds thereof) (the "Pledged Stock").
6.2 Warranties and Obligations of Buyer. Buyer hereby warrants
and covenants to the holder hereof:
(a) The Pledged Stock represents 100% of the issued and
outstanding shares of capital stock of the Company.
(b) Buyer has and will maintain during the term of this
Note sole title to and beneficial ownership of the Pledged Stock, free of all
liens, charges, security interests and encumbrances (other than the security
interest created hereby and under the Senior Pledge), and has full power and
authority to subject the Pledged Stock to the security interest created hereby.
(c) Buyer will hereafter from time to time execute and
deliver such financing statements, assignments separate from certificates and
other instruments or documents, deliver the certificates representing the
Pledged Stock to the holder hereof upon termination of the Senior Pledge and
perform such other acts as the holder hereof may reasonably request to
establish, protect and maintain a perfected security interest in the Pledged
Stock and an ability to effectively enforce its remedies hereunder with respect
to the Pledged Stock. Buyer will at all times cause all certificates
representing the Pledged Stock to include a legend referencing this Note and the
security interest of the holder hereof provided hereunder.
6.3 Priority. The holder of this Note by acceptance hereof agrees
that the security interest granted hereunder in the Pledged Stock is subordinate
and junior in interest and priority to the Senior Pledge.
6.4 Nonimpairment. The holder hereof may from time to time,
without notice to Buyer, and without impairing or affecting the security
interest created hereby: (a) acquire a security interest in any property in
addition to the Pledged Stock, or release any such interest so acquired or
release any security interest in any of the Pledged Stock, or permit any
substitution or exchange for such property or any part thereof; (b) acquire the
primary or secondary liability of any party or parties with respect to all or
any of the Indebtedness, or release, modify, or compromise the same or any part
thereof; (c) modify, extend or renew for any period any of the Indebtedness; and
(d) resort to the Pledged Stock for payment of the Indebtedness whether or not
the holder hereof has resorted to any other collateral or proceeding against any
party primarily or secondarily liable on the Indebtedness.
6.5 Voting Rights. Buyer hereby grants to the holder hereof an
irrevocable proxy, coupled with an interest, to vote any or all of the Pledged
Stock, which proxy may be exercised by the holder hereof only at such time as a
Default in the payment of principal under this Note is continuing and no Senior
Pledge is in effect. Such proxy will remain in effect until this Note is
satisfied in full. Except for those instances where the holder hereof exercises
such proxy, Buyer will be entitled to exercise the voting power with respect to
the Pledged Stock consistent with the terms or purposes of this Note.
6.6 Remedies. In the event a Default hereunder has occurred and
is continuing, the holder hereof will have, in addition to any other rights and
remedies a secured party can assert under the Minnesota Uniform Commercial Code
and to the extent not inconsistent with nonwaivable provisions thereof, the
following rights and remedies, without having to give notice except as is
hereinafter specifically provided:
(a) The holder hereof may sell the Pledged Stock, or any
part thereof, at a public or private sale, following the notice hereinafter
provided, for cash, upon credit, or for future delivery at such price or prices
as the holder hereof deems satisfactory. The holder hereof, or any parties
related to or affiliated with the holder hereof, may purchase any or all of the
Pledged Stock sold at a public sale. The holder hereof is authorized at any
sale, if the holder hereof deems it advisable to do so, to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing for their own account for investment, and not with a view to
the distribution or sale of any of the Pledged Stock. Upon any such sale, the
holder hereof will have the right to deliver, assign, and transfer to the
purchaser thereof the Pledged Stock so sold. Each purchaser at any such sale
will hold the property sold absolutely free from any claim or right of Buyer of
whatsoever kind, including any equity or right of redemption of Buyer which
Buyer has under any rule of law or statute now existing or hereafter adopted;
and as to such purchaser, Buyer hereby specifically waives all such rights of
redemption, of stay, or of appraisal, which might in any way affect such
purchaser. The holder hereof will give Buyer at least ten (10) days' written
notice of intention to make such public or private sale, which notice will state
the time and place fixed for such public sale or the time after which such
private sale may be consummated and whether the sale is to be public or private.
At any such sale the Pledged Stock may be sold in one lot as an entirety or in
separate parcels, as the holder hereof may determine. In case of any sale on
credit or for future delivery, the Pledged Stock so sold may be retained by the
holder hereof until the selling price is paid by the purchaser thereof, and the
holder hereof will not incur any liability in case of the failure of such
purchaser to take up and pay for the Pledged Stock so sold, and in case of any
such failure, such Pledged Stock may be again sold upon like notice. The holder
hereof will not be obligated to complete any sale for which the holder hereof
sends out notice and may, without notice or publication, adjourn any sale or
cause the same to be adjourned by announcement at the time and place fixed for
such sale, and such sale may thereafter be made at the time and place to which
the same has been so adjourned.
(b) The holder hereof, instead of exercising the power of
nonjudicial sale herein conferred, may proceed by a suit or suits at law or in
equity to foreclose the pledge and sell the Pledged Stock, or any portion
thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(c) Without limiting the rights of the holder hereof under
any other provision of this Note, and in addition thereto, Buyer will be
obligated, to the maximum extent permitted by law, if a Default is continuing
and if counsel for the holder hereof determines that it is necessary for the
lawful sale of the Pledged Stock in a commercially reasonable manner, upon
written request from the holder hereof, to vote its shares to cause the Company,
at the Company's or Buyer's expense, to prepare, file and cause to become
effective promptly, a registration statement complying with the Securities Act
of 1933, as amended, for the public sale of such of the Pledged Stock as the
holder hereof may elect, and to take comparable action to permit such sales
under the securities laws of such state jurisdictions as the holder hereof may
designate. If such registration statement is filed, Buyer further will be
obligated to vote its shares to cause the Company, at the Company's or Buyer's
expense, to enter into and perform its obligations under one or more
underwriting agreements in connection therewith, containing customary
representations, warranties, covenants, and indemnities and contribution
provisions if requested by the holder hereof. Buyer will be obligated to vote
its shares to cause the Company, at the Company's or Buyer's expense, (i) to
keep any such registration statement and related prospectus current and in
compliance with applicable federal and state securities laws so long as required
to satisfy applicable prospectus delivery requirements and (ii) at the request
of the holder hereof at any time after the effective date of any such
registration statement, to file post-effective amendments to such registration
statement so that sales of Pledged Stock by the holder hereof will be covered by
a current prospectus and can be made in compliance with all applicable federal
and state securities laws.
(d) Buyer further will be obligated to (i) take such action
as is necessary to cause the Company to delivery to the holder hereof such
information as the holder hereof reasonably requests for inclusion in any
registration statement, prospectus or offering memorandum or in any preliminary
prospectus or preliminary offering memorandum or any amendment or supplement to
any thereof or in any other writing prepared in connection with the offer, sale
or resale of all or any portion of the Pledged Stock and to deliver such
information regarding Buyer as the holder hereof reasonably requests, which
information will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make such
information not misleading, and (ii) vote its shares to do or cause to be done
all such other acts and things as may be necessary to make such offer, sale or
resale of all or any portion of the Pledged Stock valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental agencies or instrumentalities, domestic or foreign, having
jurisdiction over any such offer, sale or resale.
(e) Without limiting paragraphs (c) and (d) of this Section
6.6, if the holder hereof decides to exercise its right to sell all or any of
the Pledged Stock, upon written request Buyer will from time to time take such
action as is necessary to cause to be furnished to the holder hereof all such
information as the holder hereof may request and as is accessible to Buyer in
order to qualify such Pledged Stock as exempt securities, or the sale or release
of such Pledged Stock as exempt transactions, under federal or state securities
laws. Buyer will be obligated to take such action as is necessary to cause the
Company to allow the holder hereof and any underwriter access at reasonable
times and places to the books, records and premises of the Company; Buyer
further will be obligated to assist, and take such action as is necessary to
cause the Company to assist the holder hereof, any underwriter, any agent of any
thereof, and any counsel, accountant or other expert for any thereof, in
inspection, evaluation, and any other "due diligence" action of or with respect
to any such books, records and premises; and Buyer further will be obligated to
cause any independent public accountant for the Company to furnish a letter to
the holder hereof and underwriters in customary form and covering matters of the
type customarily covered by letters of accountants for issuers to underwriters.
(f) Buyer further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by the holder hereof
by reason of the failure by Buyer to perform any of the covenants contained in
this Section and, consequently, agrees that, if Buyer fails to perform any of
such covenants, the holder hereof will be entitled to equitable relief for the
enforcement of the provisions of this Section 6.6. Buyer will indemnify the
holder hereof for any and all fees, charges, reimbursements, judgments or other
expenses incurred by the holder hereof due to any failure of Buyer to perform
its obligations under this Section 6.6.
(g) Notwithstanding the foregoing provisions of this
Section 6.6, the holder of this Note will not be permitted to exercise any of
the foregoing rights or remedies contained or referenced in this Section 6.6 for
so long as any Senior Pledge remains in effect without the prior written consent
of the holder thereof.
6.7 Application of Proceeds. The proceeds of any sale of the
Pledged Stock hereunder will be applied by the holder hereof:
(a) first, to the payment of the costs and expenses of such
sale, including reasonable attorneys' fees and all expenses and advances made or
incurred by it in connection therewith;
(b) second, to the payment of the Indebtedness;
(c) finally, to the payment to Buyer or its successors and
assigns of any surplus then remaining from such proceeds.
(d) The holder hereof will not be required to make any
allocation or distribution to Buyer of proceeds from sale except from collected
funds after satisfaction or release of all indemnification or other payment
obligations that may be asserted against the holder hereof or such proceeds in
connection with such sale. Any collected funds retained pursuant to this
provision will be promptly deposited or invested in Permitted Investments until
disbursed in accordance herewith.
7. Default, Remedies
7.1 Default. Any one or more of the following constitutes a
Default as that term is used herein:
(a) Failure of Buyer to pay any principal amount or
interest hereunder when due and continuation of such condition for fifteen (15)
days after written notice thereof by the holder hereof to Buyer;
(b) Failure to perform any obligation of Buyer hereunder
other than for the payment of money and continuation of such condition for
thirty (30) days after written notice thereof by the holder hereof to Buyer;
(c) Failure of the Company to pay any principal amount or
interest under the Redemption Note when due and continuation of such condition
for fifteen (15) days after written notice thereof by the holder thereof to the
Company;
(d) Failure to perform any obligation of the Company under
the Redemption Note other than for the payment of money and continuation of such
condition for thirty (30) days after written notice thereof by the holder
thereof to the Company;
(e) Failure of the Company to pay any amount under the
Senior Obligations when due for so long as such condition continues;
(f) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against Buyer or the
Company and, if instituted against Buyer or the Company are consented to or are
not dismissed within sixty (60) days after such institution; or
(g) Buyer or the Company becomes insolvent or bankrupt,
generally does not pay its debts as they become due or makes an assignment for
the benefit of creditors, or Buyer or the Company applies for or consents to the
appointment of a custodian, trustee or receiver for Buyer or the Company or for
the major part of the property of either, or a custodian, trustee or receiver is
appointed for Buyer or the Company or for the major part of the property of
either and is not discharged within sixty (60) days after such appointment.
7.2 Acceleration of Maturity. When any Default described in
Sections 7.1(b), (d) or (g) has happened and is continuing, and in the case of
Section 7.1(b) or (d) provided no Senior Obligation is then outstanding, the
holder hereof may, by written notice to the Company, declare the entire
principal and all interest accrued hereunder to be, and the same will thereupon
become, immediately due and payable, without any presentment, demand, protest or
other notice of any kind. When a Default described in Section 7.1 (f) has
occurred, the entire principal and all interest accrued hereunder will thereupon
become immediately due and payable without presentment, demand, protest or other
notice of any kind.
7.3 Costs of Enforcement. Upon a Default, Buyer will be obligated
to pay all costs of collection and enforcement of the rights and remedies of the
holder hereof, including court costs and attorneys' fees, whether or not legal
proceedings are commenced.
7.4 Waivers. Buyer waives presentment for payment, demand,
protest, notice of protest and notice of dishonor. No delay by the holder hereof
in exercising any right or remedy hereunder, at law or in equity will operate as
a waiver of such right or remedy and no single or partial exercise of any such
right or remedy will preclude any further exercise thereof, or the exercise of
any other rights or remedies.
8. Notices. Any notice, request, instruction or other document to be
given hereunder by Buyer or the holder of this Note to the other party will be
in writing and delivered personally or by telephonic facsimile transmission or
sent by registered or certified mail, postage prepaid (and if by telephonic
facsimile transmission with a copy sent by mail),
if to the holder of this Note to:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, California 90067
Attn: Lori Poulos
Facsimile No.: 310-552-3446
with a copy to:
Oppenheimer Wolff & Donnelly
Suite 3400, Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Douglas L. Hemer
Facsimile No.: 612-344-9376
if to Buyer to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
9. Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this Note
or the breach hereof, unless resolved by mutual agreement of the parties, will
be finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the effective date of
this Agreement by a single arbitrator appointed in accordance with said Rules.
The determination of the arbitrator will be final and binding upon the parties
to the arbitration and judgment upon the award rendered by the arbitrator will
be entered in any court of competent jurisdiction. The place of arbitration will
be Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Note in any court of competent jurisdiction.
10. Governing Law; Consent to Jurisdiction. This Note will be construed
in accordance with and governed by the laws of the State of Minnesota applicable
to agreements made and to be performed in such jurisdiction without reference to
conflicts of law principles. Buyer by execution and delivery of this Note, and
the holder of this Note by acceptance hereof, each irrevocably consents that any
legal action or proceeding against it under, arising out of or in any manner
relating to this Note may be brought only in an arbitration proceeding as
provided in Section 9 or in a court of the State of Minnesota or in the United
States District Court for the District of Minnesota. Each of Buyer and the
holder of this Note further expressly and irrevocably assents and submits to the
personal jurisdiction of the arbitrators selected pursuant to Section 9 or any
of such courts in any such action or proceeding. Each of Buyer and the holder of
this Note further irrevocably consents to the service of any complaint, summons,
notice or other process relating to any such action or proceeding by delivery
thereof to it by hand or by mail in the manner provided for in Section 8 hereof.
Each of Buyer and the holder of this Note further hereby expressly and
irrevocably waives any claim or defense in any action or proceeding based on any
alleged lack of personal jurisdiction, improper venue or forum non conveniens or
any similar basis.
11. Neither this Note nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
12. This Note is not an obligation of the Company.
IN WITNESS WHEREOF, Buyer has caused this Note to be duly executed and
delivered on the day and year first above written.
DISCUS ACQUISITION CORPORATION
By William H. Spell
Its CEO
STOCK PURCHASE NOTE
$100,000 December 13, 1995
FOR VALUE RECEIVED, the undersigned, Discus Acquisition Corporation
("Discus"), a Minnesota corporation, hereby promises to pay to the order of
Harry W. Spell, at the address provided under Section 8 in lawful money of the
United States in accordance with the terms hereof the sum of One Hundred
Thousand Dollars ($100,000) plus interest thereon at the rate provided herein
from the date hereof until paid in full.
1. Payment Terms.
1.1 Interest. Interest will accrue on the unpaid principal of
this Note at the annual rate of twenty percent (20%) from the date hereof to
March 31, 1996, eight percent (8%) from April 1, 1996 to December 13, 1998, and
thirteen percent (13%) at all times thereafter.
1.2 Principal. The principal of this Note, together with all
accrued and unpaid interest not then otherwise due, will be due March 31, 1996.
1.3 Prepayments; Application of Payments. This Note may be
prepaid, in whole or in part, at any time and from time to time without premium
or penalty. Payments on this Note will be applied first to accrued interest due
and unpaid, next (to the extent such payment is a prepayment) to accrued
interest unpaid and not yet due, next to costs and expenses accrued hereunder,
with the balance to principal.
2. Subordination. The payee by acceptance hereof agrees that the
repayment of this Note shall be and hereby is subordinated in favor of The CIT
Group/Business Credit, Inc. ("CIT") on the same terms, provisions and conditions
as set forth in that certain Subordination Agreement dated December 13, 1995
(the Subordination Agreement"); by and among Bridgewater Resources Corp., CIT,
Discus, Peerless Chain Company, and Peerless Chain of Iowa, Inc. The payee
further agrees that upon the request of CIT the payee shall execute a separate
subordination agreement incorporating such similar terms and conditions. Discus
Can prepay the principal and interest evidenced by this Note on the terms
contained in the last sentence of paragraph 8(b) of the Subordination Agreement.
3. Costs of Enforcement. Upon a Default, Buyer will be obligated to pay
all costs of collection and enforcement of the rights and remedies of the holder
hereof, including court costs and attorneys' fees, whether or not legal
proceedings are commenced.
4. Waivers. Buyer waives presentment for payment, demand, protest,
notice of protest and notice of dishonor. No delay by the holder hereof in
exercising any right or remedy hereunder, at law or in equity will operate as a
waiver of such right or remedy and no single or partial exercise of any such
right or remedy will preclude any further exercise thereof, or the exercise of
any other rights or remedies.
5. Notices. Any notice, request, instruction or other document to be
given hereunder by Buyer or the holder of this Note to the other party will be
in writing and delivered personally or by telephonic facsimile transmission or
sent by registered or certified mail, postage prepaid (and if by telephonic
facsimile transmission with a copy sent by mail),
if to the holder of this Note to:
Harry W. Spell
c/o Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Facsimile No.: 612-371-9651
if to Discus to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
6. Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this Note
or the breach hereof, unless resolved by mutual agreement of the parties, will
be finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the effective date of
this Agreement by a single arbitrator appointed in accordance with said Rules.
The determination of the arbitrator will be final and binding upon the parties
to the arbitration and judgment upon the award rendered by the arbitrator will
be entered in any court of competent jurisdiction. The place of arbitration will
be Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Note in any court of competent jurisdiction.
7. Governinq Law; Consent to Jurisdiction. This Note will be construed
in accordance with and governed by the laws of the State of Minnesota applicable
to agreements made and to be performed in such jurisdiction without reference to
conflicts of law principles. Buyer by execution and delivery of this Note, and
the holder of this Note by acceptance hereof, each irrevocably consents that any
legal action or proceeding against it under, arising out of or in any manner
relating to this Note may be brought only in an arbitration proceeding as
provided in Section 9 or in a court of the State of Minnesota or in the United
States District Court for the District of Minnesota. Each of Buyer and the
holder of this Note further expressly and irrevocably assents and submits to the
personal jurisdiction of the arbitrators selected pursuant to Section 9 or any
of such courts in any such action or proceeding. Each of Buyer and the holder of
this Note further irrevocably consents to the service of any complaint, summons,
notice or other process relating to any such action or proceeding by delivery
thereof to it by hand or by mail in the manner provided for in Section 8 hereof.
Each of Buyer and the holder of this Note further hereby expressly and
irrevocably waives any claim or defense in any action or proceeding based on any
alleged lack of personal jurisdiction, improper venue or forum non conveniens or
any similar basis.
8. Neither this Note nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought
IN WITNESS WHEREOF, Buyer has caused this Note to be duly executed and
delivered on the day and year first above written.
DISCUS ACQUISITION CORPORATION
By /s/ William H. Spell
Its CEO
STOCK PURCHASE NOTE
$125,000 December 13, 1995
FOR VALUE RECEIVED, the undersigned, Discus Acquisition Corporation
("Discus"), a Minnesota corporation, hereby promises to pay to the order of
Pyramid Investors at the address provided under Section 8 in lawful money of the
United States in accordance with the terms hereof the sum of One Hundred
Thousand Dollars ($100,000) plus interest thereon at the rate provided herein
from the date hereof until paid in full.
1. Payment Terms.
1.1 Interest. Interest will accrue on the unpaid principal of
this Note at the annual rate of twenty percent (20%) from the date hereof to
March 31, 1996, eight percent (8%) from April 1, 1996 to December 13, 1998, and
thirteen percent (13%) at all times thereafter.
1.2 Principal. The principal of this Note, together with all
accrued and unpaid interest not then otherwise due, will be due March 31, 1996.
1.3 Prepayments; Application of Payments. This Note may be
prepaid, in whole or in part, at any time and from time to time without premium
or penalty. Payments on this Note will be applied first to accrued interest due
and unpaid, next (to the extent such payment is a prepayment) to accrued
interest unpaid and not yet due, next to costs and expenses accrued hereunder,
with the balance to principal.
2. Subordination. The payee by acceptance hereof agrees that the
repayment of this Note shall be and hereby is subordinated in favor of The CIT
Group/Business Credit, Inc. ("CIT") on the same terms, provisions and conditions
as set forth in that certain Subordination Agreement dated December 13, 1995
(the "Subordination Agreement"); by and among Bridgewater Resources Corp., CIT,
Discus, Peerless Chain Company, and Peerless Chain of Iowa, Inc. The payee
further agrees that upon the request of CIT the payee shall execute a separate
subordination agreement incorporating such similar terms and conditions. Discus
can prepay the principal and interest evidenced by this Note on the terms
contained in the last sentence of paragraph 8(b) of the Subordination Agreement.
3. Costs of Enforcement. Upon a Default, Buyer will be obligated to pay
all costs of collection and enforcement of the rights and remedies of the holder
hereof, including court costs and attorneys' fees, whether or not legal
proceedings are commenced.
4. Waivers. Buyer waives presentment for payment, demand, protest,
notice of protest and notice of dishonor. No delay by the holder hereof in
exercising any right or remedy hereunder, at law or in equity will operate as a
waiver of such right or remedy and no single or partial exercise of any such
right or remedy will preclude any further exercise thereof, or the exercise of
any other rights or remedies.
5. Notices. Any notice, request, instruction or other document to be
given hereunder by Buyer or the holder of this Note to the other party will be
in writing and delivered personally or by telephonic facsimile transmission or
sent by registered or certified mail, postage prepaid (and if by telephonic
facsimile transmission with a copy sent by mail),
if to the holder of this Note to:
Pyramid Investors
c/o Perkins Capital Management, Inc.
730 East Lake Street
Wayzata, MN 55391-1769
Facsimile No.: (612) 473-4702
if to Discus to:
Discus Acquisition Corporation
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: William H. Spell
Facsimile No.: 612-371-9651
with a copy to:
Briggs and Morgan
2400 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attn: Avron L. Gordon
Facsimile No.: 612-334-8650
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
6. Arbitration. Subject to the last sentence of this Section, any
controversy or claim arising out of or relating to any provisions of this Note
or the breach hereof, unless resolved by mutual agreement of the parties, will
be finally settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the effective date of
this Agreement by a single arbitrator appointed in accordance with said Rules.
The determination of the arbitrator will be final and binding upon the parties
to the arbitration and judgment upon the award rendered by the arbitrator will
be entered in any court of competent jurisdiction. The place of arbitration will
be Minneapolis, Minnesota. Notwithstanding the foregoing, a party may seek
injunctive relief with respect to any controversy or claim arising out of or
relating to any provisions of this Note in any court of competent jurisdiction.
7. Governing Law; Consent to Jurisdiction. This Note will be construed
in accordance with and governed by the laws of the State of Minnesota applicable
to agreements made and to be performed in such jurisdiction without reference to
conflicts of law principles. Buyer by execution and delivery of this Note, and
the holder of this Note by acceptance hereof, each irrevocably consents that any
legal action or proceeding against it under, arising out of or in any manner
relating to this Note may be brought only in an arbitration proceeding as
provided in Section 9 or in a court of the State of Minnesota or in the United
States District Court for the District of Minnesota. Each of Buyer and the
holder of this Note further expressly and irrevocably assents and submits to the
personal jurisdiction of the arbitrators selected pursuant to Section 9 or any
of such courts in any such action or proceeding. Each of Buyer and the holder of
this Note further irrevocably consents to the service of any complaint, summons,
notice or other process relating to any such action or proceeding by delivery
thereof to it by hand or by mail in the manner provided for in Section 8 hereof.
Each of Buyer and the holder of this Note further hereby expressly and
irrevocably waives any claim or defense in any action or proceeding based on any
alleged lack of personal jurisdiction, improper venue or forum non conveniens or
any similar basis.
8. Neither this Note nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, Buyer has caused this Note to be duly executed and
delivered on the day and year first above written.
DISCUS ACQUISITION CORPORATION
By
Its CEO
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT, made and entered into this 13th day of
December, 1995 by and between Bridgewater Resources Corp. ("Subordinating
Creditor") and THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT").
WITNESSETH:
WHEREAS, Peerless Chain Company ("PCC") (together with its subsidiary
Peerless Chain of Iowa, Inc. collectively the "Company") has executed and
delivered to Subordinating Creditor its promissory note, dated, December 13,
1995 in the principal amount of $2,500,000 (the "Subordinated Note");
WHEREAS, Discus Acquisition Corporation (the "Guarantor") has executed
and delivered to Subordinating Creditor a guaranty (the "Subordinated Debt
Guaranty") of the Company's obligations under the Subordinated Note and secured
its obligation under the Subordinated Debt Guaranty by a pledge of, and junior
and subordinated lien upon, and security interest in, all of the present and
future outstanding common stock of PCC (the "Pledged Stock");
WHEREAS, Guarantor has also executed and delivered to Subordinating
Creditor its promissory note dated December 13, 1995 in the original amount of
$1,200,000 (the "Guarantor Note"), which note is secured by a pledge of, and
junior and subordinated lien upon, and security interest in, the Pledged Stock;
WHEREAS, the Company desires to borrow certain sums from CIT pursuant
to a certain Financing Agreement ("Financing Agreement"), including, without
limitation, the Revolving Loans, Letters of Credit, Term Loans and CAPEX Term
Loans (as defined in said Financing Agreement);
WHEREAS, the Guarantor has executed and delivered to CIT a guaranty
(the "Senior Debt Guaranty") of the Senior Debt (as defined below) and secured
its obligations under the Senior Debt Guaranty by a pledge of, and a first
priority lien upon and security interest in, the Pledged Stock;
WHEREAS, the extension of credit by CIT to the Company will benefit the
Subordinating Creditor;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Subordinating Creditor hereby agrees with CIT as follows:
1. SUBORDINATION. The Subordinating Creditor hereby subordinates and defers the
payment (including without limitation in any Insolvency Proceeding) of any and
all amounts which may be now or hereafter owing by (a) the Company to the
Subordinating Creditor pursuant to the Subordinated Note and (b) the Guarantor
to the Subordinating Creditor pursuant to the Guarantor Note, and/or any
promissory notes now or hereafter executed and delivered by (i) the Company to
the Subordinating Creditor in payment of or as evidence of amounts now or
hereafter owing by the Company to the Subordinating Creditor arising pursuant to
or in connection with said Subordinated Note and (ii) the Guarantor to the
Subordinating Creditor in payment of or as evidence of amounts now or hereafter
owing by the Guarantor to the Subordinating Creditor arising pursuant to or in
connection with said Guarantor Note (collectively the "Subordinated Debt") to
the prior payment and satisfaction in full of any and all Senior Debt which may
be now or hereafter owing to CIT by the Company. "Senior Debt", as used herein,
shall mean all Obligations (as defined in the Financing Agreement), including,
without limitation, any and all now existing and future indebtedness,
obligations or liabilities of the Company to CIT, whether direct or indirect,
absolute or contingent, secured or unsecured, arising under the Financing
Agreement (including, without limitation, all Revolving Loans, Term Loans, CAPEX
Term Loans and Letters of Credit thereunder) or any guaranty executed by the
Company in favor of CIT, as now written or as amended or supplemented hereafter,
or by operation of law or otherwise, including any and all expenses (including
reasonable attorneys' fees) incurred in connection therewith and any interest
thereon, including, without limitation, any post petition interest accruing on
such Senior Debt after the Company becomes subject to an Insolvency Proceeding
(whether or not such interest is enforceable against the Company or recoverable
against the Company or its bankruptcy estate). Senior Debt shall also include
all indebtedness, obligations and liabilities of the Company (i) arising in
connection with any advances made to the Company as a debtor-in-possession, or a
trustee for the Company under any Insolvency Proceeding and (ii) to repay any
amount previously paid by the Company pursuant to the Financing Agreement which
amounts have been returned to the Company or to a trustee pursuant to sections
547 or 548 of the Bankruptcy Code.
"Insolvency Proceeding" shall mean (i) any insolvency or bankruptcy
case or proceeding or any receivership, liquidation, reorganization,
readjustment, composition or other similar case or proceeding relating to the
Company and/or the Guarantor or their assets, (ii) any liquidation, dissolution,
reorganization or winding up of the Company and/or the Guarantor, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
proceedings or (iii) any assignment for the benefit of creditors or any other
marshalling of the Company's and/or Guarantor's assets.
2. REPRESENTATIONS AND WARRANTIES. The Subordinating Creditor hereby
warrants and represents:
2.1 That the Company and/or the Guarantor (as the case may be) owes to
the Subordinating Creditor, as of the date hereof, the Subordinated Debt; that
the Subordinated Debt is not subject to any defense, offset or counterclaim
arising in connection with any purchase price adjustment under Section 1.2 of
the Stock Purchase Agreement between Guarantor and Subordinating Creditor dated
as of November 22, 1995 (herein the "Prohibited Offset") and the Subordinating
Creditor will not assert or assent to any Prohibited Offset; that the
Subordinating Creditor is the exclusive owner of the Subordinated Debt; that
there are, and will be, no guarantees or collateral or security for said
Subordinated Debt except the Subordinated Debt Guaranty and the Pledged Stock;
and that neither the Subordinated Debt nor any collateral or guarantees therefor
is now, nor will be subject to any lien, security interest, guarantees,
subordination or assignment except (a) the subordination in favor of CIT
hereunder, (b) the junior subordination in favor of the lessor under the
Company's lease of its Winona, Minnesota facility, all as more fully set forth
in the Subordinated Note (herein the "Winona Lease Subordination) and (c)
Permitted Transfers. The Subordinating Creditor further represents, warrants and
agrees that the Company is not, and shall not be obligated to Subordinating
Creditor with respect to the Guarantor Note and Subordinating Creditor will not
assert, and hereby waives and relinquishes any and all claims that it may now or
hereafter have against the Company with respect to the Guarantor Note.
"Permitted Transfers" as used herein shall mean: (i) any assignment or transfer
to an affiliate of the Subordinating Creditor who agrees in writing to be bound
by and comply with the terms and provisions of this Subordination Agreement, and
(ii) any assignment, transfer or pledge of, or grant of a lien upon, or security
interest in, the Subordinated Debt, provided that with respect to this clause
(ii) (x) the Subordinating Creditor obtains CIT's prior consent thereto (which
consent shall not be unreasonably withheld by CIT) and (y) the transferee agrees
in writing to be bound by and comply with the terms and provisions of this
Subordination Agreement.
2.2 That until such time as this Subordination Agreement is terminated
as herein below provided, except as otherwise specifically permitted in this
Subordination Agreement, the Subordinating Creditor will not, directly or
indirectly, demand or receive payment of; exchange, or modify (except for
modifications permitted under paragraph 12 hereof); request or obtain any
additional collateral or security or guarantees for; effect a subordination
(other than the Winona Lease Subordination) or transfer to others of (except for
Permitted Transfers); grant any security interest in or lien on (except for
Permitted Transfers); or assert, or participate in, or bring any sort of action,
suit or proceeding (including without limitation bankruptcy or insolvency
proceedings) either at law or in equity for the enforcement, collection or
realization on: the whole or any part of, the Subordinated Debt.
2.3 That:
(a) Subordinating Creditor is a corporation validly existing and in
good standing under the laws of Texas;
(b) Subordinating Creditor has the power, authority and legal right to
make, deliver and perform this Subordination Agreement;
(c) Subordinating Creditor has taken all necessary corporate action to
authorize its execution of this Subordination Agreement and no consent of any
other party (including, but not limited to, any shareholder or creditor) and no
authorization of, notice to, or other act by or in respect of any governmental
authority, is required; and
(d) This Subordination Agreement has been duly authorized, executed and
delivered on behalf of the Subordinating Creditor and constitutes a legal, valid
and binding obligation of Subordinating Creditor.
3. INDUCEMENT. This Subordination Agreement is executed as an
inducement to CIT to make loans or advances to the Company or otherwise to
extend credit or financial accommodations to the Company, and to enter into and
continue a financing arrangement with the Company and is executed in
consideration of CIT's doing or having done any of the foregoing. The
Subordinating Creditor agrees that any of the foregoing shall be done or
extended by CIT in its sole discretion and shall be deemed to have been done or
extended by CIT in consideration of and in reliance upon the execution of this
Subordination Agreement, but that nothing herein shall obligate CIT to do any of
the foregoing.
4. TERMINATION. This Subordination Agreement may be terminated only
upon (i) payment and satisfaction in full of all Senior Debt and termination of
the Financing Agreement and CIT's obligation to make loans, advances and/or
extensions of credit thereunder, or (ii) as of an Anniversary Date, as defined
in the Financing Agreement, and then only upon actual receipt by an officer of
CIT of at least one hundred and twenty (120) days prior written notice of
termination sent by registered or certified mail; provided, however, that in the
event of termination of this Subordination Agreement, the Subordinating
Creditor, shall remain bound hereunder, and this Subordination Agreement shall
continue in full force and effect with respect to any and all Senior Debt
created or arising prior to the effective date of such termination and with
respect to any and all extensions, renewals or modifications of said
pre-existing Senior Debt. This is a continuing agreement and written notice as
above provided shall be the only means of termination, notwithstanding the fact
that for certain periods of time there may be no Senior Debt owing to CIT by the
Company.
5. RIGHTS IN INSOLVENCY PROCEEDINGS. The Subordinating Creditor
irrevocably authorizes and empowers CIT in any Insolvency Proceeding involving
or relating to the Subordinated Debt to file a proof of claim in behalf of the
Subordinating Creditor with respect to the Subordinated Debt if the
Subordinating Creditor fails to file proof of its claims prior to 30 days before
the expiration of the time period during which such claims must be submitted, to
accept and receive any payment or distribution which may be payable or
deliverable at any time upon or in respect of the Subordinated Debt in an amount
not in excess of the Senior Debt then outstanding and to take such other action
as may be reasonably necessary to effectuate the foregoing. The Subordinating
Creditor shall provide to CIT all information and documents necessary to present
claims or seek enforcement as aforesaid. The Subordinating Creditor agrees that
while it shall retain the right to vote its claims and otherwise act in any such
Insolvency Proceeding relative to the Company and/or the Guarantor (as the case
may be) (including, without limitation, the right to vote to accept or reject
any plan of partial or complete liquidation, reorganization, arrangement,
composition, or extension), the Subordinating Creditor shall not take any action
or vote in any way so as to contest (i) the validity or the enforceability of
the Financing Agreement, or the liens and security interests to the extent
granted to CIT with respect to the Senior Debt, (ii) the rights and duties of
CIT established in the Financing Agreement or any security documents with
respect to such liens and security interests, or (iii) the validity or
enforceability of this Subordination Agreement or any agreement or instrument to
the extent evidencing or relating to the Senior Debt. CIT agrees that while it
shall retain the right to vote its Senior Debt and otherwise act in any such
reorganization proceeding relative to the Company and/or the Guarantor (as the
case may be) (including, without limitation, the right to vote or accept or
reject any plan of partial or complete liquidation, reorganization arrangement,
composition or extension), CIT shall not take any action or vote in any way so
as to contest the enforceability of this Subordination Agreement, the
Subordinated Note or any other agreement or instrument to the extent evidencing
or relating to Subordinated Debt.
6. NO LIABILITY; OVERPAYMENT. CIT shall in no event be liable for any
failure to prove the Subordinated Debt; for failure to exercise any rights with
respect thereto; or for failure to collect any sums payable thereon or for
failure to take any affirmative action in connection therewith. If any dividends
or payments received by CIT on the Subordinated Debt, when added to the
dividends received directly by CIT on the Senior Debt, shall exceed the total
Senior Debt, CIT agrees to pay the excess to the Subordinating Creditor.
7. ARRANGEMENTS WITH THE COMPANY. It is agreed that CIT may enter into
any agreement or arrangements with respect to the Financing Agreement and any
amendments thereto, with the Company and/or the Guarantor as CIT may deem
proper; extend the time for payment of and/or renew any or all Senior Debt;
surrender any security, collateral or guarantees underlying all or any of such
Senior Debt, and make any settlements and compromises thereof; all without
notice to or consent from the Subordinating Creditor and without in any way
impairing or affecting this Subordination Agreement thereby.
8. PAYMENTS TO THE SUBORDINATING CREDITOR. (a) Subject to the
provisions of subparagraph (b) hereof, should any payment with respect to the
Subordinated Debt be received by the Subordinating Creditor in any form and from
any source whatsoever (including, without limitation, any payment or
distribution of collateral security (if any ) or the proceeds of any such
collateral security) prior to the satisfaction in full of all of the Senior
Debt, the Subordinating Creditor shall immediately deliver to CIT any monies,
securities or other property received by it, or its equivalent in cash, with
proper endorsements or assignments, if necessary; and pending such delivery the
Subordinating Creditor shall hold such monies, securities or other property as
trustee for the account of CIT; and
(b) Notwithstanding anything to the contrary stated herein, (x) the
Company may make payments of (i) interest when due, strictly in accordance with
the terms and provisions of the Subordinated Note as in effect on the date
hereof, and (ii) principal in full commencing on December 13, 1998 to the
Subordinating Creditor under and strictly in accordance with the Subordinated
Note as in effect on the date hereof, and (y) the Guarantor may make payments of
(i) interest when due, strictly in accordance with the terms and provisions of
the Guarantor Note as in effect on the date hereof, and (ii) principal in full
commencing on December 13, 1998 to the Subordinating Creditor under and strictly
in accordance with the Guarantor Note as in effect on the date hereof, all
without prepayment or acceleration of the Subordinated Debt, and the
Subordinating Creditor may demand, receive and retain said payments unless CIT
has notified the Subordinating Creditor in writing that an Event of Default has
occurred under the Financing Agreement (a "Suspension Notice"). Upon receipt of
a Suspension Notice, and at all times thereafter during the applicable
Suspension Period (as defined herein), (i) the Subordinating Creditor may not
take, demand, receive or accelerate any payment of the Subordinated Debt and the
Company and/or the Guarantor shall not give, make or permit any such payment and
(ii) the Subordinating Creditor shall not assert, participate in or bring any
sort of action, suit or proceeding (including without limitation any Insolvency
Proceeding) either at law or in equity for the enforcement, collection or
realization of all, or any part of, the Subordinated Debt (herein "Commence
Legal Action"). In the event CIT determines that the Event of Default has been
cured to its satisfaction, CIT shall so notify the Subordinating Creditor and
the Company and the Guarantor in writing and the suspended payments may resume.
Such resumed payments shall be subject to all of the terms and provisions of
this Subordination Agreement. Upon the expiration of an applicable Suspension
Period, unless (A) CIT has prior to such expiration given a notice of
acceleration to the Company and/or the Guarantor with respect to the Senior Debt
and is pursuing remedies against the Company and/or the Guarantor or the
Collateral (as defined in the Financing Agreement), or (B) the Company and/or
the Guarantor has paid to the Subordinating Creditor all installments of
principal and interest that would have been due (without acceleration) during
such Suspension Period, the Subordinating Creditor may accelerate the
Subordinated Debt and Commence Legal Action. However, notwithstanding the
foregoing, should any Insolvency Proceeding occur at any time, the Subordinated
Debt shall be subordinated to the prior payment of all Senior Debt in accordance
with paragraph 1 hereof, and the aforesaid provisions of subparagraph (a) of
this paragraph. Notwithstanding any provision to the contrary contained herein
the principal amount of the Guarantor Note may be paid from the proceeds of
additional common stock issued by the Guarantor hereafter.
(c) "Suspension Period" shall mean a period equal to 180 consecutive
days. With respect to Suspension Notice(s), it is hereby understood and agreed
that:
(i) there shall be no limit of the number of Suspension Notices which
CIT may give;
(ii) CIT shall not be entitled to give successive Suspension Notices
based on a continuing Event of Default under the Financing Agreement,
which Event of Default was the basis for a prior Suspension Notice; and
(iii) nothing contained herein shall prohibit CIT from giving
successive Suspension Notices based upon an Event of Default under the
Financing Agreement other than the Event of Default which was the basis
for any prior Suspension Notice or any other Event of Default of which
CIT had actual knowledge at the time it gave such prior Suspension
Notice.
(d) In the event that as a result of an avoidance action under the
Bankruptcy Code (including, but not necessarily limited to, any action under
Sections 544, 545, 547, 548, 549 and/or 550), the Subordinating Creditor is
required to return to the Company and/or the Guarantor or their bankruptcy
estate any payment received by the Subordinating Creditor and paid over to CIT
pursuant to Section 8(a), thereupon CIT shall pay back to the Subordinating
Creditor such amount paid over to CIT, provided that such amount is returned to
the Company and/or the Guarantor and/or its bankruptcy estate as aforesaid.
9. ACCELERATION RIGHTS AND REMEDIES
(a) The Subordinating Creditor shall have no right to accelerate the
Subordinated Debt or Commence Legal Action to enforce collection of all, or any
part of, the Subordinated Debt, except as otherwise provided in paragraph (b)
below and except that the Subordinating Creditor may accelerate and Commence
Legal Action in the event that:
(i) the Company and/or the Guarantor (as the case may be) commences or
has commenced against it (other than by the Subordinating Creditor) an
Insolvency Proceeding, provided that any such involuntary Insolvency
Proceeding which is commenced against the Company and/or the Guarantor
(as the case may be) is not dismissed or discharged within 60 days
after commencement thereof and provided further that the Subordinating
Creditor may accelerate only against the entity which is the subject of
any such Insolvency Proceeding; or
(ii) the applicable Suspension Period expires and neither of the
conditions specified in clauses (A) or (B) of subparagraph (b) of
paragraph 8 hereof have occurred;
provided, however that any amount received by the Subordinating
Creditor as a result of any acceleration permitted above, prior to payment in
full of the Senior Debt, shall be held in trust and paid to CIT in accordance
with the provisions of this Subordination Agreement.
(b) The Subordinating Creditor shall have no right to Commence Legal
Action for enforcement or collection of all, or any part of, the Subordinated
Debt, except that, in the event (i) the Company or the Guarantor defaults in
payment of any installment of interest or principal due the Subordinating
Creditor under the Subordinated Note or the Guaranty Note, respectively and
permitted by the terms of this Subordination Agreement, (ii) the Subordinating
Creditor notifies CIT of such default in payment and (iii) CIT does not send a
Suspension Notice to the Subordinating Creditor within 30 days after CIT's
receipt of such notice from the Subordinating Creditor, the Subordinating
Creditor may Commence Legal Action to enforce collection of the defaulted
installment from the Company or the Guarantor (as the case may be) (without any
acceleration of the Subordinated Debt), provided, however, that the
Subordinating Creditor may not participate in the commencement of any
involuntary Insolvency Proceeding against the Company and/or the Guarantor.
10. ACTION AGAINST. If the Subordinating Creditor in violation of this
Subordination Agreement shall assert or bring any action, suit or proceeding
against the Company or the Guarantor, the Company and/or the Guarantor may
interpose as a defense or dilatory plea the making of this Subordination
Agreement, and CIT is hereby irrevocably authorized to intervene and to
interpose such defense or plea in its name or in Company's or the Guarantor's
name. If the Subordinating Creditor shall attempt to enforce, collect or realize
upon any Subordinated Debt or, any collateral, security or guarantees (if any),
securing the Subordinated Debt in violation of this Subordination Agreement, the
Company and/or the Guarantor may, by virtue of this Subordination Agreement,
restrain any such enforcement, collection or realization, or upon failure to do
so, CIT may restrain any such enforcement, collection or realization, either in
its own name or in the name of the Company and/or the Guarantor.
11. ENDORSEMENT OF NOTE; OTHER DOCUMENTS. The Subordinating Creditor
agrees to mark the Subordinated Note evidencing the Subordinated Debt with a
notation in substantially the following form:
"This Note is subject to the terms and provisions of Subordination
Agreement executed by the Payee in favor of The CIT Group/Business Credit,
Inc.",
and to deliver proof of such notation to CIT. In the event CIT requires the
possession of the Subordinated Note in order to present claims or seek
enforcement against the Company and/or the Guarantor for payment of the
Subordinated Note in accordance with the provisions of this Subordination
Agreement, the Subordinating Creditor agrees to endorse and deliver the
Subordinated Note to CIT.
12. MODIFICATIONS TO THE SUBORDINATED NOTE. Without obtaining the prior
written consent of CIT, the Subordinated Note or the Guarantor Note shall not be
amended for (i) any increase in the rate of interest charged thereunder, (ii)
any increase in the principal amount thereof or any installment due thereunder,
(iii) any change of the maturity date of any payment for principal or interest
which would have the effect of accelerating payment thereof, (iv) amendment of
the form or method of payment, (v) the granting or obtaining of any collateral
security or obtaining any lien in any collateral, (vi) providing for any
additional financial covenants or events of default or making more restrictive
any existing covenants or events of default applicable to the Company and/or the
Guarantor, or (vii) any other amendment which would have a material adverse
effect on the operations of the Company or the Guarantor, CIT's security
interest in the Collateral or CIT's Senior Debt.
13. NO IMPAIRMENT OF OBLIGATION. Subject to all of CIT's rights as
expressly provided in this Subordination Agreement, nothing contained in this
Subordination Agreement shall impair, as between the Company and/or the
Guarantor (as the case may be) and the Subordinating Creditor, the obligation of
the Company and/or the Guarantor (as the case may be), which is unconditional
and absolute, to pay the Subordinated Debt to the Subordinating Creditor as and
when all or any portion thereof shall become due and payable in accordance with
its terms or prevent the Subordinating Creditor, upon any default under the
Subordinated Debt, from exercising all rights, powers and remedies otherwise
provided therein or by applicable law.
14. SUBROGATION. Until such time as all Senior Debt is paid in full and
this Subordination Agreement is terminated as herein provided the Subordinating
Creditor shall not assert or be entitled to any subrogation rights. Subject to
the prior sentence, if any payment or distribution to which the Subordinating
Creditor would otherwise have been entitled (but for the provisions of this
Subordination Agreement) shall have been turned over to CIT or otherwise applied
to the payment of the Senior Debt pursuant to the provisions of this
Subordination Agreement, then the Subordinating Creditor shall be entitled to
receive from CIT any payments or distributions received by CIT in excess of the
amount sufficient to pay all Senior Debt in full, and upon such payment in full
of the Senior Debt shall be subrogated (without any representation by, or any
recourse whatsoever to CIT) to all rights of CIT to receive all further payments
or distributions applicable to the Senior Debt until the Subordinated Debt shall
have been paid in full. For purposes of the Subordinating Creditor's subrogation
rights hereunder, payments to CIT with respect to the Senior Debt which the
Subordinating Creditor would have been entitled to receive with respect to the
Subordinated Debt but for the provisions of this Subordination Agreement shall
not, as between the Company and/or the Guarantor (as the case may be), its
creditors (other than CIT) and the Subordinating Creditor, be deemed payments
with respect to the Senior Debt except, at the Subordinating Creditor's option,
to the extent Subordinating Creditor has lost its subrogation rights with
respect to any such payment as a result of any action by CIT. CIT makes
absolutely no representation or warranty whatsoever in connection with such
rights or Senior Debt, including without limitation any representation or
warranty as to the enforceability of the Financing Agreement, the Senior Debt,
or any lien upon Collateral therefor, or the collectibility of said Senior Debt.
15. GUARANTIES AND PLEDGED STOCK. (a) The Subordinating Creditor
hereby:
(i) subordinates and defers the payment of any and all amounts which
may be now or hereafter owing by the Guarantor to Subordinating
Creditor pursuant to the Subordinated Debt Guaranty to the prior
payment and satisfaction in full of the obligations of the Guarantor to
CIT arising under or pursuant to the Senior Debt Guaranty to the same
extent and in the same manner as the Subordinated Debt is subordinated
to the Senior Debt herein;
(ii) subordinates its lien upon, and security interest in, the Pledged
Stock (whether such Pledged Stock secures the Subordinated Debt
Guaranty or the Guarantor Note) to CIT's first and prior lien upon, and
security interest in, such Pledged Stock;
(iii) agrees and confirms that until all Senior Debt has been paid in
full, it shall not:
(x) foreclose its junior and subordinate lien upon and security
interest in, the Pledged Stock; or
(y) take any other action or institute any other proceedings with
respect to the Pledged Stock; or
(z) exercise any other right or assert any other claim with respect to
the Pledged Stock.
(b) CIT hereby acknowledges and agrees that, subject to its first and prior
lien upon, and security interest in, the Pledged Stock, it is holding,
and will continue to hold, the Pledged Stock as bailee for the benefit
of Subordinating Creditor for the sole purpose of enabling the
Subordinating Creditor to perfect its lien on such Pledged Stock.
Subordinating Creditor further agrees that:
(i) CIT shall have no duty to Subordinating Creditor in connection with
such bailment arrangement except to exercise reasonable care with
respect to the safekeeping of such Pledge Stock, all subject to, and in
accordance with, CIT's normal business practices; and
(ii) CIT shall not incur any liability whatsoever to Subordinating
Creditor for any loss or damage now or hereafter arising under or in
connection with this bailment arrangement except to the extent such
loss or damage arises solely from CIT's willful misconduct, and
Subordinating Creditor hereby indemnifies CIT (and its officers and
directors) from and against any and all claims, actions, suits, losses,
damages, costs, liabilities and expenses (including reasonable
attorney's fees) arising out of or in any way relating to this bailment
arrangement, provided that CIT shall not be so indemnified for its
willful misconduct.
CIT agrees that upon termination of the Financing Agreement and full, final and
indefeasible payment of all Senior Debt, it will deliver the Pledged Stock to
the Subordinating Creditor.
16. ENTIRE AGREEMENT. This Subordination Agreement embodies the whole
agreement of the parties and may not be modified except in writing. CIT's
failure to exercise any right hereunder shall not be construed as a waiver of
the right to exercise the same or any other rights at any other time and from
time to time thereafter, and such rights shall be considered as cumulative
rather than alternative. No knowledge of any breach or other non-observance by
the Subordinating Creditor of the terms and provisions of this Subordination
Agreement shall constitute a waiver thereof, nor a waiver of any obligations to
be performed by the Subordinating Creditor hereunder.
17. WAIVER OF NOTICE. The Subordinating Creditor hereby waives any and
all demands, presentments or notices (other than notices specifically provided
for in this Subordination Agreement) to which it might otherwise be entitled
(including, without limitation, any and all notice of the creation or accrual of
any Senior Debt; of any extension, modification, or renewal of any of said
Senior Debt, and of CIT's reliance on this Subordination Agreement).
18. NOTICES All notices and other communications hereunder shall be in
writing or by telex, telegram or telecopy, and shall be deemed to have been duly
made when delivered in person or sent by telex, telegram, telecopy, same day or
overnight carrier, or when deposited in the United States first class or
registered or certified mail return receipt requested, postage prepaid. Notices
shall be sent:
If to the Subordinating Creditor:
Bridgewater Resources Corp.
c/o BRC Management Corp.
1801 Century Park East, Suite 1101
Los Angeles, CA 90067
Attention: Lori Poulos
Fax#: (310) 552-3446
If to the Company and/or Guarantor:
Peerless Chain company
1416 East Sanburn Street
Winona, MN 55987-5349
Attention: John C. van Osnabrugge
Fax# (507) 457-9241
Discus Acquisition Corporation
2430 Metropolitan Center
333 S. Hope Street
Minneapolis, MN 55402
Attention: William Spell
Fax# (612) 371-9651
If to CIT:
The CIT Group/Business Credit, Inc.
10 South LaSalle Street
Chicago, IL 60603
Attention: Michael Egan, Vice President and Regional Manager
Fax# (312) 443-0139
19. GENERAL PROVISIONS. When used in this Subordination Agreement all
pronouns shall, wherever applicable, be deemed to include the plural as well as
the masculine and feminine gender. This Subordination Agreement: shall inure to
the benefit of CIT, its successors and assigns and any parent, subsidiary or
affiliate of CIT; shall be binding upon the respective successors and assigns of
the Subordinating Creditor; and shall pertain to the Company, the Guarantor and
their respective successors and assigns. This Subordination Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed an original, and such counterparts shall together constitute but one and
the same document.
20. CHOICE OF LAW. THIS SUBORDINATION AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Subordination Agreement effective as of the date above set forth.
BRIDGEWATER RESOURCES CORP.
By Lori J. Poulos
Title: CEO
THE CIT GROUP/BUSINESS CREDIT, INC.
By Michael Egan
Title: Vice President
The undersigned, the Company and the Guarantor referred to in the
foregoing Subordination Agreement, hereby agree to comply with all of the terms
and provisions of said Subordination Agreement in all respects. In the event of
a breach by either the Company, the Guarantor or Subordinating Creditor in the
performance of any of the terms of the said Subordination Agreement, all of said
Senior Debt shall, without notice or demand, become immediately due and payable.
The Company and the Guarantor hereby covenant that they will not (except as
otherwise provided in the Subordination Agreement) make any payment on account
of, recognize any assignment or transfer of, nor give any additional security
for, the Subordinated Debt while said Subordination Agreement is in effect or
until CIT's Senior Debt has been satisfied in full and said Subordination
Agreement is terminated as herein provided.
PEERLESS CHAIN COMPANY
By William H. Spell
Title: Chairman
PEERLESS CHAIN OF IOWA, INC.
By William H. Spell
Title: Chairman
DISCUS ACQUISITION CORPORATION
By William H. Spell
Title: CEO
To: THE CIT GROUP/BUSINESS CREDIT, INC. 10 LaSalle Street
Chicago, IL 60603
December 13, 1995
STOCK PLEDGE AGREEMENT - PARENT
Gentlemen:
Reference is made to a certain Financing Agreement dated of even date herewith,
as amended (herein called the "Financing Agreement") between you and Peerless
Chain Company (herein "PCC") and Peerless Chain of Iowa, Inc. (herein "PCII",
PCC and PCII may be referred to herein individually as a "Company" and
collectively as the "Companies"). Capitalized terms used herein and defined in
the Financing Agreement shall have the same meanings as set forth therein unless
otherwise specifically defined herein. As security for: (a) the full and
indefeasible payment and performance when due of all now existing and future (i)
Obligations of the undersigned (herein the "Pledgor") arising pursuant to any
guaranty now or hereafter executed by the Pledgor in your favor regarding the
Companies (herein collectively the "Guaranty") and (ii) Obligations of the
Companies to you, in each case whether absolute or contingent, however acquired
by you, and whether arising under the Financing Agreement and/or Guaranty as now
written or as amended or supplemented or augmented hereafter, in law or
otherwise (herein collectively the "Obligations"); (b) any liability or
indebtedness you may incur because of any guaranty you may issue at the request
of the Company, including, without limitation, any Letter of Credit Guaranty;
(c) the amount of all expenses (including reasonable attorneys' fees) incurred
by you in collecting or attempting to collect any of the Obligations whether
from the Companies, the Pledgor or any other obligor or in realizing upon
collateral; and (d) any interest from the due date at the Default Rate of
Interest specified in the Financing Agreement on all amounts payable to you
hereunder (all of which are herein called the "Secured Obligations"), the
Pledgor hereby pledges, assigns, transfers, delivers and sets over to you all of
its right, title and interest in and to the securities listed on the attached
schedule, issued as indicated on said schedule (the "Securities").
This pledge includes all right, title and interest in and to and a continuing
lien upon and security interest in, all of said Securities together with any and
all rights, coupons, warrants or rights to SL,bscribe, options, dividends,
liquidating dividends, splits, dividends paid in stock, dividends paid in
Securities, new or reclassified Securities, or any other property which the
Pledgor is or may hereafter become entitied to receive on account of such
Securities, any and all increments, substitutions, additions or replacements
thereof, and any and all proceeds thereof (all collectively hereinafter referred
to as the "Pledged Collateral").
This Stock Pledge Agreement is executed as an inducement to you to make loans or
advances to the Companies or issue guaranties at the request of the Companies,
or otherwise to extend credit or financial accommodations to the Companies or to
enter into or continue a financing arrangement with the Companies, and is
executed in consideration of your doing or having done any of the foregoing.
The Pledgor agrees that any of the foregoing shall be deemed to have been done
or extended by you in consideration of and in reliance upon the execution of
this Stock Pledge Agreement, but nothing herein shall obligate you to do any of
the foregoing.
The Pledgor shall be in default under this Pledge Agreement upon the occurrence
of any of the following (herein any such default shall be referred to as an
"Event of Default"):
1. the occurrence of any Event of Default under the Financing
Agreement;
2. if any warranty, representation or statement contained in this
Stock Pledge Agreement is materially or substantially
breached, or is, or becomes materially or substantially
untrue;
3. the commencement by or against the Pledgor of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law, provided
that any such involuntary proceeding which is commenced
against the Pledgor is not dismissed within thirty (30) days;
or
4. the liability of the Pledgor under the Guaranty matures in
accordance with the provisions thereof.
In the event of the happening of any such Event of Default, then on ten (10)
days prior notice to the Pledgor, without the curing of such default within such
time, you may, without demand of performance, advertisement or notice of
intention to sell, or of the time or place of sale, and without notice to
redeem, or other notice or demand whatsoever to or upon the Pledgor (all and
each of which demands, advertisements and/or notices are hereby expressly
waived), forthwith or at any time or times thereafter, transfer to and/or
register in your name, or the name of your nominee, any or all of the Pledged
Collateral and/or collect, receive, appropriate and realize upon said Pledged
Collateral. In addition, and also without any of the aforesaid demands,
advertisements, and/or notices, upon the occurrence of any Event of Default as
defined herein, you may sell, assign, transfer and deliver the whole or any part
of the Pledged Collateral then held by you under this Stock Pledge Agreement or
subject to this Stock Pledge Agreement in one or more parcels, at public or
private sale or sales, at any Exchange Broker's Board, at your office or
elsewhere, on such terms and conditions, and at such prices as you may deem
advisable, for cash, upon credit, or for future delivery, with the right on your
part to become the purchaser thereof at any such sale or sales, free and clear
of any right to equity of redemption (which right or equity is hereby expressly
waived and released). Any notice of sale, disposition, or other intended action
by you required by applicable law and sent to the Pledgor at least ten (10) days
prior to such action shall constitute reasonable notice to the Pledgor.
Prior to exercising your rights contained herein you may in your discretion
forward the various coupons coming due on any bonds covered hereby directly to
the Pledgor for collection.
Net proceeds of any such disposition as aforesaid, after deduction all costs,
including reasonable attorney's fees and expenses of every kind incurred
therein, shall be applied to the payment in whole or in part, in such order as
you may elect, of any of the Secured Obligations, whether then due or not
due. You agree to pay over and return any remaining balance to the Pledgor or to
any person ent I tled thereto, upon proper demand being made therefor, and if
there be any deficiency, the Pledgor and the Company shall continue to be fully
liable for same.
Further, you are hereby expressly granted the right and irrevocable proxy, in
the event of the happening of any Event of Default (as defined herein), and on
ten (10) days prior notice to the Pledgor, without the curing of such Event of
Default within such time, to transfer to yourself or to your nominee any or all
of the Pledged Collateral or to register same in your name on the books of the
company or entity issuing same; to receive cash dividends, coupons and income
thereon and to hold the same as additional collateral security hereunder, or to
apply it against the Secured Obligations and to exercise any voting rights with
respect to said Collateral for any purposes as you in your discretion deem
advisable, and to otherwise exercise as to such Pledged Collateral, all rights,
powers and remedies as the owner thereof.
The Pledgor hereby represents and warrants that the Pledged Collateral is owned
by the Pledgor absolutely, and is free and clear of all liens and encumbrances
except for the pledge in your favor and except for Permitted Encumbrances (as
defined in the Financing Agreement), that there are no restrictions upon the
pledge or transfer of any of the Pledged Collateral; that the Pledgor has full
right to pledge and transfer the same in accordance with the terms and
conditions of this Stock Pledge Agreement, free of all encumbrances (except said
Permitted Encumbrances) and without the consent of any other person, firm,
entity or corporation and without the need to notify the issuing company and/or
obtain their consent to the pledge; and that said Pledged Collateral is not
subject to any assessment. The Pledgor agrees to defend its title to the Pledged
Collateral at its own cost and expense, and to pay, satisfy and discharge and
any all assessments, liens or charges now or thereafter placed upon the Pledged
Collateral.
In the event that it becomes necessary to comply with any Federal or State law
or regulation or to make or file any registration thereunder in order for you to
exercise any of your rights hereunder, the Pledgor expressly agrees to do or
will cause to be done all acts and prepare and execute all documents necessary
to affect such compliance or registration, and to bear all reasonable costs in
connection therewith. The Pledgor agrees to indemnify and to hold you harmless
from and against any claim or liability; and to hold you harmless from and
against any claim or liability caused by (i) any untrue statement of material
fact, or omission to state a material fact (as required in any registration or
prospectus) or (ii) a failure to register or comply with any such law or
regulation.
The Pledgor recognizes that you may be unable to effect a public sale of any or
all of the Collateral, by reason of certain prohibitions contained in the
Securities Act of 1933 and applicable state securl 'ties law or otherwise, and
may be compelled to resort to one or more private sales thereof to a restricted
group of purchasers which will be obligated to agree, among other things, to
acquire such securities for their own account for investment and not with a view
to the distribution or resale thereof. The Pledgor acknowledges and agrees that
any such private sale may result in prices and other terms less favorable to you
than if such sale were a public sale and agrees that such circumstances shall
not, in and of themselves, result in a determination that such sale was not made
in a commercially reasonable manner. You shall be under no obligation to delay a
sale of any of the Pledged Collateral for the period of time necessary to permit
the issuer to register such securities for public sale under the Securities Act
of 1933, or under applicable state securities laws, even if the issuer agrees to
do so.
The Pledgor affirms and certifies that the Secured Obligations were not. and
will not be, incurred for the purpose of providing or obtaining any credit for
purchasing or trading in registered equity securities or other marketable
securities.
The Pledgor hereby agrees at your request to execute all necessary stock powers
in blank, to have the signatures on said powers guaranteed, to execute a letter
or other form confirming that the Pledged Collateral is not being pledged to you
for the purpose of providing or obtaining any credit for purchasing or trading
in registered equity securities or other marketable securities, and to execute
any further documents or papers whatsoever in order to carry out the intent
and purpose of this Stock Pledge Agreement.
The pledge provided for herein shall be in addition to, and shall not be deemed
to affect, modify or limit any other rights, collateral, agreements or security
which you may now or hereafter hold whether granted or given to you by the
Pledgor, the Companies or by any other person, firm or corporation.
It is understood and agreed that the rights and remedies herein enumerated are
not intended to be exhaustive but are in addition to any other rights or
remedies at law or in equity. You shall have the absolute right in your sole
discretion to determine the order in which your rights and remedies are to be
exercised, and your exercise of any right or remedy shall not preclude the
exercise of any other rights or remedies or be deemed to be a waiver thereof. No
act of forbearance, or agreement to forebear the enforcement of, or extension of
the date of maturity of, any Secured Obligation, shall in any way constitute a
release of, or a waiver or relinquishment of any of your rights or remedies.
The Pledgor expressly waives and relinquishes any rights of subrogation,
reimbursement, indemnity or recourse to or with respect to any of the assets or
properties of the Companies.
This Stock Pledge Agreement is to be governed by the laws of the State of
Illinois and shall be binding on the heirs, administrators, executors,
successors and assigns of the Pledgor, and shall inure to the benefit of you and
your successors and assigns.
Very truly yours,
DISCUS ACQUISITION CORPORATION
By: William H. Spell
Title: CEO
Address: ______________________
_______________________________
SCHEDULE TO STOCK PLEDGE AGREEMENT BETWEEN THE CIT GROUP/BUSINESS
CREDIT, INC, AND DISCUS ACQUISITION CORPORATION (THE "PLEDGOR")
Issuer Owner Certificate # # of Shares
PCC Pledgor 3 2.5
Discus Acquisition Corporation (the "Pledgor")
By William H. Spell
Title CEO
To: THE CIT GROUP/BUSINESS CREDIT, INC.
10 South LaSalle
Chicago, IL 60603
December l3, 1995
STOCK PLEDGE AGREEMENT - PCC
Gentlemen:
Reference is made to a certain Financing Agreement dated of even date herewith
as amended (herein called the "Financing Agreement") between you and Peerless
Chain Company (herein "PCC") and Peerless Chain of Iowa, Inc. (herein "PCII",
PCC and PCII may be referred to herein individually as a "Company" and
collectively as the "Companies"). Capitalized terms used herein and defined in
the Financing Agreement shall have the same meanings as set forth therein unless
otherwise specifically defined herein. As security for: (a) the full and
indefeasible payment and performance when due of all now existing and future
Obligations of the Companies to you, whether absolute or contingent, however
acquired by you, and whether arising under the Financing Agreement as now
written or as amended or supplemented or augmented hereafter, or by virtue of
any guaranty now or hereafter executed by the Companies in your favor, in law or
otherwise; (b) any liability or indebtedness you may incur because of any
guaranty you may issue at the request of the Companies, including, without
limitation, any Letter of Credit Guaranty; (c) the amount of all expenses
(including reasonable attorneys' fees) incurred by you in collecting or
attempting to collect any of the Company's obligations to you whether from the
Companies or any other obligor or in realizing upon collateral; and (d) any
interest from the due date at the Default Rate of Interest specified in the
Financing Agreement on all amounts payable to you hereunder (all of which are
herein called the "Secured Obligations"), PCC hereby pledges, assigns,
transfers, delivers and sets over to you all of its right, title and interest in
and to the securities listed on the attached schedule, issued as indicated on
said schedule (the "Securities").
This pledge includes all right, title and interest in and to and a continuing
lien upon and security interest in, all of said Securities together with any and
all rights, coupons, warrants or rights to subscribe, options, dividends,
liquidating dividends, splits, dividends paid in stock, dividends paid in
Securities, new or reclassified Securities, or ariy other property which PCC is
or may hereafter become entitled to receive on account of such Securities, any
and all increments, substitutions, additions or replacements thereof, and any
and all proceeds thereof (all collectively hereinafter referred to as the
"Pledged Collateral").
This Stock Pledge Agreement is executed as an inducement to you to make loans or
advances to the Companies or issue guaranties at the request of the Companies,
or otherwise to extend credit or financial accommodations to the Companies or to
enter into or continue a financing arrangement with the Companies, and is
executed in consideration of your doing or having done any of the foregoing.
PCC agrees that any of the foregoing shall be deemed to have been done or
extended by you in consideration of and in reliance upon the execution of this
Stock Pledge Agreement.
PCC shall be in default under this Pledge Agreement upon the occurrence of any
Event of Default under the Financing Agreement (herein any such default shall be
referred to as an "Event of Default").
In the event of the happening of any such Event of Default, then on ten (10)
days prior notice to PCC, without the curing of such default within such time,
you may, without demand of performance, advertisement or notice of intention to
sell, or of the time or place of sale, and without notice to redeem, or other
notice or demand whatsoever to or upon PCC (all and each of which demands,
advertisements and/or notices are hereby expressly waived), forthwith or at any
time or times thereafter, transfer to and/or register in your name, or the name
of your nominee, any or all of the Pledged Collateral and/or collect, receive,
appropriate and realize upon said Pledged Collateral. In addition, and also
without any of the aforesaid demands, advertisements, and/or notices, upon the
occurrence of any Event of Default as defined herein, you may sell, assign,
transfer and deliver the whole or any part of the Pledged Collateral then held
by you under this Stock Pledge Agreement or subject to this Stock Pledge
Agreement in one or more parcels, at public or private sale or sales, at any
Exchange Broker's Board, at your office or elsewhere, on such terms and
conditions, and at such prices as you may deem advisable, for cash, upon credit,
or for future delivery, with the right on your part to become the purchaser
thereof at any such sale or sales, free and clear of any right to equity of
redemption (which right or equity is hereby expressly waived and released). Any
notice of sale, disposition, or other intended action by you required by
applicable law and sent to PCC at least ten (10) days prior to such action
shall constitute reasonable notice to the Company. Prior to exercising your
rights contained herein you may In your discretion forward the various coupons
coming due on any bonds covered hereby directly to PCC for collection.
Net proceeds of any such disposition as aforesaid, after deduction all costs,
including reasonable attorney's fees and expenses of every kind incurred
therein, shall be applied to the payment in whole or in part, in such order as
you may elect, of any of the Secured Obligations, whether then due or not due.
You agree to pay over and return any remaining balance to PCC or to any person
entitled thereto, upon proper demand being made therefor, and if there be any
deficiency, the Companies shall continue to be fully liable for same.
Further, you are hereby expressly granted the right and irrevocable proxy, in
the event of the happening of any Event of Default (as defined herein), and on
ten (10) days prior notice to PCC, without the curing of such Event of Default
within such time, to transfer to yourself or to your nominee any or all of the
Pledged Collateral or to register same in your name on the books of the company
or entity issuing same; to receive cash dividends, coupons, and income
thereon and to hold the same as additional collateral security hereunder, or, to
apply it against the Secured Obligations and to exercise any voting rights with
respect to said Collateral for any purposes as you in your discretion deem
advisable, and to otherwise exercise as to such Pledged Collateral, all rights,
powers and remedies as the owner thereof.
PCC hereby represents and warrants that the Pledged Collateral is owned by PCC
absolutely, and is free and clear of all liens and encumbrances except for the
pledge in your favor and except for Permitted Encumbrances (as defined in the
Financing Agreement); that there are no restrictions upon the pledge or
transfer of any of the Pledged Collateral; that PCC has full right to pledge
and transfer the same in accordance with the terms and conditions of this Stock
Pledge Agreement, free of all encumbrances (except said Permitted Encumbrances)
and without the consent of any other person, firm, entity or corporation and
without the need to notify the issuing company and/or obtain their consent to
the pledge; and that said Pledged Collateral is not subject to any assessment.
PCC agrees to defend its title to the Pledged Collateral at its own cost and
expense, and to pay, satisfy and discharge and any all assessments, liens or
charges now or thereafter placed upon the Pledged Collateral.
In the event that it becomes necessary to comply with any Federal or State law
or regulation or to make or file any registration thereunder in order for you to
exercise any of your rights hereunder, PCC expressly agrees to do or will cause
to be done all acts and prepare and execute all documents necessary to affect
such compliance or registration, and to bear all reasonable costs in connection
therewith. PCC agrees to indemnify and to hold you harmless from and against any
claim or liability; and to hold you harmless from and against any claim or
liability caused by (i) any untrue statement of material fact, or omission to
state a material fact (as required in any registration or prospectus) or (ii) a
failure to register or comply with any such law or regulation.
PCC recognizes that you may be unable to effect a public sale of any or all of
the Collateral, by reason of certain prohibitions contained in the Securities
Act of 1933 and applicable state securities law or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obligated to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. PCC acknowledges and agrees that any such
private sale may result in prices and other terms less favorable to you than if
such sale were a public sale and agrees that such circumstances shall not, in
and of themselves, result in a determination that such sale was not made in a
commercially reasonable manner. You shall be under no obligation to delay a sale
of any of the Pledged Collateral for the period of time necessary to permit the
issuer to register such securities for public sale under the Securities Act of
1933, or under applicable state securities laws, even if the issuer agrees to do
so.
PCC affirms and certifies that the Secured Obligations were not, and will not
be, incurred for the purpose of providing or obtaining any credit for purchasing
or trading in registered equity securities or other marketable securities.
PCC hereby agrees at your request to execute all necessary stock powers in
blank, to have the signatures on said powers guaranteed, to execute a letter or
other form confirming that the Pledged Collateral is not being pledged to you
for the purpose of providing or obtaining any credit for purchasing or trading
in registered equity securities or other marketable securities, and to execute
any further documents or papers whatsoever in order to carry out the intent and
purpose of this Stock Pledge Agreement.
The pledge provided for herein shall be in addition to, and shall not be deemed
to affect, modify or limit any other rights, collateral, agreements or security
which you may now or hereafter hold whether granted or given to you by the
Companies or by any other person, firm or corporation.
It is understood and agreed that the rights and remedies herein enumerated are
not intended to be exhaustive but are in addition to any other rights or
remedies at law or in equity. You shall have the absolute right in your sole
discretion to determine the order in which your rights and remedies are to be
exercised, and your exercise of any right or remedy shall not preclude the
exercise of any other rights or remedies or be deemed to be a waiver thereof. No
act of forbearance, or agreement to forebear the enforcement of, or extension of
the date of maturity of, any Secured Obligation, shall in any way constitute a
release of, or a waiver or relinquishment of any of your rights or remedies.
This Stock Pledge Agreement is to be governed by the laws of the State of
Illinois and shall be binding on the heirs, administrators, executors,
successors and assigns of PCC, and shall inure to the benefit of you and your
successors and assigns.
Very truly yours,
PEERLESS,CHAIN COMPANY
By William H. Spell
Title: Chairman
Address: 1416 E. Sanborn Street
Winona, MN 55987-5349
SCHEDULE TO STOCK PLEDGE AGREEMENT BETWEEN THE CIT GROUP/BUSINESS CREDIT, INC.
AND PEERLESS CHAIN COMPANY (THE "PCC)
Issuer Owner Certificate # # of Shares
Peerless Chain of Iowa, Inc. PCC 1 1,000
PEERLESS CHAIN COMPANY
By William H. Spell
Title Chairman
GRANT OF SECURITY INTEREST IN
PATENTS, TRADEMARKS AND LICENSES
THIS GRANT OF SECURITY INTEREST IN PATENTS, TRADEMARKS AND LICENSES (herein the
"Agreement") made as of this 13 day of December, 1995, by Peerless Chain Company
(herein "PCC") and Peerless Chain of Iowa, Inc. (herein "PCII", PCC and PCII may
be referred to herein individually as a "Company" and collectively as the
"Companies"), each with its principal place of business at 1416 E. Sanburn
Street, Winona, MN 55987-5349, and The CIT Group/Business Credit, Inc., a New
York corporation, with offices at Ten South LaSalle Street, Chicago, IL 60603
(herein "CITBC").
W I T N E S E T H:
WHEREAS, the Companies and CITBC are parties to a certain Financing Agreement of
even date herewith, as the same may be amended from time to time (herein the
"Financing Agreement"), which Financing Agreement provides (i) for CITBC to make
certain loans, advances and extensions of credit, all to or for the account of
the Companies and (ii) for the grant by the Companies to CITBC of a security
interest in certain of the Companies' assets, including, without limitation, its
patents, patent applications and/or registrations, trademarks, trademark
applications and/or registrations, tradenames, goodwill and licenses, all as
more fully set forth therein;
NOW THEREFORE, in consideration of the premises set forth herein and for other
good and valuable consideration, receipt and sumiciency of which is hereby
acknowledged, the Companies agree as follows:
1 Definitions. Capitalized terms used herein and defined in the Financing
Agreement shall have the meanings set forth therein unless otherwise
specifically defined herein.
2. Grant of Security Interest. To secure the payment of the "Obligations"
(as defined in the Financing Agreement), each of the Companies hereby
grants to CITBC a security interest, effective immediately, in all
of their right, title and interest in and to all of the following
described property, whether now owned or hereafter acquired
(collectively herein the "Intellectual Property Collateral"):
(i) Patents and patent applications and/or registrations together
with the inventions and improvements described and claimed
therein including, without limitation, the patents and
applications, if any, listed on Schedule A, attached hereto
and made a part hereof, and any and all reissues and renewals
thereof and all income, royalties, damages and payments now
and hereafter due and/or payable in connection therewith
including, without limitation, damages and payments for past
or future infringements thereof (all of the foregoing are
sometimes hereinafter individually and/or collectively
referred to as the "Patent Collateral");
(ii) Trademarks, trademark registrations and/or applications and
tradenames including, without limitation, the trademarks and
applications, if any, listed on Schedule B attached hereto and
made a part hereof, and any and all reissues and/or renewals
thereof, and all income, royalties, damages and payments now
and hereafter due and/or payable in connection therewith
including, without limitation, damages and payments for past
or future infringements thereof (all of the foregoing are
sometimes hereinafter individually and/or collectively
referred to as the "Trademark Collateral");
(iii) Any license agreement in which the Companies are or become
licensed to use any patents and/or trademarks owned by a third
party including, without limitation, the licenses, if any,
listed on Schedule C attached hereto and made a part hereof
(all of the foregoing are sometimes referred to herein
individually and/or collectively as the "License
Collateral");
(iv) The goodwill of the Companies'business connected with and
symbolized by the Intellectual Property Collateral; and
(v) All cash and non-cash proceeds of the foregoing.
3. CITBC's Rights. Upon the occurrence of any Event of Default hereunder,
CITBC shall have all the rights and remedies of a secured party under
the Uniform Commercial Code and any other applicable state or federal
laws. CITBC will give the Companies reasonable notice of the time and
place of any public sale of the Intellectual Property Collateral or the
time after which any private sale of the Intellectual Property
Collateral or any other intended disposition thereof is to be made.
Unless otherwise provided by law, the requirement of reasonable notice
shall be met if such notice is mailed, postage prepaid to the address
of the Companies' set forth above at least ten (10) days before the
date of such sale or disposition. In addition to the foregoing and all
other rights and remedies of CITBC upon the occurrence of any Event of
Default hereunder, CITBC shall thereupon have the immediate right to
transfer to itself or to sell, assign and transfer to any other person
all right, title and interest in and to all or any part of the
Intellectual Property Collateral. A formal irrevocable power of
attorney (in the form annexed hereto) is being executed and delivered
by the Companies to CITBC concurrently with this Agreement to enable
such rights to be carried out. Each of the Companies agrees that, in
the event CITBC exercises its rights hereunder and/or pursuant to
said power of attorney in accordance with its terms, after written
notification of such exercise from CITBC to the Companies, the
Companies shall never thereafter, without the prior written
authorization of the owner or owners of such Intellectual Property
Collateral, use any of such Intellectual Property Collateral. The
condition of the foregoing provision is such that unless and until
there occurs an Event of Default under this Agreement, the Companies
shall continue to own and use the Intellectual Property Collateral in
the normal course of their business and to enjoy the benefits,
royalties and profits therefrom provided, however, that from and after
the occurrence of an Event of Default such right will, upon the
exercise by CITBC of the rights provided by this Agreement, be revoked
and the right of the Companies to enjoy the uses, benefits, royalties
and profits of said Intellectual Property Collateral will wholly cease,
whereupon CITBC or its transferee(s) shall be entitled to all of the
Companies' right, title and interest in and to the Intellectual
Property Collateral hereby so assigned. This Agreement will not operate
to place upon CITBC any duty or responsibility to maintain the
Intellectual Property Collateral.
4. Fees. The Companies will jointly and severally pay all filing fees with
respect to the security interest created hereby which CITBC may deem
necessary or advisable in order to perfect and maintain the perfection
of its security interest in the Intellectual Property Collateral.
5. Representations and Warranties. Each of the Companies represents and
warrants, that it lawfully possess and own the Intellectual Property
Collateral as indicated on the attached Schedules and that except for
the security interest granted hereby and Permitted Encumbrances (as
defined in the Financing Agreement), the Intellectual Property
Collateral will be kept free from all liens, security interests, claims
and encumbrances whatsoever; that the Companies have not made or given
any prior assignments, transfers or security interests in the
Intellectual Property Collateral or any of the proceeds thereof; that
the Intellectual Property Collateral is and will continue to be, in all
respects, in full force and effect; and that there are no known
infringements of the Intellectual Property Collateral.
6. Application of Proceeds. The proceeds of any sale, transfer or
disposition of the Intellectual Property Collateral shall be applied
first to all costs, including, but not limited to, reasonable
attorneys' fees and expenses and court costs, incurred by CITBC in
connection with such sole and the exercise of CITBC's rights and
remedies hereunder and under the Financing Agreement; next, such
proceeds shall be applied to the payment, in whole or in part, of the
Obligations due CITBC in such order as CITBC may elect; and the
balance, if any, shall be paid to the Companies or as a court of
competent jurisdiction may direct.
7. Defense of Claims. The Companies will defend at their own cost and
expense any action, claim or proceeding affecting the Intellectual
Property Collateral or the interest of CITBC therein. The Companies
agree to jointly and severally reimburse CITBC for all costs and
expenses incurred by CITBC in defending any such action, claim or
proceeding.
8. Rights Cumulative. This Agreement shall be in addition to the Financing
Agreement and shall not be deemed to affect, modify or limit the
Financing Agreement or any rights that CITBC has under the Financing
Agreement. The Companies agree to execute and deliver to CITBC (at the
Companies' expense) any further documentation or papers necessary to
carry out the intent or purpose of this Agreement including, but not
limited to, financing statements under the Uniform Commercial Code.
9. Construction and Invalidity. Any provisions hereof contrary to,
prohibited by or invalid under any laws or regulations shall be
inapplicable and deemed omitted herefrom, but shall not invalidate the
remaining provisions hereof.
10. CHOICE OF LAW. EACH OF THE COMPANIES AGREES THAT THE VALIDITY,
INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND ALL RIGHTS
HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS. THIS
AGREEMENT TOGETHER WITH THE FINANCING AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT OF THE COMPANIES AND CITBC WITH RESPECT TO THE INTELLECTUAL
PROPERTY COLLATERAL, CAN ONLY BE CHANGED OR MODIFIED IN WRITING AND
SHALL BIND AND BENEFIT THE COMPANIES, CITBC AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS. EACH OF THE COMPANIES AND CITBC EACH HEREBY
EXPRESSLY WAIVES ANY RIGHT OF TRIAL BY JURY ON ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING HEREUNDER.
11. Events of Default. Any of the following constitutes an Event of Default
under this Agreement:
(i) The Companies, or any one of them, fail to perform or observe
any agreement, covenant or condition required under this
Agreement;
(ii) Any warranty or representation made by Companies, or any one
of them, in this Agreement shall be or becomeg false or
misleading in any material respect; or
(iii) The occurrence of any Event of Default under the
Financing Agreement which is not waived in writing by CITBC.
12. Notices. Each of the Companies covenant and agree that, with respect to
the Intellectual Property Collateral, they will give CITBC written
notice in the manner provided in the Financing Agreement of:
(i) any claim by a third party that the Companies have infringed
on the rights of a third party;
(ii) any suspected infringement by a third party on the rights of
the Companies; or
(iii) any Intellectual Property Collateral created, arising or
acquired by the Companies after the date hereof.
13. Further Assurances. The Companies will take any such action as CITBC
may reasonably require to further confirm or protect CITBC's rights
under this Agreement in the Intellectual Property Collateral. In
furtherance thereof, each of the Companies hereby grants to CITBC a
power of attorney coupled with an interest which shall be irrevocable
during the term of this Agreement to execute any documentation or take
any action in the Companies' behalf required to effectuate the terms,
provisions and conditions of this Agreement.
14. Termination. This Agreement shall terminate upon termination of the
Financing Agreement and full, final and indefeasible payment of all
Obligations of the Companies thereunder. Upon the Companies' request,
CITBC shall within a reasonable time after any such termination execute
and deliver to the Companies (at the Companies' expense) such documents
and instruments as are reasonably necessary to evidence such
termination and release of the security interest granted herein on any
applicable public record.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 13 day of December, 1995.
PEERLESS CHAIN COMPANY
By: William H. Spell
Title: Chairman
PEERLESS CHAIN OF IOWA, INC.
By: William H. Spell
Title: Chairman
Agreed and Accepted this
13 day of December, 1995
THE CIT GROUP/BUSINESS CREDIT, INC.
By Michael Egan
Title Vice President
IRREVOCABLE POWER OF ATTORNEY
Peerless Chain Company (herein "PCC") and Peerless Chain of Iowa, Inc. (herein
"PCII", PCC and PCII may be referred to herein individually as a "Company" and
collectively as the "Companies") with offices at 1416 E. Sanburn Street, Winona,
MN 55987-5549, hereby grant to The CIT Group/Business Credit, Inc., a New York
corporation, with offices at 10 South LaSalle Street, Chicago, IL 60603
(hereinafter referred to as "CITBC"), the exclusive Irrevocable Power of
Attorney to transfer to CITBC or to any designee of CITBC all Intellectual
Property Collateral listed on the Schedules attached to the Grant of Security
Interest in Patents, Trademarks and Licenses (the "Agreement"), dated as of the
date hereof, between the Companies and CITBC including, without limitation, all
patents, patent applications and/or registrations, trademarks, trademark
applications and/or registrations, and licenses together with the goodwill of
the business connected with or symbolized by such Intellectual Property
Collateral and the Companies' entire inventory of labels and decals bearing any
trademarks not affixed to its products, and the right to operate and control,
sell, assign, and transfer the business under those trademarks under the
following terms and conditions:
1. The Power of Attorney granted hereunder shall be effective as of
the date hereof and shall last for as long as any now existing or hereafter
arising indebtedness, liabilities or obligations of the Companies to CITBC are
outstanding under the Financing Agreement, dated on or about the date hereof,
between the Companies and CITBC.
2. The Power of Attorney granted herein shall be irrevocable throughout
the duration of its life as specified in Paragraph 1 hereinabove;
3. The Power of Attorney granted herein shall only be exercisable by
CITBC after the occurrence of an Event of Default under the Agreement between
CITBC and the Companies; and
4. CITBC shall give the Companies five (5) days prior written notice of
the exercise of this power, and the waiver by CITBC of any particular Event of
Default as set forth in Paragraph 3 hereinabove shall have no force or effect
unless in writing and signed by an authorized officer of CITBC. Even then such
waiver shall not constitute or be considered a waiver of any other Event of
Default then existing or thereafter arising whether similar or not.
IN WITNESS WHEREOF, the Companies have caused this Power of Attorney to be
executed as of the 13 day of December, 1995.
PEERLESS CHAIN COMPANY
By: William H. Spell
Title: Chairman
PEERLESS CHAIN OF IOWA, INC.
By: William H. Spell
Title: Chairman
STATE OF MINNESOTA
COUNTY OF HENNEPIN
On December 13, 1995, before me, the undersigned, a notary public in
and for said State, personally appeared William H. Spell known to me to be the
Chairman of the corporations that executed the within instrument, and
acknowledged to me that such corporations executed the within instrument
pursuant to their by-laws and a resolution of their board of directors.
WITNESS my hand and official seal.
/s/ Jennifer P. Christman
NOTARY PUBLIC
SCHEDULE A TO GRANT OF SECURITY INTEREST IN PATENTS,
TRADEMARKS AND LICENSES
between
PEERLESS CHAIN COMPANY AND
PEERLESS CHAIN OF IOWA, INC.
and
THE CIT GROUP/BUSINESS CREDIT, INC.
U.S. PATENTS
Title Patent No.
Traction Cable (cross cable clip) 5,068,948
Traction Cable (end connector) 4,825,923
Merchandise Hanger 4,801,116
Chain Pak 5,293,998
PATENT APPLICATION
Title Patent No.
Reel Display (Continuous Chain Bar Code) 08/285,631
SCHEDULE B TO GRANT OF SECURITY INTEREST IN PATENTS,
TRADEMARKS AND LICENSES
between
PEERLESS CHAIN COMPANY AND
PEERLESS CHAIN OF IOWA, INC.
and
THE CIT GROUP/BUSINESS CREDIT, INC.
U.S. TRADEMARKS
Title or Mark Registration No.
SCAN-PAK 74/556,422
SCHEDULE C TO GRANT OF SECURITY INTEREST IN PATENTS,
TRADEMARKS AND LICENSES
between
PEERLESS CHAIN COMPANY
PEERLESS CHAIN OF IOWA, INC.
and
THE CIT GROUP/BUSINESS CREDIT, INC.
U.S. LICENSES
Name Registration No. Registration Date
NONE
Date December 13, 1995
To: THE CIT GROUP/BUSINESS CREDIT, INC.
Address: 10 South LaSalle Street
Chicago, IL 60603
GUARANTY OF PARENT
Re: Peerless Chain Company (herein "PCC")
and Peerless Chain of Iowa, Inc.
(herein "PCII", PCC and PCII may be
referred to herein individually as
a "Company" and collectively as the
"Companies").
Address: 1416 E. Sanborn Street
Winona, MN 55987-5349
Gentlemen:
Reference is made to that certain Financing Agreement dated of even
date herewith, as amended (herein the "Agreement") between you and the
above-named Companies. Each of the undersigned (herein each a "Guarantor" and
collectively the "Guarantors") hereby unconditionally jointly and severally
guarantees and agrees to be liable for the full and indefeasible payment and
performance when due of all now existing and future indebtedness, obligations or
liabilities of the Companies to you, howsoever arising, whether direct or
indirect, absolute or contingent, secured or unsecured, whether arising under
the Agreement as now written or as amended or supplemented hereafter, or by
operation of law or otherwise, including, without limitation, all Obligations
(as defined in the Agreement) of the Companies to you. Further each of the
Guarantors agrees to pay to you on demand the amount of all expenses (including
reasonable attorney's fees) incurred by you in collecting or attempting to
collect any of the Companies' obligations to you, whether from the Companies, or
from any other obligor, or from the Guarantors, or in realizing upon any
collateral; and agrees to pay any interest at the highest lawful rate on all
amounts payable to you hereunder, even if such amount cannot be collected from
the Companies. (All of the aforementioned obligations, liabilities, expenses and
interest are hereinafter collectively called the "Obligations"). To the extent
you receive payment on account of Obligations guaranteed hereby, which payment
is thereafter set aside or required to be repaid by you in whole or in part,
then, to the extent of any sum not finally retained by you (regardless of
whether such sum is recovered from you by the Companies, their trustee, or any
other party acting for, on behalf of or through the Companies or their
representative), the Guarantors' obligation to you under this Guaranty, as
amended, modified or supplemented, shall remain in full force and effect (or be
reinstated) until the Guarantors have made payment to you therefor, which
payment shall be due upon demand.
This Guaranty is executed as an inducement to you to make loans or
advances to the Companies or otherwise to extend credit or financial
accommodations to the Companies, or to enter into or continue a financing
arrangement with the Companies, and is executed in consideration of your doing
or having done any of the foregoing. Each of the Guarantors agrees that any of
the foregoing shall be done or extended by you in your sole discretion, and
shall be deemed to have been done or extended by you in consideration of and in
reliance upon the execution of this Guaranty, but that nothing herein shall
obligate you to do any of the foregoing.
Notice of acceptance of this Guaranty, the making of loans or advances,
or the extension of credit under the Agreement, the amendment, execution or
termination of the Agreement or any other agreements in connection therewith,
and presentment, demand, protest, notice of protest, notice of non-payment and
all other notices to which the Guarantors may be entitled (whether under this
Guaranty or the Agreement), and your reliance on this Guaranty are hereby
waived. Each of the Guarantors also waives notice ofi changes in terms or
extensions of the time of payment, the taking and releasing of collateral or
guarantees (including the release of any of the Guarantors) and the settlement,
compromise or release of any Obligations, and agree that, as to each of the
Guararitors, the amount of the Obligations shall not be diminished by any of the
foregoing. Each of the Guarantors also agrees that you need not attempt to
collect any Obligations from the other Guarantors or any other obligor or to
realize upon any collateral, but may require the Guarantors to make immediate
payment of Obligations to you when due or at any time thereafter. You shall not
be liable for failure to collect Obligations or to realize upon any collateral
or security therefor, or any part thereof, or for any delay in so doing, nor
shall you be under any obligation to take any action whatsoever with regard
thereto.
This Guaranty is absolute, unconditional and continuing, regardless of
the validity, regularity or enforceability of any of the Obligations or the fact
that a security interest or lien in any collateral or security therefor may not
be enforceable by you or may otherwise be subject to equities or defenses or
prior claims in favor of others or may be invalid or defective in any way and
for any reason, including any action, or failure to act, on your part. Payment
by the Guarantors shall be made to you at your office from time to time on
demand as Obligations become due, and one or more successive or concurrent
antions may be brought hereon against the Guarantors (or any one or more of
them) either in the same action or in separate actions. In the event any claim
or action, or action on any judgment, based on this Guaranty, is made or brought
against the Guarantors, the Guarantors agree not to assert against you any
set-off or counterclaim which the Companies may have, and, further, the
Guarantors agree not to deduct, set-off, or seek to counterclaim for or recoup,
any amounts which are or may be owed by you to the Guarantors, or for any loss
of contribution from any other guarantor. Furthermore, in any litigation based
on the Guaranty in which you and any of the Guarantors shall be adverse parties,
the Guarantors hereby waive trial by jury and waive the right to interpose any
defense based upon any Statute of Limitations or any claim of laches and waive
the performance of each and every condition precedent to which the Guarantors
might otherwise be entitled by law. Each of the Guarantors hereby consents to
the in personam jurisdiction of the courts of the State of Illinois. In the
event that you bring any action or suit in any court of record of the state of
lilionis or the Federal Government to enforce any or all liabilities of the
Guarantors hereunder, service of process may be made on the Guarantors by
mailing a copy of the summons to the Guarantors at the address below set forth.
All sums at any time to the credit of the Guarantors and any property
of the Guarantors on which you at any time have a lien or security interest, or
of which you at any time have possession, shall secure payment and performance
of all Obligations and any and all other obligations of the Guarantors to you
however arising. The Guarantors shall have no right of subrogation,
indemnification or recourse to any Obligations or collateral or guarantees
therefor, or to any assets of the Companies.
Upon the occurrence of any of the following events:
(1) any Event of Default under, or termination of, the Agreement;
(2) failure of any of the Guarantors to observe or perform any
agreements, warranties or covenants contained herein; or
(3) (a) dissolution or cessation of any of the Guarantors'
business;
(b) calling of a meeting of the creditors of any of the
Guarantors for the purposes of compromising the debts of such
Guarantor;
(c) failure of any of the Guarantors to meet their debts as
they mature;
(d) commencement by any of the Guarantors of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceeds under federal or state law (herein
collectively "Insolvency Proceeding");
(e) commencement of any Insolvency Proceeding against any of
the Guarantors,
then, in the case of event (1) above the liability of all of the Guarantors for
the entire Obligations shall mature, and in the case of events (2) and (3)(a)
through (e) above the liability of the Guarantor with respect to which such
event relates for the entire Obligations shall mature even if the liability of
the Companies therefor does not.
This Guaranty may be terminated as to any one of the Guarantors only as
of any Anniversary Date (as defined in the Agreement) and then only upon actual
receipt by one of your officers of at least ninety (90) days prior written
notice of termination sent by registered or certified mail; provided however,
that any of the Guarantors so terminating this Guaranty shall remain bound
hereunder, and this Guaranty shall continue in full force and effect, with
respect to any and all Obligations created or arising prior to the effective
date of such termination and with respect to any and all extensions, renewals or
modifications of said preexisting Obligations. Termination as to any one of the
Guarantors shall not affect the obligations of any of the other Guarantors, nor
relieve the one giving such notice from liability for any post termination
collection expenses or interest. This is a continuing agreement and written
notice as above provided shall be the only means of termination, notwithstanding
the fact that for certain periods of time there may be no Obligations owing to
you by the Companies.
Your books and records showing the account between you and the
Companies shall be admissible in evidence in any action or proceeding as prima
facie proof of the items therein set forth. Your monthly statements rendered to
the Companies shall be binding upon the Guarantors (whether or not the
Guarantors received copies thereof) and shall constitute an account stated
between you and the Companies unless you shall have received a written statement
of the Companies' exceptions within thirty (30) days after the statement was
mailed to the Companies.
Each of the Guarantors expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against the Companies or any other
person directly or contingently liable for the Obligations guaranteed hereunder,
or against or with respect to the Companies' property (including, without
limitation, property collateralizing its Obligations to you) arising from the
existence or performance of this Guaranty.
This Guaranty embodies the whole agreement of the parties and may not
be modified except in writing, and no course of dealing between you and any of
the Guarantors shall be effective to change or modify this Guaranty. Your
failure to exercise any right hereunder shall not be construed as a waiver of
the right to exercise the same or any other right at any other time and from
time to time thereafter, and such rights shall be considered as cumulative
rather than altemative. No knowledge of any breach or other nonobservance by any
of the Guarantors of the terms and provisions of this Guaranty shall constitute
a waiver thereof, nor a waiver of any obligations to be performed by the
Guarantors hereunder.
This Guaranty may be assigned by you and shall be for your benefit and
for the benefit of any of your assignees or transferees, and shall cover any
Obligations owed to you at the time of assignment or transfer as well as any and
all future Obligations, loans, advances or extensions of credit made to the
Companies by, or otherwise owed by the Companies to, such assignee or
transferee.
This instrument is executed and given in addition to, and not in
substitution, reduction, replacement, or satisfaction of, any other endorsements
or guarantees of the Obligations, now existing or hereafter executed by any or
all of the Guarantors or others in your favor.
When used in this agreement, all pronouns shall, wherever applicable,
be deemed to include the singular and plural as well as the masculine, feminine,
and neuter genders. This agreement shall inure to the benefit of you, your
successors and assigns and any parent, subsidiary or affiliate of yours; shall
be binding jointly and severally upon the Guarantors and upon the respective
heirs, executors, administrators, successors and assigns of each of the
Guarantors; and shall pertain to the Companies and their respective successors
and assigns.
This Guaranty may be executed in any number of counterparts, each of
which when so executed shall be deemed an original and such counterparts shall
together constitute but one and the same document.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of Illinois
IN WITNESS WHEREOF the Guarantors have executed and delivered this
Guaranty effective as of the date above set forth.
Name: DISCUS ACQUISITION CORPORATION
By: William H. Spell
CEO
Address: 2430 Metropolitan Centre
333 South Hope Street
Minneapolis, MN 55402
Date December 13, 1995
To: THE CIT GROUP/BUSINESS CREDIT, INC.
Address: 10 South LaSalle Street
Chicago, IL 60603
GUARANTY OF BORROWER
Gentlemen:
Reference is made to that certain Financing Agreement dated of even
date herewith, as amended (herein the "Agreement") between you and each of the
undersigned (herein each a "Guarantor" and collectively the "Guarantors"). Each
of the Guarantors hereby unconditionally jointly and severally guarantees and
agrees to be liable for the full and indefeasible payment and performance when
due of all now existing and future indebtedness, obligations or liabilities of
the other Guarantors to you, howsoever arising, whether direct or indirect,
absolute or contingent, secured or unsecured, whether arising under the
Agreement as now written or as amended or supplemented hereafter, or by
operation of law or otherwise, including, without limitation, all Obligations
(as defined in the Agreement). Further each of the Guarantors agrees to pay to
you on demand the amount of all expenses (including reasonable attorney's fees)
incurred by you in collecting or attempting to collect any of the Obligations
(as hereinafter defined), whether from such Guarantor, or from the other
Guarantors or any other obligor, or in realizing upon any collateral; and agrees
to pay any interest at the highest lawful rate on all amounts payable to you
hereunder, even if such amount cannot be collected from any other obligor. (All
of the aforementioned obligations, liabilities, expenses and interest are
hereinafter collectively called the "Obligations"). To the extent you receive
payment on account of Obligations guaranteed hereby, which payment is
thereafter set aside or required to be repaid by you in whole or in part, then,
to the extent of any sum not finally retained by you (regardless of whether such
sum is recovered from you by any Guarantor, its trustee, or any other party
acting for, on behalf of or through any Guarantor or its representative), the
Guarantors' obligation to you under this Guaranty, as amended, modified or
supplemented, shall remain in full force and effect (or be reinstated) until the
Guarantors have made payment to you therefor, which payment shall be due upon
demand.
This Guaranty is executed as an inducement to you to enter into or
continue the financing arrangement under the Agreement and to make the loans,
advances, extensions of credit or financial accommodations described therein,
and is executed in consideration of your doing or having done any of the
foregoing. Each of the Guarantors agrees that any of the foregoing shall be done
or extended by you in your sole discretion, and shall be deemed to have been
done or extended by you in consideration of and in reliance upon the execution
of this Guaranty, but that nothing herein shall obligate you to do any of the
foregoing.
Notice of acceptance of this Guaranty, the making of loans or advances,
or the extension of credit under the Agreement, the amendment, execution or
termination of the Agreement or any other agreements in connection therewith,
and presentment, demand, protest, notice of protest, notice of non-payment and
all other notices to which the Guarantors may be entitled (whether under this
Guaranty or the Agreement), and your reliance on this Guaranty are hereby
waived. Each of the Guarantors also waives notice ofchanges in terms or
extensions of the time of payment, the taking and releasing of collateral or
guarantees (including the release of any of the Guarantors) and the settlement,
compromise or release of any Obligations, and agree that, as to each of the
Guarantors, the amount of the Obligations shall not be diminished by any of the
foregoing. Each of the Guarantors also agrees that you need not attempt to
collect any Obligations from the other Guarantors or any other obligor or to
realize upon any collateral, but may require the Guarantors to make immediate
payment of Obligations to you when due or at any time thereafter. You shall not
be liable for failure to collect Obligations or to realize upon any collateral
or security therefor, or any part thereof, or for any delay in so doing, nor
shall you be under any obligation to take any action whatsoever with regard
thereto.
This Guaranty is absolute, unconditional and continuing, regardless of
the validity, regularity or enforceability of any of the Obligations or the fact
that a security interest or lien in any collateral or security therefor may not
be enforceable by you or may otherwise be subject to equities or defenses or
prior claims in favor of others or may be invalid or defective in any way and
for any reason, including any action, or failure to act, on your part. Payment
by the Guarantors shall be made to you at your office from time to time on
demand as Obligations become due, and one or more successive or concurrent
actions may be brought hereon against the Guarantors (or any one or more of
them) either in the same action or in separate actions. In the event any claim
or action, or action on any judgment, based on this Guaranty, is made or brought
against the Guarantors, each of the Guarantors agrees not to assert against you
any set-off or counterclaim which the other Guarantors may have, and, further,
each of the Guarantors agrees not to deduct, set-off, or seek to counterclaim
for or recoup, any amounts which are or may be owed by you to such Guarantor, or
for any loss of contribution from any other guarantor. Furthermore, in any
litigation based on the Guaranty in which you and any of the Guarantors shall be
adverse parties, the Guarantors hereby waive trial by jury and waive the right
to interpose any defense based upon any Statute of Limitations or any claim of
laches and waive the performance of each and every condition precedent to which
the Guarantors might otherwise be entitled by law. Each of the Guarantors hereby
consents to the in personam jurisdiction of the courts of the State of Illinois.
In the event that you bring any action or suit in any court of record of the
State of Illinois or the Federal Government to enforce any or all liabilities of
the Guarantors hereunder, service of process may be made on the Guarantors by
mailing a copy of the summons to the Guarantors at the address below set forth.
All sums at any time to the credit of the Guarantors and any property
of the Guarantors on which you at any time have a lien or security interest, or
of which you at any time have possession, shall secure payment and performance
of all Obligations and any and all other obligations of the Guarantors to you
however arising. The Guarantors shall have no right of subrogation,
indemnification or recourse to any Obligations or collateral or guarantees
therefor, or to any assets of any of the Guarantors.
This Guaranty may be terminated as to any one of the Guarantors only as
of any Anniversary Date (as defined in the Agreement) and then only upon actual
receipt by one of your officers of at least ninety (90) days prior written
notice of termination sent by registered or certified mail; provided however,
that any of the Guarantors so terminating this Guaranty shall remain bound
hereunder, and this Guaranty shall continue in full force and effect, with
respect to ariy and all Obligations created or arising prior to the effective
date of such termination and with respect to any and all extensions, renewals or
modifications of said preexisting Obligations. Termination as to any one of the
Guarantors shall not affect the obligations of any of the other Guarantors, nor
relieve the one giving such notice from liability for any post termination
collection expenses or interest. This is a continuing agreement and written
notice as above provided shall be the only means of termination, notwithstanding
the fact that for certain periods of time there may be no Obligations owing to
you under the Agreement.
Your books and records showing the loan account(s) maintained under the
Agreement shall be admissible in evidence in any action or proceeding as prima
facie proof of the items therein set forth. Your monthly statements rendered
under the Agreement shall be binding upon the Guarantors (whether or not the
Guarantors received copies thereof) and shall constitute an account stated
unless you shall have received a written statement of the exceptions thereto
within thirty (30) days after the statement was mailed by you.
Each of the Guarantors expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against the other Guarantors or any
other person directly or contingently liable for the Obligations guaranteed
hereunder, or against or with respect to any Guarantors property (including,
without limitation, property collateralizing its Obligations to you) arising
from the existence or performance of this Guaranty.
This Guaranty embodies the whole agreement of the parties and may not
be modified except in writing, and no course of dealing between you and any of
the Guarantors shall be effective to change or modify this Guaranty. Your
failure to exercise any right hereunder shall not be construed as a waiver of
the right to exercise the same or any other right at any other time and from
time to time thereafter, and such rights shall be considered as cumulative
rather than alternative. No knowledge of any breach or other nonobservance by
any of the Guarantors of the terms and provisions of this Guaranty shall
constitute a waiver thereof, nor a waiver of any obligations to be performed by
the Guarantors hereunder.
This Guaranty may be assigned by you and shall be for your benefit and
for the benefit of any of your assignees or transferees, and shall cover any
Obligations owed to you at the time of assignment or transfer as well as any and
all future Obligations, loans, advances or extensions of credit made under the
Agreement by, or otherwise owed to, such assignee or transferee.
This instrument is executed and given in addition to, and not in
substitution, reduction, replacement, or satisfaction of, any other endorsements
or guarantees of the Obligations, now existing or hereafter executed by any or
all of the Guarantors or others in your favor.
When used in this agreement, all pronouns shall, wherever applicable,
be deemed to include the singular and plural as well as the masculine, feminine,
and neuter genders. This agreement shall inure to the benefit of you, your
successors and assigns and any parent, subsidiary or affiliate of yours; shall
be binding jointly and severally upon the Guarantors and upon the respective
heirs, executors, administrators, successors and assigns of each of the
Guarantors.
This Guaranty may be executed in any number of counterparts, each of
which when so executed shall be deemed an original and such counterparts shall
together constitute but one and the same document.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of Illinois.
IN WITNESS WHEREOF the Guarantors have executed and delivered this
Guaranty effective as of the date above set forth.
Peerless Chain Company
By: William H. Spell
Title: Chairman
Address: 1416 E. Sanborn Street
Winona, MN 55987-5349
PEERLES CHAIN OF IOWA, INC.
By: William H. Spell
Title: Chairman
Address: 1416 E. Sanborn Street
Winona, MN 55987-5349
In accordance with Rule 202 of Regulation S-T, this Exhibit 10.13 is being filed
in paper pursuant to a continuing hardship exemption.
