<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 1-9371
ALLEGHANY CORPORATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
DELAWARE
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
51-0283071
INTERNAL REVENUE SERVICE EMPLOYER IDENTIFICATION NUMBER
375 PARK AVENUE, NEW YORK, NEW YORK 10152
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE
212 / 752-1356
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
NOT APPLICABLE
FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE
YES X NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASS OF
COMMON STOCK, AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT:
7,441,004
(AS OF MARCH 31, 2000)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(dollars in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES
Investment management fees $ 44,039 $ 39,373
Net property and casualty premiums earned 162,656 144,237
Interest, dividend and other income 53,488 43,203
Net mineral and filtration sales 49,106 48,886
Net gain on investment transactions 475 363
----------- -----------
Total revenues 309,764 276,062
----------- -----------
COSTS AND EXPENSES
Commissions and brokerage expenses 40,135 37,134
Salaries, administrative and other operating expenses 86,832 69,171
Property and casualty losses and loss adjustment expenses 135,076 100,158
Cost of mineral and filtration sales 34,658 33,322
Interest expense 7,699 7,750
Corporate administration 5,571 4,658
----------- -----------
Total costs and expenses 309,971 252,193
----------- -----------
(Loss) earnings from continuing operations, before income taxes (207) 23,869
Income taxes (benefit) expense (689) 7,915
----------- -----------
Net earnings $ 482 $ 15,954
=========== ===========
Basic earnings per share of common stock ** $ 0.07 $ 2.13
=========== ===========
Diluted earnings per share of common stock ** $ 0.06 $ 2.09
=========== ===========
Dividends per share of common stock * *
=========== ===========
Average number of outstanding shares of common stock ** 7,444,502 7,505,777
=========== ===========
</TABLE>
* In March 2000, Alleghany declared a dividend consisting of one share of
Alleghany common stock for every fifty shares outstanding.
** Adjusted to reflect the common stock dividend declared in March 2000.
<PAGE> 3
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C> <C>
ASSETS
Available for sale securities:
Fixed maturities:
U.S. Government, government agency 3/31/2000 12/31/1999
and municipal obligations (amortized cost $713,267 $707,250) $701,902 $695,718
Short-term investments (amortized cost 260,961 $277,798) 260,961 277,798
Bonds, notes and other (amortized cost 492,898 $496,872) 480,758 484,127
Equity securities (cost 245,185 $240,623) 450,463 470,104
---------- ----------
1,894,084 1,927,747
Cash 30,980 26,786
Cash pledged to secure trust deposits 17,469 14,307
Premium trust funds 182,312 170,508
Notes receivable 91,535 91,536
Funds held, accounts and other receivables 529,685 529,786
Property and equipment - at cost, less
accumulated depreciation and amortization 204,592 207,617
Reinsurance receivable 882,236 844,605
Other assets 663,928 672,133
---------- ----------
$4,496,821 $4,485,025
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Property and casualty losses and loss
adjustment expenses $2,063,387 $1,973,924
Unearned premiums 356,811 419,608
Other liabilities 529,097 501,453
Long-term debt of subsidiaries 399,791 407,950
Net deferred tax liability 36,746 53,625
Trust deposits secured by pledged assets 22,910 20,568
---------- ----------
Total liabilities 3,408,742 3,377,128
Common stockholders' equity 1,088,079 1,107,897
---------- ----------
$4,496,821 $4,485,025
========== ==========
Shares of common stock outstanding * 7,441,004 7,458,955
========== ==========
Common stockholders' equity per share * $146.23 $148.53
========== ==========
</TABLE>
* Adjusted to reflect the common stock dividend declared in March 2000.
<PAGE> 4
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $482 $15,954
Adjustments to reconcile net earnings to cash
provided by (used in) operations:
Depreciation and amortization 5,809 5,226
Net gain on investment transactions (475) (363)
Other charges, net (10,894) 3,012
Decrease in funds held, accounts and other receivables 101 28,031
Increase in reinsurance receivable (37,631) (72,957)
Increase in property and casualty losses and loss adjustment expenses 89,463 112,564
Decrease in unearned premium reserves (62,797) (48,724)
Increase in premium trust funds (11,804) (11,174)
Decrease (increase) in other assets 8,205 (7,953)
Increase (decrease) in other liabilities 27,644 (17,438)
(Increase) decrease in cash pledged to secure trust deposits (3,162) 46,998
Increase (decrease) in trust deposits 2,342 (42,314)
-------- -------
Net adjustments 6,801 (5,092)
-------- -------
Cash provided by operations 7,283 10,862
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (61,956) (218,855)
Maturities of investments 15,585 16,994
Sales of investments 30,437 183,909
Purchases of property and equipment (3,418) (6,704)
Net change in short-term investments 19,870 574
Other, net 8,182 18,228
-------- -------
Net cash provided by (used in) investing activities 8,700 (5,854)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (13,000) (19,800)
Proceeds of long-term debt 4,841 35,834
Treasury stock acquisitions (11,958) (14,172)
Other, net 8,328 4,221
-------- -------
Net cash (used in) provided by financing activities (11,789) 6,083
-------- -------
Net increase in cash 4,194 11,091
Cash at beginning of period 26,786 25,441
-------- -------
Cash at end of period $30,980 $36,532
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $3,948 $3,354
Income taxes $1,249 $6,746
</TABLE>
<PAGE> 5
Notes to the Consolidated Financial Statements
This report should be read in conjunction with the Annual Report on
Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K") of
Alleghany Corporation (the "Company").
The information included in this report is unaudited but reflects all
adjustments which, in the opinion of management, are necessary to a fair
statement of the results of the interim periods covered thereby. All adjustments
are of a normal and recurring nature except as described herein.
Comprehensive Income
The Company's total comprehensive loss for the three months ended March
31, 2000 and 1999 was $(16,150) thousand and $(14,014) thousand, respectively.
Comprehensive loss includes the Company's net earnings adjusted for changes in
unrealized depreciation of investments, which was $(16,393) thousand and
$(28,485) thousand, and cumulative translation adjustments, which was $(239)
thousand and $(1,483) thousand, for the three months ended March 31, 2000 and
1999, respectively.
5
<PAGE> 6
Segment Information
Information concerning the Company's continuing operations by industry
segment is summarized below:
<TABLE>
<CAPTION>
For the three months ended
March 31, March 31,
REVENUES 2000 1999
-------- ---- ----
<S> <C> <C>
Asset management $ 44,855 $ 39,937
Property and casualty
insurance 185,555 165,623
Mining and filtration 48,795 48,600
Industrial fasteners 23,576 18,981
Corporate activities 6,983 2,921
-------- --------
Total $309,764 $276,062
======== ========
</TABLE>
<TABLE>
<CAPTION>
EARNINGS (LOSS) BEFORE TAX
--------------------------
<S> <C> <C>
Asset management $ 14,142 $ 14,428
Property and casualty
insurance (20,139) 11,056
Mining and filtration 3,867 4,344
Industrial fasteners 2,782 (1,388)
Corporate activities (859) (4,571)
-------- --------
Total (207) 23,869
Income tax (benefit) expense (689) 7,915
-------- --------
Net income $ 482 $ 15,954
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
IDENTIFIABLE ASSETS 2000 1999
------------------- ---- ----
<S> <C> <C>
Asset management $ 94,941 $ 103,838
Property and casualty
insurance 3,505,348 3,461,858
Mining and filtration 327,074 332,300
Industrial fasteners 67,415 53,926
Corporate activities 502,043 533,103
---------- ----------
Total $4,496,821 $4,485,025
========== ==========
</TABLE>
6
<PAGE> 7
Contingencies
The Company's subsidiaries are parties to pending claims and litigation
in the ordinary course of their businesses. Each such operating unit makes
provisions on its books in accordance with generally accepted accounting
principles for estimated losses to be incurred as a result of such claims and
litigation, including related legal costs. In the opinion of management, such
provisions are adequate as of March 31, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The Company reported net earnings of $482 thousand on revenues of
$309.8 million during the first quarter of 2000, compared with net earnings of
$16.0 million on revenues of $276.1 million during the first quarter of 1999.
Net gains on investment transactions before taxes in the first quarter
of 2000 totalled $475 thousand, compared with $363 thousand in the first quarter
of 1999.
Underwriters Re Group, Inc. ("Underwriters Re Group") recorded a
pre-tax loss of $20.1 million on revenues of $185.6 million in the first three
months of 2000, compared with pre-tax earnings of $11.1 million on revenues of
$165.6 million in the first three months of 1999. These results reflect
decreased business, adverse loss development including losses relating to the
December 1999 European storms, additions to reserves at its Lloyd's operations
in the amount of $6.5 million for the recently closed 1997 year of account and
for uncollectible reinsurance, and a pre-tax charge of $2.7 million to cover
potential losses on a contract with an insurance company placed in receivership
by the State of California. The Lloyd's operations will continue to closely
monitor their loss reserves for the still open 1998 and 1999 years of account,
which have been recognized as generally poor years for Lloyd's.
On December 30, 1999, the Company entered into an agreement to sell
Underwriters Re Group to Swiss Re America Holding Corporation for $725 million
in cash, subject to adjustment based upon the stockholder's equity of
Underwriters Re Group at the closing date. The Company will retain Underwriters
Re Group's London-based Lloyd's operations to be conducted through Alleghany
Underwriting Holdings Ltd. (previously referred to as Venton Holdings Ltd). The
transaction is expected to close within the next month. Based upon current
unaudited financial information and subject to results of operations, changes in
value of investment securities and other matters which would affect the
stockholder's equity of Underwriters Re Group at the closing date, the Company
expects to report a gain on the sale, after tax and after expenses relating to
the closing of the sale, in excess of $12 per share of the Company's common
stock.
7
<PAGE> 8
Alleghany Asset Management, Inc. ("Alleghany Asset Management")
contributed pre-tax earnings of $14.1 million on revenues of $44.9 million in
the first quarter of 2000, compared with $14.4 million on revenues of $39.9
million in the 1999 first quarter. The results of Alleghany Asset Management
reflect an increase in assets under management, offset by increased expenses,
including personnel expenses. As of March 31, 2000, Alleghany Asset Management
had $47.7 billion of assets under management, compared with $40.4 billion as of
the same date in 1999.
World Minerals Inc. ("World Minerals") contributed pre-tax earnings of
$3.9 million on revenues of $48.8 million in the 2000 first quarter, compared
with $4.3 million on revenues of $48.6 million in the 1999 first quarter. World
Minerals' results reflect a lack of increased sales due to various continued
competitive pressures, and, to a lesser extent, due to the stockpiling of
inventories by customers during 1999 in anticipation of potential Year 2000
problems, and rising operating costs (including workers compensation, health
insurance and natural gas prices).
In light of its acquisition of Reynolds Fasteners, Inc. on April 3,
2000, Heads & Threads International LLC ("Heads & Threads") is now reported as a
segment of the Company. Heads & Threads contributed pre-tax earnings of $2.8
million on revenues of $23.6 million in the first three months of 2000, compared
with a pre-tax loss of $1.4 million on revenues of $19.0 million in the first
three months of 1999, reflecting increased sales without a commensurate increase
in operating costs.
As of March 31, 2000, the Company beneficially owned approximately 17.95
million shares, or 3.9 percent, of the outstanding common stock of Burlington
Northern Santa Fe Corporation, which had an aggregate market value on that date
of approximately $408.4 million, or $22.75 per share, compared with a market
value on December 31, 1999 of $435.3 million, or $24.25 per share. The aggregate
cost of such shares is approximately $201.3 million, or $11.21 per share.
The Company's common stockholders' equity per share at March 31, 2000
was $146.23 per share, a 1.5% decrease from common stockholders' equity per
share of $148.53 as of December 31, 1999 (adjusted for the March 2000 stock
dividend), reflecting a decline in market prices of the Company's securities
holdings.
The Company's results in the first three months of 2000 are not
indicative of operating results in future periods. The Company and its
subsidiaries have adequate internally generated funds and unused credit
facilities to provide for the currently foreseeable needs of its and their
businesses.
8
<PAGE> 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss from adverse changes in market prices
and rates, such as interest rates, foreign currency exchange rates and commodity
prices. The primary market risk related to the Company's non-trading financial
instruments is the risk of loss associated with adverse changes in interest
rates.
The Company's 1999 Form 10-K provides a more detailed discussion of the
market risks affecting its operations. Based on the Company's estimates as of
March 31, 2000, no material change has occurred in its market risks, as compared
to amounts disclosed in its 1999 Form 10-K.
Forward-Looking Statements
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Quantitative and Qualitative Disclosures About
Market Risk" contain disclosures which are forward-looking statements.
Forward-looking statements include all statements that do not relate solely to
historical or current facts, and can be identified by the use of words such as
"may," "will," "expect," "project," "estimate," "anticipate," "plan" or
"continue." These forward-looking statements are based upon the Company's
current plans or expectations and are subject to a number of uncertainties and
risks that could significantly affect current plans and anticipated actions and
the Company's future financial condition and results. The uncertainties and
risks include, but are not limited to, those relating to conducting operations
in a competitive environment; acquisition activities; the complexity of
integrated computer systems; and general economic conditions. As a consequence,
current plans, anticipated actions and future financial condition and results
may differ from those expressed in any forward-looking statements made by or on
behalf of the Company.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C> <C>
10.1 Asset Purchase Agreement dated as of April 3, 2000 by and among Heads
& Threads International LLC, Acktion Corporation and Reynolds
Fasteners, Inc. (the "Heads & Threads Asset Purchase Agreement").
10.2 List of Contents of Schedules to the Heads & Threads Asset Purchase
Agreement. The Company agrees to furnish supplementally a copy of
any omitted schedule to the Securities and Exchange Commission upon
request.
10.3 Credit Agreement dated as of April 3, 2000 among Heads & Threads
International LLC, various lending institutions, and American
National Bank and Trust Company of Chicago, as Agent (the "Heads &
Threads Credit Agreement).
10.4 List of Contents of Schedules and Exhibits to the Heads & Threads
Credit Agreement. The Company agrees to furnish supplementally a
copy of any omitted schedule or exhibit to the Securities and
Exchange Commission upon request.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated January 3, 2000 to report
in Item 5 that on December 30, 1999, the Company entered into a Stock Purchase
Agreement with Swiss Re America Holding Corporation, pursuant to which the
Company would sell Underwriters Re Group to Swiss Re America Holding
Corporation.
10
<PAGE> 11
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 thereunto duly authorized.
ALLEGHANY CORPORATION
Registrant
Date: May 5, 2000 /s/ David B. Cuming
-------------------
David B. Cuming
Senior Vice President
(and principal financial officer)
11
<PAGE> 1
Exhibit 10.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
HEADS & THREADS INTERNATIONAL LLC,
ACKTION CORPORATION
AND
REYNOLDS FASTENERS, INC.
DATED AS OF APRIL 3, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Purchase and Sale of Assets....................................................................1
1.1 Purchase and Sale of Assets..................................................................1
1.2 Purchase Price; Holdback.....................................................................3
1.3 Allocation of Purchase Price.................................................................4
1.4 Liabilities to be Assumed by Buyer...........................................................4
1.5 Excluded Assets and Excluded Liabilities.....................................................5
1.6 Closing; Closing Deliveries..................................................................6
1.7 [Reserved]...................................................................................7
1.8 Transfer Taxes...............................................................................7
ARTICLE II Representations and Warranties of Parent and Seller...........................................8
2.1 Corporate Organization and Qualification.....................................................8
2.2 Authority....................................................................................8
2.3 Execution and Binding Effect.................................................................9
2.4 Consents and Approvals; No Violations........................................................9
2.5 Title........................................................................................9
2.6 Financial Statements.........................................................................9
2.7 Inventory...................................................................................10
2.8 Accounts Receivable.........................................................................10
2.9 Accounts Payable; Supplier Orders...........................................................10
2.10 Condition and Operation of Fixed Assets.....................................................11
2.11 Litigation..................................................................................11
2.12 Tax Matters.................................................................................11
2.13 Leases......................................................................................11
2.14 Insurance...................................................................................12
2.15 Environmental Matters.......................................................................12
2.16 Products and Warranties.....................................................................13
2.17 Employee Matters............................................................................14
2.18 Customers and Suppliers.....................................................................15
2.19 Certain Contracts and Commitments...........................................................15
2.20 Ability to Conduct Business.................................................................16
2.21 Brokers and Finders.........................................................................16
ARTICLE III Representations and Warranties of Purchaser.................................................16
3.1 Corporate Organization and Qualification....................................................16
3.2 Authority...................................................................................16
3.3 Execution and Binding Effect................................................................17
3.4 Consents and Approvals; No Violations.......................................................17
3.5 Brokers and Finders.........................................................................17
ARTICLE IV Covenants of Parent and Seller...............................................................17
4.1 [Reserved]..................................................................................17
4.2 [Reserved]..................................................................................17
4.3 [Reserved]..................................................................................18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4.4 No Competition, No Solicitation, No Inducement; Confidentiality.............................18
4.5 Tax Clearance Certificates..................................................................19
ARTICLE V Other Covenants...............................................................................20
5.1 Employee Matters............................................................................20
5.2 [Reserved]..................................................................................20
5.3 Further Assurances..........................................................................20
5.4 Access to Books and Records after the Closing Date..........................................21
5.5 Collection of Accounts Receivable...........................................................21
5.6 Defective Goods, Returns and Retentions.....................................................22
5.7 Payment of Creditors........................................................................22
5.8 Transitional Assistance.....................................................................22
ARTICLE VI [Reserved]...................................................................................23
ARTICLE VII [Reserved]..................................................................................23
ARTICLE VIII Survival of Representations and Warranties; Indemnification................................23
8.1 Survival of Representations, Warranties, etc................................................23
8.2 Parent's and Seller's Agreement to Indemnify................................................23
8.3 Purchaser's Agreement to Indemnify..........................................................25
8.4 Matters Involving Third Parties.............................................................26
8.5 Matters Not Involving Third-Party Claims....................................................27
8.6 Exclusive Remedy............................................................................27
ARTICLE IX Miscellaneous Provisions.....................................................................28
9.1 [Reserved]..................................................................................28
9.2 Expenses....................................................................................28
9.3 Notices.....................................................................................28
9.4 Entire Agreement; Amendment.................................................................29
9.5 Assignment..................................................................................29
9.6 Governing Law...............................................................................29
9.7 No Third-Party Beneficiaries................................................................30
9.8 Consent to Jurisdiction.....................................................................30
9.9 Waiver of Jury Trial........................................................................30
9.10 Counterparts................................................................................30
9.11 Headings....................................................................................30
9.12 Severability................................................................................30
9.13 FIRPTA Certificate..........................................................................31
</TABLE>
-iii-
<PAGE> 4
GLOSSARY
1
1998 Financial Statements 9
1999 Financial Statements 9
A
Accounts Payable 4
Accounts Receivable 2
Agreement 1
Alleghany 17
Annual Financial Statements 9
Assumed Contracts 5
Assumed Liabilities 5
C
Cash Consideration 3
Closing 6
Closing Date 6
Code 4
Code Affiliate 14
Contract Assignment 6
Customer Purchase Orders 2
D
Differential 20
E
Employee Program 13
Encumbrances 9
Environmental Condition 12
Environmental Law 12
Equipment Lease Assignment 6
Equipment Lease Consents 14
Equipment Leases 4
ERISA 14
Excluded Assets 5
Excluded Liabilities 5
F
Final Allocation 4
Fixed Assets 1
G
GAAP 3
H
Hazardous Substances 12
Holdback Amount 3
HSR Act 8
I
Indemnified Party 24
Indemnifying Party 24
Inventory 1
L
Landlord Consents 14
Lease Assignment 6
Leased Premises 10
Leases 4
Losses 21
M
Material Adverse Effect 8
P
Parent 1
Potential customer 17
Prepaid Amounts 2
Prepaid Customer Orders 2
Proposed Allocation 4
Purchase Price 3
Purchased Assets 2
Purchaser 1, 23
Purchaser Indemnitees 21
R
Reynolds Business 1
S
Seller 1
Seller Approvals 8
-iv-
<PAGE> 5
Seller Indemnitees 23
Supplier Orders 2
Survival Period 21
T
Third-Party Claim 24
Threshold Amount 22
W
WARN Act 13
-v-
<PAGE> 6
List of Schedules and Exhibits
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
Schedule 1.1(b) Fixed Assets to be Purchased
Schedule 1.1(i) Prepaid Amounts
Schedule 1.4(a) Real Property Leases to be Assumed
Schedule 1.4(b) Equipment Leases to be Assumed
Schedule 1.4(f) Contracts to be Assumed
Schedule 1.5(a) Excluded Assets
Schedule 2.2 Restriction, Breaches, etc. Resulting from Sale of Assets
Schedule 2.4 Consents and Approvals; No Violations
Schedule 2.5 Title
Schedule 2.8 Accounts Receivable
Schedule 2.11(a) Litigation
Schedule 2.11(b) Knowledge of Certain Persons
Schedule 2.14 Insurance
Schedule 2.15 Environmental Matters
Schedule 2.16 Warranties
Schedule 2.17 Employee Matters
Schedule 2.18 Customers and Suppliers
Schedule 2.19 Certain Contracts and Commitments
</TABLE>
-vi-
<PAGE> 7
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement") dated as of April
3, 2000, by and among Heads & Threads International LLC, a Delaware limited
liability company ("Purchaser"), Acktion Corporation, a Canadian corporation
("Parent"), and Reynolds Fasteners, Inc., a Delaware corporation and
wholly-owned subsidiary of Parent ("Seller").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of distributing
industrial fasteners and related products (the "Reynolds Business"); and
WHEREAS, Purchaser desires to purchase, and Parent and Seller
desire to sell, all of the inventory and certain of the fixed assets and
accounts receivable of Seller upon the terms and subject to the conditions set
forth herein;
WHEREAS, Purchaser desires to assume certain leasehold
obligations and other liabilities identified herein; and
WHEREAS, the parties hereto desire to make certain
representations, warranties, covenants and agreements in connection with the
purchase and sale of such assets and the assumption of such obligations and
liabilities;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto hereby
agree as follows:
ARTICLE I
Purchase and Sale of Assets
1.1 Purchase and Sale of Assets. Subject to the terms and
conditions set forth in this Agreement, at the Closing (as hereinafter defined),
Seller shall, and Parent shall cause Seller to, sell, convey, assign, transfer
and deliver to Purchaser, and Purchaser shall acquire:
(a) all of the inventory arising in the ordinary course
of the Reynolds Business which is owned by Seller as of the time of the
Closing, wherever located (the "Inventory");
(b) all of the fixed assets of Seller set forth on
Schedule 1.1(b) hereto (the "Fixed Assets");
(c) (i) all of the customer purchase orders arising in
the ordinary course of the Reynolds Business for which neither delivery
has been made nor payment has been received by Seller as of the time of
the Closing (the "Customer
<PAGE> 8
Purchase Orders"), and (ii) all of the customer purchase orders arising
in the ordinary course of the Reynolds Business for which delivery has
not been made and payment has been received by Seller as of the time of
the Closing, to the extent that, at the time of the Closing, Seller
pays over to Purchaser the amount of such payments (the "Prepaid
Customer Orders");
(d) all of the supplier orders made by Seller arising in
the ordinary course of the Reynolds Business for which the ordered
items have not been received by Seller as of the time of the Closing
(the "Supplier Orders");
(e) all accounts receivable arising in the ordinary
course of the Reynolds Business which are outstanding as of the time of
the Closing (the "Accounts Receivable");
(f) all of Parent's and Seller's right, title and
interest in and to all know-how, technical information, plans,
specifications, engineering drawings, proprietary technology,
correspondence, customer lists, vendor and supply lists, catalogues,
manufacturing data, programs, methodologies, strategies, patents,
trademarks, trade names, trade dress, copyrights, licenses (including
computer software licenses and any tangible media upon which such
software is recorded), trade secrets and similar property owned by, or
used in, the Reynolds Business, including without limitation the name
and the mark "Reynolds Fasteners";
(g) the books and records of Parent and Seller relating
to the Reynolds Business (including computerized data and any tangible
media upon which such data is recorded);
(h) all of Parent's and Seller's right, title and
interest in and to the Leases, Equipment Leases and Assumed Contracts
(each as hereinafter defined); and
(i) prepaid contractual amounts and deposits set forth on
Schedule 1.1(i) hereto (the "Prepaid Amounts").
The assets to be acquired by Purchaser pursuant to this Section 1.1 are referred
to herein as the "Purchased Assets." Notwithstanding any other provision of this
Agreement, any asset otherwise constituting a Purchased Asset, and any contract,
lease, instrument, document or agreement constituting a Lease (as hereinafter
defined), an Equipment Lease (as hereinafter defined), an Assumed Contract (as
hereinafter defined) or otherwise to be assigned or transferred to Purchaser
hereunder, the assignment or other transfer, or the attempted assignment or
other transfer of which would be invalid or ineffective or would constitute a
breach or default of such contract, agreement or commitment to which Seller is a
party or is bound, unless the consent or approval of another person or entity to
such assignment or other transfer shall have been obtained first, shall not be
assigned or otherwise transferred under this Agreement, and the provisions of
this Agreement shall not constitute an attempt to assign or transfer, unless and
until such consents or approvals shall have been obtained; provided that, until
such consents or approvals shall have been
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obtained, such property, asset, contract or agreement, or the net proceeds
thereof, shall be held and/or received by Seller for the benefit and account of
Purchaser, Purchaser shall have the right to act as the agent for Seller, in the
name of Seller, or otherwise as Purchaser deems appropriate in order to obtain
for Purchaser the net benefits flowing from ownership of such property, asset,
contract or agreement and Purchaser shall perform or cause to be performed at
Purchaser's expense all the duties, obligations and liabilities of Seller
arising out of or relating to such property, asset, contract or agreement; and
such property, asset, contract or agreement shall be deemed to be a Purchased
Asset for purposes of this Section 1.1.
1.2 Purchase Price; Holdback.
(a) Subject to the terms and conditions set forth in this
Agreement, in consideration of the sale of the Purchased Assets, Purchaser
agrees to pay to Seller an amount in cash (the "Purchase Price") equal to (A)
the sum of (i) $3,000,000, (ii) $2,104,608.05, in respect of the Fixed Assets,
(iii) $27,485,949.43, representing the book value of the Inventory as of the
opening of business on the Closing Date (as hereinafter defined), determined in
accordance with generally accepted accounting principles ("GAAP") applied on a
basis consistent with the Annual Financial Statements (as hereinafter defined)
(after reduction for the amount of the related reserve in the financial records
of Seller as of the Closing Date), (iv) $12,140,883.33, representing the book
value of the Accounts Receivable purchased pursuant to Section 1.1(e) above as
of the Closing Date, determined in accordance with GAAP applied on a basis
consistent with the Annual Financial Statements (with no reduction for the
amount of any related reserve in the financial records of Seller), and (v)
$274,908.10, representing the amount of the Prepaid Amounts purchased pursuant
to Section 1.1(i) above as of the Closing Date, determined in accordance with
GAAP applied on a basis consistent with the Annual Financial Statements, less
(B) the sum of (i) $3,224,334.30, representing the book value of the Accounts
Payable (as hereinafter defined) as of the Closing Date, determined in
accordance with GAAP applied on a basis consistent with the Annual Financial
Statements, and (ii) $50,999.35, representing an allocation of rental charges
and other charges in respect of the Leased Premises (as hereinafter defined) and
the Assumed Contracts.
(b) Subject to the terms and conditions of this
Agreement, Purchaser agrees to pay the Purchase Price to Seller, as follows: (i)
an amount equal to (x) the Purchase Price less (y) $500,000 (such amount, the
"Cash Consideration"), shall be paid at the Closing, and (ii) $500,000 of the
Purchase Price (the "Holdback Amount"), shall be held back by Purchaser and paid
to Seller in accordance with Section 1.2(c) below.
(c) The Holdback Amount shall not be delivered to Seller
at the Closing but shall be withheld by Purchaser. In the event that, within 120
days after the Closing Date, any of the Accounts Receivable have not been
collected at the full gross recorded amount thereof, the Purchaser shall provide
notice to Parent and Seller of the amount of such uncollected Accounts
Receivable. Within three business days of the date of delivery of such notice,
Purchaser shall deliver to Seller the Holdback Amount less the amount of
uncollected Accounts Receivable (if any). Any damages to which Purchaser
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may be entitled for a breach of Section 2.8 of this Agreement or of any other
representation, warranty, covenant or agreement made by Parent or Seller herein
shall not be limited to the amount of the Holdback Amount.
1.3 Allocation of Purchase Price. Purchaser will submit
to Seller a proposed allocation of the Purchase Price and the Assumed
Liabilities among the Purchased Assets no later than 120 days after the Closing
Date, but in no event less than 30 days prior to the date on which Seller must
file any income tax returns with respect to the transaction (the "Proposed
Allocation"). The Proposed Allocation shall be made in a manner consistent with
Section 1060 of the Internal Revenue Code of 1986, as amended (including the
Treasury regulations thereunder, the "Code"). Within 30 days of receipt of the
Proposed Allocation, Seller shall either consent to the Proposed Allocation,
which consent shall not be unreasonably withheld, or Seller shall advise
Purchaser in reasonable detail of Seller's objections to the Proposed Allocation
and the basis therefor. A failure by Seller to propose any changes within such
30-day period shall be deemed a consent by Seller, and the Proposed Allocation
shall become Final (the "Final Allocation"). Seller and Purchaser shall endeavor
in good faith to resolve any dispute arising with respect to the Proposed
Allocation, but if Seller and Purchaser are unable to resolve any such dispute,
each shall file IRS Forms 8594 -- Asset Acquisition Statements under Section
1060 -- consistent with the Proposed Allocation, except with respect to any
items on which they continue to disagree (the Proposed Allocation, with such
exceptions, also referred to as the Final Allocation). Purchaser and Seller
agree that except as otherwise required by law (i) the Final Allocation shall be
binding on Purchaser and Seller for all federal, state and local tax purposes
and (ii) Purchaser and Seller shall file with their respective federal income
tax returns consistent IRS Forms 8594--Asset Acquisition Statements under
Section 1060, including any required amendment thereto which shall reflect the
allocations set forth in the Final Allocation.
1.4 Liabilities to be Assumed by Buyer. At the Closing,
Purchaser will assume and agree to perform and discharge the following:
(a) all liabilities and obligations of Seller which
accrue and are required to be paid or performed after the Closing Date
under the real property leases of Seller set forth on Schedule 1.4(a)
hereto (the "Leases");
(b) all liabilities and obligations of Seller which
accrue and are required to be paid or performed after the Closing Date
under the equipment leases of Seller set forth on Schedule 1.4(b)
hereto (the "Equipment Leases");
(c) all of the Customer Purchase Orders and all of the
Prepaid Customer Orders;
(d) all of the Supplier Orders;
(e) all accounts payable of Seller arising in the
ordinary course of the Reynolds business which have not been paid or
discharged as of the time of the Closing (the "Accounts Payable"); and
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(f) all liabilities and obligations of Seller which
accrue and are required to be paid or performed after the Closing Date
under the contracts set forth on Schedule 1.4(f) hereto (the "Assumed
Contracts");
provided, however, that Purchaser shall not assume or be responsible for any
such liability or obligation which arises from defaults or breaches thereunder
by Seller. The liabilities and obligations of Seller to be assumed by Purchaser
pursuant to this Section 1.4 are referred to herein as the "Assumed
Liabilities."
1.5 Excluded Assets and Excluded Liabilities.
(a) Purchaser is acquiring from Parent and Seller hereunder
only the Purchased Assets. Purchaser is not acquiring any cash, cash equivalents
or any other asset not identified as a Purchased Asset in Section 1.1 above
(including without limitation the assets set forth on Schedule 1.5(a) hereto,
the "Excluded Assets").
(b) Except as expressly provided in Section 1.4 above,
Purchaser is not assuming any liabilities or obligations of any kind, character
or description, whether accrued, absolute, known, foreseeable, contingent or
otherwise, arising out of or resulting from Parent's, Seller's or any
predecessor's ownership, possession, operation or use of the Reynolds Business
or the Purchased Assets or otherwise, including, without limitation, any of the
following liabilities or obligations (together with such liabilities as are
otherwise specifically excluded pursuant to Section 1.4, the "Excluded
Liabilities"):
(i) any liability or obligation arising out of or
relating to a breach occurring on or prior to the Closing of any
provision of the Leases or the Equipment Leases;
(ii) any liability or obligation arising out of or
relating to items sold by Seller on or prior to the Closing Date,
including, without limitation, any product liability claims, or claims
relating in any manner to recalled products, for injuries, property
damage, economic loss, or other losses;
(iii) any liability for any claim arising in any legal,
administrative, arbitration or other action, inquiry, investigation or
proceeding asserted, pending or threatened against Parent or Seller
relating to periods on or before the Closing Date, whether or not
asserted, pending or threatened on or before the Closing;
(iv) any liability for any failure or alleged failure to
comply with, or any violation or alleged violation of, any federal,
state, local, municipal, foreign or other law, statute, ordinance,
rule, regulation, directive or other legal requirement or any order,
judgment, injunction, ruling, decision, writ or sentence rendered by
any governmental authority, which failure or violation occurred or was
alleged to have occurred on or prior to the Closing Date;
(v) any liability or obligation related to an Excluded
Asset;
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(vi) any accounts payable not assumed by Purchaser
pursuant to Section 1.4(e) above;
(vii) any liability or obligation for taxes (other than
charges such as real estate taxes, personal property taxes and ad
valorem taxes which may be apportioned to Purchaser pursuant to Section
1.7 hereof);
(viii) any liability or obligation arising out of or
relating to any current or former employment, independent contractor,
sales representative, agency or other similar relationship between
Parent or Seller and any person;
(ix) any liability or obligation arising from or relating
to Environmental Conditions (as hereinafter defined) occurring or
existing on or prior to the Closing Date in connection with the
Purchased Assets; or
(x) any liability or obligation arising out of or
relating to the ownership or operation of the Purchased Assets, or the
ownership or operation of the Reynolds Business, on or prior to the
Closing Date, other than an Assumed Liability.
It is understood and agreed that Purchaser is only purchasing certain assets of
Seller, that Purchaser is not intended to be a successor to Seller for any
purpose, and that Purchaser has not assumed, and expressly denies assumption
hereby of, any other liability, obligation or commitment of Parent or Seller
other than as set forth in Section 1.4.
1.6 Closing; Closing Deliveries
(a) Subject to the terms and conditions set forth in this
Agreement, the purchase and sale of the Assets (the "Closing") shall take place
on such date and at such time as shall be mutually agreed to by the parties, and
simultaneously with the execution and delivery of this Agreement and the
execution and delivery of the other agreements, documents and instruments
referred to herein. The date of the Closing is hereinafter referred to as the
"Closing Date."
(b) At the Closing, (i) Parent and Seller shall execute
and deliver to Purchaser (v) a general assignment and bill of sale, (w)
instruments of assignment and assumption with respect to which Parent and Seller
will assign and transfer to Purchaser all of their respective right, title and
interest in and to, and Purchaser will assume any liability or obligation of
Seller which accrues and is required to be paid or performed after the Closing
Date (other than liabilities or obligations arising from defaults or breaches by
Seller) under, the Leases, the Equipment Leases and the Assumed Contracts (the
"Lease Assignment," the "Equipment Lease Assignment," and the "Contract
Assignment," respectively) and the other Assumed Liabilities, (x) a certificate
executed on behalf of Seller as described in Treas. Reg. Section 1.1445-2(b)(2)
to the effect that Seller is not a foreign person within the meaning of Sections
897(c) and 1445 of the Code, (y) such other good and sufficient instruments of
conveyance, transfer and assignment as shall be reasonably necessary to vest in
Purchaser all of the right, title and interest of each of Parent and Seller to
the Purchased Assets, and (z) such other documents, instruments and
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writings as are required hereunder to be delivered to Purchaser at the Closing
and as Purchaser may reasonably request prior to the Closing to demonstrate
satisfaction of the conditions and compliance with the agreements and covenants
set forth in this Agreement; (ii) Parent and Seller shall deliver to Purchaser a
true and correct list, as of the Closing Date, of (u) the Customer Purchase
Orders and the Prepaid Customer Orders to be acquired by Purchaser pursuant to
Section 1.1(c) above, (v) the Supplier Orders to be acquired by Purchaser
pursuant to Section 1.1(d) above, (w) the Accounts Receivable to be acquired by
Purchaser pursuant to Section 1.1(e) above, (x) any additions to or deletions
from list of Prepaid Amounts set forth on Schedule 1.1(i) hereto; (y) the
Accounts Payable to be assumed by Purchaser pursuant to Section 1.4(e) above;
and (z) any additions to or deletions from the list of Assumed Contracts set
forth on Schedule 1.4(f); and (iii) Seller shall make payment to Purchaser of
any amount required to be paid to Purchaser in respect of Prepaid Customer
Orders pursuant to Section 1.1(c) above.
(c) At the Closing, Purchaser shall (w) make payment of
the Cash Consideration by wire transfer to a bank account designated by Seller,
(x) execute and deliver to Seller the Lease Assignment, the Equipment Lease
Assignment and the Contract Assignment, (y) execute and deliver to Parent and
Seller all certificates and other documents relating to exemption from sales,
use, transfer or similar Taxes that may be available in each jurisdiction in
which any of the Purchased Assets are located, and (z) execute and deliver such
other documents, instruments and writings as are required hereunder to be
delivered to Parent and Seller at the Closing and as Parent and Seller may
reasonably request prior to the Closing to demonstrate satisfaction of the
conditions and compliance with the agreements and covenants set forth in this
Agreement.
1.7 [Reserved]
1.8 Transfer Taxes. Seller shall pay all transfer, gains,
stamp, recording or other similar taxes incurred in connection with the
transactions contemplated by this Agreement. Seller will, at its own expense,
file all necessary tax returns and other documentation with respect to all such
transfer, gains, stamp, recording or other similar taxes, and, if required by
applicable law, Purchaser, as appropriate, will join in the execution of any
such tax return or other documentation.
ARTICLE II
Representations and Warranties
of Parent and Seller
Each of Parent and Seller jointly and severally represents and
warrants to Purchaser as follows:
2.1 Corporate Organization and Qualification. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of Canada, and is in good standing as a foreign corporation in each jurisdiction
where the properties owned, leased or operated, or the business conducted, by it
require such qualification and where the absence of such qualification would
have a material adverse effect on: (i) the
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operations, properties, assets or liabilities of the Reynolds Business, (ii) the
ability of Parent or Seller to consummate the transactions contemplated by this
Agreement, or (iii) the ability of Purchaser, subsequent to the Closing, to
conduct the Reynolds Business as presently conducted (a "Material Adverse
Effect"). Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is in good standing as a
foreign corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and where
the absence of such qualification would have a Material Adverse Effect.
2.2 Authority. Except as set forth on Schedule 2.2
hereto, no consents, approvals, qualifications, filings or waiting periods of
any third party or governmental authority other than compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") and the Landlord Consents and Equipment Lease Consents
(each, as hereinafter defined), are required on the part of Parent or Seller for
the consummation of the transactions contemplated by this Agreement (the "Seller
Approvals"). Each of Parent and Seller has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Parent and
Seller have been duly and validly authorized by all necessary corporate action
on the part of each of Parent and Seller. No other corporate proceedings on the
part of either Parent or Seller are necessary to authorize this Agreement and
the transactions contemplated hereby.
2.3 Execution and Binding Effect. This Agreement has been
duly and validly executed and delivered by each of Parent and Seller and
constitutes, and the other documents and instruments to be executed and
delivered by Parent and/or Seller on or prior to the Closing Date will
constitute (assuming in each case the due and valid authorization, execution and
delivery thereof by the other parties thereto), legal, valid and binding
agreements of each of Parent and Seller, enforceable against each of them in
accordance with their respective terms.
2.4 Consents and Approvals; No Violations. Except as set
forth in Schedule 2.4 hereto, neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) conflict with or result in a breach or violation of any of the provisions of
the Certificate of Incorporation or By-Laws of Parent or Seller; (b) result in
the creation of any Encumbrance (as hereinafter defined) on any of the Purchased
Assets; (c) result in a breach or violation of, result in a default or loss of a
material benefit under, or permit the acceleration of any obligation under any
provision of any agreement, indenture, mortgage, lien, lease or other instrument
or restriction of any kind to which Seller is a party or by which any of its
assets or properties is otherwise bound; (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Seller or any of
its assets or properties; (e) result in a breach or violation of, result in a
default or loss of a material benefit under, or permit the acceleration of any
obligation under any provision of any agreement, indenture, mortgage, lien,
lease or other instrument or restriction of any kind to which Parent is a party
or by which any of its assets or properties is otherwise bound; or (f) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or any of its
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assets or properties; except, with respect to each of clauses (e) and (f) of
this Section 2.4 where the effect of such breach, violation, default, loss or
acceleration, individually or in the aggregate, would not have a Material
Adverse Effect.
2.5 Title. Except as set forth in Schedule 2.5 hereto, as
of the date hereof, Seller has good and marketable title to the Purchased
Assets, free and clear of any mortgages, deeds of trust, liens, security
interests, encumbrances, leases, subleases, charges or other claims of third
parties of any kind ("Encumbrances"), other than Encumbrances for current taxes
and assessments not yet past due. As of the Closing Date, Seller will have good
and marketable title to the Purchased Assets, free and clear of any Encumbrances
other than Encumbrances for current taxes and assessments not yet due. Upon
delivery of the bill of sale and assignments to be delivered by Parent and
Seller to Purchaser at the Closing, good and marketable title to the Purchased
Assets, free and clear of any Encumbrances, will pass to Purchaser.
2.6 Financial Statements. The balance sheet of Seller as
of December 31, 1998 and the related statements of income, retained earnings and
cash flows for the fiscal year then ended (the "1998 Financial Statements"), and
the balance sheet of Seller as of December 31, 1999 and the related statements
of income, retained earnings and cash flows for the fiscal year then ended (the
"1999 Financial Statements", and together with the 1998 Financial Statements,
the "Annual Financial Statements"), which heretofore have been delivered to
Purchaser, present fairly in all material respects the financial position and
results of operations of Seller as of the dates and for the periods indicated
therein in accordance with GAAP applied on a consistent basis throughout the
periods indicated, except as may otherwise be specifically indicated in such
financial statements. The 1998 Financial Statements have been reviewed by Ernst
& Young LLP.
2.7 Inventory. The Inventory consists of items of a
quality and quantity salable in the ordinary course of business of Seller. The
values at which inventories are carried on the Annual Financial Statements, and
at which the Inventory is carried on the books and records of Seller, reflect
the normal inventory valuation of Seller (including the writing down of the
value of slow-moving or obsolete inventory or inventory of below standard
quality to realizable market value in accordance with GAAP), applied on a basis
consistent with the Annual Financial Statements, stating inventories on a
"moving average cost" basis. Any change in the inventory of Seller subsequent to
December 31, 1999 was reasonable and warranted in the ordinary course of
business. The products included in the Inventory were purchased by Seller on
specifications which conform in design in all material respects with, and meet
or exceed the standards required by, all applicable governmental laws,
ordinances and regulations now in effect.
2.8 Accounts Receivable. All Accounts Receivable of
Seller outstanding as of the time of the Closing (i) will represent valid
obligations arising from sales actually made to, or services actually performed
in the ordinary course of business for, persons other than affiliates of Seller
or Parent, and (ii) will be collectible within 120 days after the Closing Date
at the aggregate gross recorded amounts thereof (with no reduction for the
amount of any related reserve on the financial records of Seller).
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Schedule 2.8 sets forth a complete and accurate list of all Accounts Receivable
as of March 31, 2000, and the aging of such Accounts Receivable on such date. In
the event that, as a result of the breach of this Section 2.8, there is either a
deduction from the Holdback Amount or an indemnification payment made by Parent
or Seller in respect of one or more Accounts Receivable, then, upon the written
request of Parent and Seller following such deduction or payment and the
agreement of Parent and Seller that such Account Receivable was not collectible
as represented and warranted, Purchaser shall assign such uncollectible Account
Receivable to Seller.
2.9 Accounts Payable; Supplier Orders. All Accounts
Payable of Seller outstanding as of the time of the Closing will represent valid
obligations to persons other than affiliates of Seller or Parent arising in the
ordinary course of business. All Supplier Orders made by Seller that are
outstanding as of the time of the Closing shall have been made in the ordinary
course of business. No Supplier Order made by Seller that is outstanding at the
time of the Closing shall be with an affiliate of Seller or Parent.
2.10 Condition and Operation of Fixed Assets. All of the
equipment and other property constituting the Fixed Assets is in good operating
condition except for reasonable wear and tear. No equipment or other property
which constitutes the Fixed Assets has been sold, removed, transferred or
otherwise disposed of.
2.11 Litigation. (a) Except as set forth on Schedule
2.11(a) hereto, there are no actions, suits, proceedings, claims, investigations
or examinations pending or, to the knowledge of Parent and Seller, threatened
against Parent or Seller with respect to the business, operations, properties,
assets or liabilities of Seller, except for such matters that will not adversely
affect the business or operations of Seller (and, after the Closing, the ability
of Purchaser to conduct the Reynolds Business as currently conducted), the
Purchased Assets, the Leases and the Equipment Leases or the ability of Parent
or Seller to consummate the transactions contemplated by this Agreement.
(b) For purposes of this Agreement, the "knowledge" of
Parent and Seller (and all correlative terms) means to the knowledge of the
persons identified on Schedule 2.11 (b) hereto.
2.12 Tax Matters. There are no Encumbrances with respect
to taxes on any of the Purchased Assets.
2.13 Leases.
(a) Purchaser has been provided with true and complete copies
of all Leases set forth on Schedule 1.4(a) hereto and all amendments and
supplements thereto. The Leases set forth on Schedule 1.4(a) represent the only
real property leases associated with the business of Seller (collectively, the
"Leased Premises"). Each of the Leases is in full force and effect and there are
no existing defaults thereunder, nor does there exist any event or condition
which, with notice or lapse of time or both, would constitute grounds for
termination or re-entry thereunder.
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(b) Purchaser has been provided with true and complete copies
of all Equipment Leases set forth on Schedule 1.4(b) hereto and all amendments
and supplements thereto. The Equipment Leases set forth on Schedule 1.4(b)
represent the only equipment leases associated with the business of Seller. Each
of the Equipment Leases is in full force and effect and there are no existing
defaults thereunder, nor does there exist any event or condition which, with
notice or lapse of time or both, would constitute a default thereunder.
2.14 Insurance. Schedule 2.14 hereto sets forth a true and
complete list of all policies of insurance maintained by each of Parent and
Seller relating to the Purchased Assets (including the Leased Premises), showing
the beneficiary and the amount of coverage for each policy, all of which
policies are in full force and effect. As of the date hereof, neither Parent nor
Seller has received any written or, to the knowledge of Parent or Seller, oral
notice or any other communication reasonably to be interpreted as notice from
any insurer or agent of any intention to cancel any such insurance policy.
2.15 Environmental Matters. Except as specifically
disclosed on Schedule 2.15 hereto: (i) there is not and has not been any
Environmental Condition (as hereinafter defined) at, under, in, originating from
or affecting the Purchased Assets or the Leased Premises or any premises or
property owned, leased, operated, or used in connection with the business of
Seller or at any other location relating in any way to the business of Seller
(including, without limitation, any location at which any Hazardous Substances
(as hereinafter defined) have been used, generated, treated, stored or disposed
by or on behalf of Parent or Seller in connection with the business of Seller),
(ii) except as set forth in the Leases, neither Parent nor Seller is subject to
any indemnity or other agreement with any person or entity relating to
liabilities or obligations (contingent or otherwise) arising under Environmental
Laws (as hereinafter defined) in connection with the Purchased Assets, the
Leased Premises or the business of Seller, (iii) neither Parent nor Seller has
received any notice alleging that any Environmental Condition exists at, under,
in, originating from, or affecting any of the Leased Premises or any premises or
property owned, leased, operated, or used in connection with the business of
Seller or that Parent or Seller is or may be liable for any Environmental
Condition at any location arising out of or relating to the business of Seller,
(iv) no aboveground or underground storage tanks are or have been located at,
under or in any of the Leased Premises or at any premises or property owned,
leased, operated, or used in connection with the business of Seller; to the
knowledge of Seller, no aboveground or underground storage tanks located
adjacent to any of the Leased Premises or any premises or property owned,
leased, operated, or used in connection with the business of Seller are used or
usable in connection with the operation of the business of Seller; and the
Leased Premises do not contain and the Purchased Assets do not include any
underground or aboveground storage tanks, (v) no asbestos-containing material,
polychlorinated biphenyl's or, except in appliances containing less than five
pounds of refrigerant, fluorocarbons or hydrochlorofluorocarbons are present in
any form at or in the Leased Premises or any premises or property owned, leased,
operated, or used in connection with the business of Seller.
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For purposes of this Agreement, the following terms have the
following meanings:
"Environmental Condition" means any action, omission, event,
condition or circumstance, including, without limitation, the release or
presence of any Hazardous Substances, which does or could reasonably be expected
to (i) require assessment, investigation, abatement, correction, removal or
remediation pursuant to any Environmental Law, (ii) cause personal injury or
property damage as a result of the presence of Hazardous Substances, (iii) give
rise to any obligation or liability of any nature (whether civil or criminal,
arising under a theory of negligence or strict liability, or otherwise) pursuant
to any Environmental Law, (iv) create or constitute a public or private nuisance
or trespass, or (v) constitute a violation of or non-compliance with any
Environmental Law, including, without limitation, Environmental Laws requiring
any filing with any governmental authority or the acquisition of and compliance
with the terms of permits, licenses, approvals, consents and authorizations
issued by any governmental authority.
"Environmental Law" means any international, national, state,
provincial, regional, federal, municipal and local law (including, without
limitation, principles of common law and decisional law), statute, code,
ordinance, rule, regulation, decree, judgment, directive, binding policy, term
or condition of any permit, or order, as now or hereafter in effect, which
regulates, establishes standards, or concerns liability with respect to the
environment, natural resources, safety, or health of humans or other organisms,
including the manufacture, distribution in commerce, and use of Hazardous
Substances, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended.
"Hazardous Substances" means any pollutant, contaminant,
hazardous substance, hazardous waste, toxic substance, petroleum or
petroleum-derived substance, waste, or additive, asbestos, polychlorinated
biphenyls, radioactive material, or other compound, element, material or
substance in any form whatsoever (including, without limitation, products)
regulated, restricted or addressed by or under any Environmental Law.
2.16 Products and Warranties. Except as set forth in
Schedule 2.16 hereto, there are no claims of customers or others based upon an
alleged or admitted defect of material, workmanship or design or otherwise in
respect of any of Seller's product included in the Inventory that are presently
pending or, to the knowledge of Parent or Seller, threatened against Parent or
Seller. Seller does not provide its customers with any product warranty for the
products included in the Inventory.
2.17 Employee Matters.
(a) Employees. Schedule 2.17 hereto sets forth a true and
complete list, as of the pay date immediately preceding the date hereof, of the
names, positions, years of employment and current salaries or wage rates of all
persons employed by Seller, together with a description of all incentive awards,
bonuses and other compensation
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which each such employee is eligible to receive in respect of Seller's fiscal
year ended December 31, 1999. Except as set forth on Schedule 2.17, (i) none of
the persons employed by Seller is on short-term or long-term disability leave as
of the date hereof, (ii) none of the persons employed by Seller is employed
pursuant to an employment agreement, and (iii) Seller has not increased the
compensation of any employee of Seller since October 1, 1999.
(b) Labor Matters; Compliance with Laws. Except as set
forth in Schedule 2.17, (i) there is no labor strike, dispute, slowdown,
stoppage or lockout pending or, to the knowledge of Parent or Seller, threatened
against Seller, and during the past three years there has not been any such
action; (ii) there are no union claims to represent the employees of Seller;
(iii) Seller is not a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to such employees;
(iv) Seller is, and has of all times been, in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work, occupational safety and health,
equal opportunity, collective bargaining and payment of social security and
other taxes, and is not engaged in any discriminatory employment practices or
unfair labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation; (v) no charges with respect to or
relating to Seller are pending before the Equal Employment Opportunity
Commission or any other agency responsible for the prevention of unlawful
employment practices; (vi) there are no complaints, lawsuits or other
proceedings pending or, to the knowledge of Parent or Seller, threatened in any
forum by or on behalf of any employee of Seller alleging breach of any express
or implied contract of employment, any law or regulation governing employment or
the termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship; and (vii) there has been no "mass
layoff" or "plant closing" as defined by the Worker Adjustment and Retraining
Notification Act (the "WARN Act") or any similar state or local "plant closing"
law with respect to the employees of Seller.
(c) Neither Parent, Seller nor any Code Affiliate of
either has or will have after the Closing any unpaid liability, contribution,
fine, penalty or tax, with respect to any Employee Program, for which Purchaser
could become liable as the result of the transactions contemplated by this
Agreement.
For purposes of this Agreement, the following terms have the
following meanings.
"Employee Program" means (A) any "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, whether or not it is subject to
ERISA, or (B) any other employee benefit arrangement which is (1) the portion of
any employment or consulting agreement which provides employee benefits, (2) an
arrangement providing for insurance coverage or workers' compensation benefits,
(3) an incentive bonus or deferred bonus arrangement, (4) a stock purchase or
stock option arrangement, (5) a cafeteria plan, (6) a death benefit arrangement,
(7) an arrangement providing termination allowance, salary continuation,
severance or similar benefits, (8) an equity compensation
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plan, (9) a deferred compensation plan, (10) a tuition reimbursement, dependent
care assistance, or legal assistance plan or arrangement, (11) a fringe benefit
arrangement (cash or noncash), (12) a holiday or vacation plan or policy, or
(13) any other compensation policy or practice.
"Code Affiliate" means any entity which has ever been
considered a single employer with Seller under Section 414(b), (c), (m) or (o)
of the Code or any comparable provision of Canadian law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.18 Customers and Suppliers. Schedule 2.18 hereto lists
the ten largest customers of, and the ten largest suppliers to, Seller during
its fiscal year ended December 31, 1999. Seller has not received any written, or
to the knowledge of Parent and Seller, oral notice or any other communication
reasonably to be interpreted as notice that any such customer or supplier
intends to terminate or materially reduce its business with Seller.
2.19 Certain Contracts and Commitments.
(a) Schedule 2.19 hereto sets forth a true and complete
list of agreements, contracts or commitments relating to the Reynolds Business
which are material to the business, operations or financial condition of the
Reynolds Business or which require payment of more than $50,000 in any year or
$150,000 in the aggregate other than (i) the Leases, (ii) the Equipment Leases,
(iii) the Assumed Contracts, (iv) the Customer Purchase Orders and the Prepaid
Customer Orders to be acquired by Purchaser pursuant to Section 1.1(c) above and
(v) the Supplier Orders to be acquired by Purchaser pursuant to Section 1.1(d)
above. Schedule 2.19 includes a statement as to the disposition of each such
agreement, contract or commitment. Except as set forth in Schedule 2.19, to the
knowledge of Parent and Seller, neither Parent nor Seller is in default in any
material respect, and there is no basis for a claim of such default, under any
of the Assumed Contracts set forth on Schedule 1.4(f).
(b) Except as set forth on Schedule 2.19 hereto, all
consents required for the assignment to Purchaser of Seller's right, title and
interest pursuant to the Assumed Contracts and to the Leases (the "Landlord
Consents") and the Equipment Leases (the "Equipment Lease Consents") have been
obtained and are in full force and effect.
2.20 Ability to Conduct Business.
(a) Neither Parent nor Seller is subject to or bound by
any judgment, order, writ, injunction or decree of any court or of any other
governmental authority or of any arbitration which, after the Closing Date,
would prevent the use by Purchaser of assets or rights of any nature material to
the Reynolds Business, or impair the conduct by Purchaser of the Reynolds
Business, in each case in accordance with present practices.
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(b) The Purchased Assets comprise all assets and rights
of any nature material to the Reynolds Business or necessary to enable Purchaser
to conduct the Reynolds Business, in each case in accordance with present
practices.
2.21 Brokers and Finders. None of Parent, Seller, or any
of their officers, directors, employees, agents or affiliates has employed any
broker or finder or incurred any liability for any brokerage fees or finder's
fees in connection with the transactions contemplated by this Agreement.
ARTICLE III
Representations and Warranties of Purchaser
Purchaser hereby represents and warrants to Parent and Seller
as follows:
3.1 Corporate Organization and Qualification. Purchaser
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is in good standing as a
foreign limited liability company in each jurisdiction where the properties
owned, leased or operated, or the business conducted, by it require such
qualification and where the absence of such qualification would have a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated by this Agreement. Purchaser has the requisite power and authority
to carry on its business as it is now being conducted.
3.2 Authority. No consents, approvals, qualifications,
filings or waiting periods of any third party or governmental authority other
than compliance with any applicable requirements of the HSR Act is required on
the part of Purchaser for the consummation of the transactions contemplated by
this Agreement. Purchaser has full power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Purchaser has been duly and
validly authorized by all necessary action on the part of Purchaser. No other
proceedings on the part of Purchaser are necessary to authorize this Agreement
and the transactions contemplated hereby.
3.3 Execution and Binding Effect. This Agreement has been
duly and validly executed and delivered by Purchaser and constitutes, and the
other documents and instruments to be executed and delivered by Purchaser on or
prior to the Closing Date will constitute (assuming in each case the due and
valid authorization, execution and delivery thereof by the other parties
thereto), legal, valid and binding agreements of Purchaser, enforceable against
it in accordance with their respective terms.
3.4 Consents and Approvals; No Violations. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (a) conflict with or result in a breach
or violation of any of the provisions of Purchaser's Certificate of Formation or
Limited Liability Company Agreement; (b) conflict with, result in a breach or
violation of, result in a default or loss of a material benefit under, or permit
the acceleration of any obligation under any provision of any
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agreement, indenture, mortgage, lien, lease or other instrument or restriction
of any kind to which Purchaser is a party or by which any of its assets or
properties is otherwise bound; (c) result in the creation of any Encumbrance on
any of the assets or properties of Purchaser; or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Purchaser or any
of its assets or properties, except, with respect to each of clauses (b), (c)
and (d) of this Section 3.4 where the effect of such Encumbrance, conflict,
breach, violation, default, loss or acceleration, individually or in the
aggregate, would not have a material adverse effect on the ability of Purchaser
to consummate the transactions contemplated by this Agreement.
3.5 Brokers and Finders. Neither Purchaser, nor any of
its officers, directors, employees, agents or affiliates has employed any broker
or finder or incurred any liability for any brokerage fees or finder's fees in
connection with the transactions contemplated by this Agreement.
ARTICLE IV
Covenants of Parent and Seller
4.1 [Reserved]
4.2 [Reserved]
4.3 [Reserved]
4.4 No Competition, No Solicitation, No Inducement;
Confidentiality.
(a) Each of Parent and Seller agrees that for a period of five
(5) years from the Closing Date, neither it nor any of its affiliates or
subsidiaries shall, without the express prior written consent of Purchaser:
(i) own, manage, operate or control any business that is
engaged in a business which is the same or substantially similar to the
Reynolds Business, either directly or indirectly, or as a consultant or
advisor, or as a shareholder (other than as the holder of less than 5
percent of the shares of any corporation whose shares are traded on a
national securities exchange or over the counter) or partner, anywhere
in the United States of America or Canada;
(ii) for itself, on behalf of any other person, firm or
entity or in conjunction with any other person, firm or entity, do
business with, solicit, call upon, accept business from or engage in
business with any person, firm or entity which is a customer of Seller
or Purchaser or any subsidiary or affiliate thereof as of the date
hereof, which becomes a customer of Purchaser or any subsidiary or
affiliate thereof during the five-year period from the Closing Date, or
which is a potential customer of Seller, for the purpose of providing
the same or similar products or services as those provided by Seller or
Purchaser or any subsidiary or affiliate thereof as of the Closing Date
or entered into by Purchaser or any
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subsidiary or affiliate thereof during the five-year period from the
Closing Date; or
(iii) for itself, on behalf of any other person, firm or
entity or in conjunction with any other person, firm or entity,
approach, counsel or attempt to induce any person who is then in the
employ of Purchaser or any subsidiary or affiliate thereof to leave
such employment, or employ or attempt to employ any such person or any
professional who at any time during the preceding twelve months was in
the employ of Purchaser or any subsidiary or affiliate thereof.
(b) Each of Parent and Seller agrees that it will not at any
time from and after the date hereof divulge, furnish or make accessible to any
person, or itself make use of, any confidential information obtained by it in
respect of Seller, including, without limitation, information with respect to
any products, programs, methodologies, business strategies, finances, financial
condition, organization, personnel, business activities, customers, suppliers,
budgets, plans or objectives of Seller; provided, however, that (i) confidential
information shall not include publicly available information or information
known generally to the public or in the industry, and (ii) each of Parent and
Seller may disclose such information as may be required in the reasonable
opinion of counsel in connection with any judicial or administrative proceeding
or inquiry.
(c) "Potential customer" shall mean at any particular time any
person, firm or entity to whom Seller, through any of its respective employees,
had within one year prior to such time offered (by means of a personal meeting
or written proposal directed to such person, firm or entity) to provide the
products or services provided by Seller or Purchaser or any subsidiary or
affiliate thereof, but who at such time is not a customer of Seller or Purchaser
or any subsidiary or affiliate thereof.
(d) For purposes of the restrictive covenants set forth in
this Section 4.4, it is understood and agreed by the parties that references to
"Purchaser or any subsidiary or affiliate thereof" shall be deemed to include
(i) Purchaser, (ii) Heads and Threads (PA) LLC, a Delaware limited liability
company, (iii) Heads and Threads (NJ) LLC, a Delaware limited liability company,
and (iv) Alleghany Corporation, a Delaware corporation ("Alleghany") and any
subsidiary, division or affiliate of Alleghany which engages in a business
similar to the business presently conducted by Purchaser, but shall not be
deemed to include Alleghany (except in respect of Purchaser) or any subsidiary
or affiliate of Alleghany which engages in a business which is not similar to
the business presently conducted by Purchaser.
(e) The provisions of this Section 4.4 shall continue in full
force and effect in the event of any sale of the business of Purchaser,
including, but not limited to, any merger or consolidation of Purchaser with or
into any other entity.
(f) The provisions of this Section 4.4 shall be construed as
independent covenants; the existence of any claim, demand, action or cause of
action of Parent against Purchaser, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement of any of the
covenants in this Section 4.4.
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(g) Since Purchaser will be irreparably damaged and its remedy
at law will be inadequate in the event of a breach of this Section 4.4,
Purchaser shall be entitled to an injunction restraining violation of this
Section 4.4 or any appropriate decree of specific performance, without showing
any actual damage or that monetary damages would not provide an adequate remedy.
In the event that any particular provision or portion of this Section 4.4 shall
be adjudicated to be invalid or unenforceable because of the scope, duration or
area of its applicability, the parties agree that a court of competent
jurisdiction shall have jurisdiction to, and the parties desire and intend that
such court shall, modify such scope, duration or area, or all of them, and such
provision shall then be applicable in such modified form.
4.5 Tax Clearance Certificates. To the extent required by
law to relieve Purchaser of any liability for unpaid sales, income, franchise or
similar taxes of Parent or Seller attributable to periods prior to the Closing
Date, each of Parent and Seller shall take all necessary action in order to
obtain clearance certificates or similar documents from any applicable state tax
authority as soon as practicable after the Closing.
ARTICLE V
Other Covenants
5.1 Employee Matters. Purchaser agrees to offer
employment beginning on the day following the Closing (i) to each of the
employees identified on Schedule 2.17 hereto, at the same base compensation as
currently paid to them by Seller and at the same level of seniority held by each
of them at the time of the Closing, and (ii) to each other person who becomes an
employee of Seller with the prior written consent of Purchaser between the pay
date immediately preceding the date hereof and the Closing Date, at the same
base compensation paid to such person at the time of hire and at the same level
of seniority held by such person at the time of the Closing. Each individual who
accepts such offer shall become an employee of Purchaser on the day following
the Closing Date, and each such individual shall receive credit, for eligibility
and vesting purposes, under each employee benefit plan of Purchaser in which
such individual may thereafter participate in respect of such individual's
service with Seller. Purchaser agrees that no employee of Seller who becomes an
employee of Purchaser on the day following the Closing Date will be transferred
to a workplace located more than 50 miles from such employee's current workplace
location during the 30-day period following the Closing Date. Any coverage
provided to an individual who becomes an employee of Purchaser beginning on the
day following the Closing under any health or medical plan of Purchaser shall be
limited to coverage for health or medical services rendered to such individual
(including his or her dependents) after the Closing Date. Seller shall be
responsible for maintaining coverage for any such individual (and such
individual's dependents) under its health and medical care plans existing
immediately prior to the Closing for any health or medical services rendered on
or prior to the Closing Date and for complying with Section 4180B of the Code
and Section 601 through 608 of ERISA after the Closing Date to the extent that
such individuals (or their dependents) have rights under the provisions set
forth therein. Except as expressly set forth in this Section 5.1,
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Purchaser will not assume any obligations or liabilities of any kind or
character whatsoever, accruing under, arising out of or related to the
employment of employees by Seller prior to the Closing, including without
limitation, liabilities attributable to, or arising as a result of, the
establishment, operation or termination of any Employee Program, any law
regulating employment or employee benefits, vacation or dismissal pay, wages,
salaries, bonuses, overtime or other pay accruals, retiree medical care,
workmen's compensation or other occupational claims.
5.2 [Reserved]
5.3 Further Assurances. Each of Parent and Seller agrees
that it will, from time to time at and subsequent to the Closing Date, at the
request of Purchaser and without further consideration, execute and deliver such
other instruments of conveyance, assignment and transfer and take such other
actions as Purchaser may reasonably request in order more effectively to perfect
the vesting of title to the Purchased Assets in Purchaser and otherwise to
consummate the transactions contemplated by this Agreement. Purchaser agrees
that it will, from time to time at and subsequent to the Closing Date, at the
request of Parent or Seller and without further consideration, execute and
deliver such other instruments of conveyance, assignment and transfer and take
such other actions as Parent and Seller may reasonably request in order more
effectively to perfect the vesting of title to the Purchased Assets in Purchaser
and otherwise to consummate the transactions contemplated hereby.
5.4 Access to Books and Records after the Closing Date.
Parent and Seller agree that on and after the Closing Date, Parent and Seller
shall permit Purchaser, its counsel, financial advisors, auditors and other
authorized representatives to have reasonable access to, and to examine and make
copies of, the books and records of Seller (including, but not limited to,
correspondence, memoranda, books of account, payroll records and the like)
pertaining to the ownership and operation of the Purchased Assets or the Leased
Premises prior to the Closing Date which are retained by Parent or Seller.
Purchaser agrees that on and after the Closing Date, Purchaser shall permit
Parent and Seller, its counsel, financial advisors, auditors and other
authorized representatives to have reasonable access to, and to examine and make
copies of, the books and records of Seller (including, but not limited to,
correspondence, memoranda, books of account, payroll records and the like) that
relate primarily to the Purchased Assets or the Leased Premises. Purchaser, on
the one hand, and Parent and Seller, on the other hand, shall cause their
respective managerial employees and counsel to be available upon reasonable
notice to answer questions of representatives of a party concerning the
Purchased Assets or the Leased Premises. Each party hereto shall take all
necessary action to keep, or cause to be kept, in its original form, for a
period of at least six years following the Closing Date, all books and records
relating to the Purchased Assets or the Leased Premises in existence on the
Closing Date; provided, however, that Parent and Seller may offer in writing to
Purchaser, or Purchaser may offer in writing to Parent and Seller, to deliver
all or a portion of such information in its possession and, if such offer is
accepted in writing within 90 days after receipt thereof, the offering party or
parties shall promptly arrange for the delivery of such information (or copies
thereof) to the accepting party or parties (at the expense of such accepting
party). If such offer is not so accepted, the
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offered information may be destroyed or otherwise disposed of by the offering
party or parties at any time thereafter. Any such offer shall identify in
reasonable detail the documents proposed to be destroyed or disposed of.
5.5 Collection of Accounts Receivable. Except to the
extent that Purchaser shall assign to Seller one or more uncollectible Accounts
Receivable as provided in Section 2.8 hereof, from and after the Closing, (i)
Purchaser shall have the right and authority to collect for its own account all
Accounts Receivable and other items that are included in the Purchased Assets
and to endorse with the name of Seller any checks or drafts received with
respect to any such Accounts Receivable or other items, and (ii) Seller shall,
and Parent agrees to cause Seller to, deliver to Purchaser any cash or other
property received directly or indirectly by Seller with respect to such Accounts
Receivable and other items.
5.6 Defective Goods, Returns and Retentions. As an
accommodation to Seller, from and after the Closing, Purchaser, on behalf of
Seller, shall administer warranty claims and customer complaints or disputes
concerning allegedly defective, incomplete or non-conforming goods or products
shipped by Seller on or prior to the Closing Date to the extent such claims,
complaints or disputes may be resolved by the provision of replacement goods, or
the grant of a credit, allowance or other price reduction against amounts
otherwise due to Purchaser. Parent and Seller agree to reimburse Purchaser in an
amount equal to (x) the regular sales price of all such replacement goods and
the amount of all such credits, allowances or price reductions extended to
customers by Purchaser less (y) the amount (if any) of credits received by the
Purchaser from the manufacturers of such defective, incomplete or non-conforming
goods or products (the "Differential"). Notwithstanding the foregoing, (i)
Parent and Seller shall have no obligation to reimburse Purchaser pursuant to
the preceding sentence until the Differential exceeds an amount equal to
$125,000 less the amount of any Losses (as hereinafter defined) incurred by any
Purchaser Indemnitee (as hereinafter defined) as to which Parent and Seller are
excused from indemnifying pursuant to the first proviso set forth in Section
8.2, and then Parent and Seller shall be required to reimburse Purchaser only to
the extent of the difference between the Differential and such amount; and (ii)
Purchaser shall not assume any liability or obligation with respect to any such
warranty claims and customer complaints or disputes concerning allegedly
defective, incomplete or non-conforming goods or products.
5.7 Payment of Creditors. Each of Parent and Seller
shall, and Parent agrees to cause Seller to, pay on a timely basis all amounts
owed to creditors of Parent and/or Seller to the extent that failure to make any
such payment could reasonably be expected to result in a determination that the
sale of the Purchased Assets hereunder is ineffective against any creditor of
Parent and/or Seller.
5.8 Transitional Assistance. For a period not to extend
past the first anniversary of the Closing Date, Purchaser agrees to make
available to Seller and Parent at reasonable times and for reasonable periods
the services of those employees of Seller who become employees of Purchaser who
prior to the date hereof have been responsible for financial accounting,
employee benefits, litigation, banking and contract
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administration matters relating to the Reynolds Business. Parent and Seller will
reimburse Purchaser for all out-of-pocket costs incurred by Purchaser in
providing such assistance. Parent and Seller acknowledge that Purchaser shall
have no responsibility for, and shall have no liability to, Parent or Seller
arising out of any act or failure to act by any such employee with respect to
such assistance.
ARTICLE VI
[Reserved]
ARTICLE VII
[Reserved]
ARTICLE VIII
Survival of Representations and Warranties; Indemnification
8.1 Survival of Representations, Warranties, etc. All
representations and warranties of the parties made in this Agreement, including,
without limitation, the Schedules or any instrument, list, certificate or
writing delivered pursuant hereto, shall survive the Closing Date and for a
period of one year thereafter notwithstanding any investigation at any time made
by or on behalf of the other party; provided, however, that, all representations
and warranties made by each of Parent and Seller in Section 2.12 (Tax Matters)
and 2.15 (Environmental Matters) shall survive the Closing Date until the
applicable statute of limitation (or any extension thereof) has expired, and the
representation and warranty made by each of Parent and Seller in Section 2.5
(Title) shall survive the Closing Date for a period of two years thereafter (as
the case may be, the applicable "Survival Period"). All claims for damages for
breach of a representation or warranty which are asserted by Purchaser under
Section 8.2(a)(i) or which are asserted by Parent or Seller under Section 8.3(i)
must be asserted prior to the expiration of the Applicable Survival Period. All
representations, warranties and statements related to any claim asserted prior
to the expiration of the applicable Survival Period shall survive until such
claim shall be resolved and payment in respect thereof, if any is owing, shall
be made.
8.2 Parent's and Seller's Agreement to Indemnify.
(a) Each of Parent and Seller shall fully indemnify and hold
harmless Purchaser, its officers, directors, employees, agents, representatives
and affiliates and their successors and assigns (collectively, the "Purchaser
Indemnitees") against and in respect of any and all liabilities, losses,
damages, claims, penalties, actions, fines, deficiencies, costs, taxes, loss of
deductions or expenses (including, without limitation, the reasonable fees and
expenses of counsel) (collectively, "Losses"), regardless of whether an action
has been filed or asserted against Purchaser after the Closing Date, (i)
resulting from any breach of representation or warranty by Parent and/or Seller
made in this Agreement (including, without limitation, the Schedules and any
instrument, list, certificate or writing delivered pursuant hereto), (ii)
resulting from the breach or non-
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performance of any covenant or agreement by Parent and/or Seller made in this
Agreement (including, without limitation, the Schedules and any instrument,
list, certificate or writing delivered pursuant hereto), (iii) relating in any
way to any Excluded Liability, (iv) arising under any bulk sales law or from a
determination that the sale of the Purchased Assets hereunder is ineffective
against any creditor of Parent and/or Seller or any taxing authority or other
entity asserting any similar claim against Parent and/or Seller, (v) incurred or
suffered by Purchaser under the WARN Act, and any similar state and local
statutes, as a result of the transactions contemplated by this Agreement (except
for such Losses that are incurred or suffered by Purchaser as a result of
termination by Purchaser after the Closing Date of current employees of Seller
who become employees of Purchaser), (vi) arising in respect of periods of
employment of current or former employees of Seller prior to the Closing Date,
and periods of employment on or after the Closing Date, for current or former
employees of Seller who do not become employees of Purchaser, (vii) that
Purchaser may incur with respect to or arising in connection with the
termination of employment of such employees in respect of such periods and any
employment agreement, Employee Program or any arrangement or commitment with or
maintained for the benefit of such employees existing at or prior to the Closing
Date, and (viii) without limiting the foregoing, resulting or relating in any
way to the conduct of the business of Seller or the ownership or operation of
the Purchased Assets on or prior to the Closing Date; provided, however, that
(A) for purposes of the indemnification provided under Section 8.2(a)(i) (other
than in respect of the breach or inaccuracy of Sections 2.5, 2.8 and 2.12, to
which the deductible shall not apply), Parent and Seller shall have no
obligation to indemnify the Purchaser Indemnitees until such time, if any, as,
and only to the extent that, the aggregate amount of the Losses arising out of
all such breaches exceeds the Threshold Amount (as hereinafter defined), and (B)
for purposes of the indemnification provided under Section 8.2(a)(i), Parent and
Seller shall have no obligation to indemnify the Purchaser Indemnitees in
respect of a breach of a representation or warranty to the extent the event
giving rise to the breach occurred or first became known to Parent and Seller
after the date of this Agreement and was disclosed in writing to the Purchaser
prior to the Closing; and provided, further, that for purposes of the
indemnification provided in Section 8.2(a)(i), the obligations of Parent and
Seller to indemnify the Purchaser Indemnitees in respect of the representations
and warranties set forth in Sections 2.12 and 2.15 shall be without limitation,
the obligations of Parent and Seller to indemnify the Purchaser Indemnitees in
respect of the representations and warranties set forth in Sections 2.6, 2.16
and 2.18 shall be limited to aggregate payments equal to $3,000,000, and the
obligations of Parent and Seller to indemnify the Purchaser Indemnitees in
respect of the representations and warranties set forth in Sections 2.1, 2.2,
2.3, 2.4, 2.5, 2.7, 2.8, 2.9, 2.10, 2.11, 2.13, 2.14, 2.17, 2.19, 2.20 and 2.21
shall be limited to aggregate payments equal to the Purchase Price. For purposes
of the indemnification provided in Section 8.2(a)(i), in determining whether the
representations and warranties of Parent and Seller have been breached, no
effect will be given to any materiality qualifier or dollar threshold set forth
in such representations and warranties or related definitions. For purposes
hereof, the "Threshold Amount" shall mean an amount equal to $125,000 less the
amount of any Differential for which Seller is not required to reimburse
Purchaser pursuant to the provisions of Section 5.6 hereof.
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<PAGE> 29
(b) In addition to the foregoing provisions of Section 8.2(a)
and without limiting the generality of such provisions, each of Parent and
Seller agrees to fully indemnify and hold harmless Purchaser and its parent
corporation and all other members, if any, of any group of which such Purchaser
is a member for tax purposes (any subsequent reference to "Purchaser" in this
paragraph (b) shall mean either Purchaser individually or one or more of its
affiliates as described herein, as appropriate) against and in respect of and,
on demand, will reimburse Purchaser for, any and all liability whatsoever, and
however imposed (including any claim asserted or deficiency assessed against or
collected from or paid by Purchaser), in respect of (x) any taxes (including any
interest thereon and any penalties with respect thereto) relating to the
Purchased Assets for any and all periods through and including the Closing Date,
(y) any taxes (including any interest thereon and any penalties with respect
thereto) payable by Parent and Seller pursuant to Sections 9.2 below and 1.8
above and (z) any taxes of any kind whatsoever, whether sales, use, excise,
employment or withholding taxes (including any interest thereon and any
penalties with respect thereto), arising out of, or related to, the business or
operations of Seller conducted prior to and through the Closing Date.
(c) In addition to the foregoing provisions of Section 8.2(a)
and without limiting the generality of such provisions, each of Parent and
Seller shall fully indemnify and hold harmless the Purchaser Indemnitees against
and in respect of any and all Losses relating to or arising from any
Environmental Condition occurring or existing on or prior to the Closing arising
from or relating to the Purchased Assets, the Leased Premises or any other
premises or property currently or formerly owned, leased, operated, or used in
connection with the business of Seller, including, without limitation, and
notwithstanding Section 1.4(a), any Losses arising under or in connection with
the Leases and relating to any Environmental Condition occurring or existing at
or prior to the Closing.
8.3 Purchaser's Agreement to Indemnify. Purchaser shall
fully indemnify and hold harmless each of Parent and Seller and its respective
officers, directors, employees, agents, representatives, affiliates and their
successors and assigns (collectively, the "Seller Indemnitees"), against and in
respect of any and all Losses, regardless of whether an action has been filed or
asserted against Parent or Seller after the Closing Date, (i) resulting from any
breach of representation or warranty by Purchaser made in this Agreement
(including, without limitation, any instrument, list, certificate or writing
delivered pursuant hereto), (ii) resulting from the breach or non-performance of
any covenant or agreement by Purchaser made in this Agreement (including,
without limitation, any instrument, list, certificate or writing delivered
pursuant hereto), (iii) arising in respect of periods of employment after the
Closing Date for current employees of the Seller who become employees of
Purchaser, (iv) that Parent or Seller may incur (pursuant to the WARN Act or
otherwise) with respect to or arising in connection with the termination by
Purchaser after the Closing Date of current employees of Seller who become
employees of Purchaser, (v) arising out of the failure by Purchaser to perform
and discharge any Assumed Liability, or (vi) without limiting the foregoing,
resulting or relating in any way to the ownership or operation of the Purchased
Assets by Purchaser from and after the Closing Date; provided, however, that (A)
for purposes of the indemnification provided under Section 8.3(i), the Purchaser
shall have no obligation to indemnify the Seller Indemnitees until such time, if
any, as, and only to the extent that,
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<PAGE> 30
the aggregate amount of the Losses arising out of all such breaches exceeds
$125,000; and provided, further, that the obligation of the Purchaser to
indemnify the Seller Indemnitees pursuant to Section 8.3(i) shall be limited to
aggregate payments equal to the Purchase Price. For purposes of the
indemnification provided in Section 8.3(i), in determining whether the
representations and warranties of the Purchaser have been breached, no effect
will be given to any materiality qualifier or dollar threshold set forth in such
representations and warranties or related definitions. Purchaser will have no
obligation to indemnify or hold harmless Parent or Seller in respect of any Loss
relating in any way to an Excluded Asset or an Excluded Liability.
8.4 Matters Involving Third Parties. (a) If any third
party shall notify any party (the "Indemnified Party") with respect to any
matter (a "Third-Party Claim") which may give rise to a claim for
indemnification against any other party (the "Indemnifying Party") under this
Article VIII, then the Indemnified Party shall promptly (and in any event within
five (5) business days after receiving written notice of the Third-Party Claim)
notify the Indemnifying Party thereof in writing; provided, however, that
failure to provide such written notice on a timely basis shall not release the
Indemnifying Party from any of its obligations under this Article VIII except to
the extent the Indemnifying Party is materially prejudiced by such failure.
(b) The Indemnifying Party shall, upon receipt of such
notice and upon its irrevocably and unconditionally notifying the Indemnified
Party in writing that it shall indemnify all Indemnified Parties in respect of
such matter, be entitled to participate in or, at the Indemnifying Party's
option, assume at its own expense the defense, appeal or settlement of such
Third-Party Claim with respect to which such indemnity has been invoked with
counsel of the Indemnifying Party's choice (provided that such counsel is
reasonably satisfactory to the Indemnified Party), and the Indemnified Party
shall fully cooperate with the Indemnifying Party in connection therewith
including contesting such Third-Party Claim or making any counterclaim against
the person asserting such Third-Party Claim; provided, however, that if the
Indemnifying Party assumes the defense, appeal or settlement of such Third-Party
Claim, (i) the Indemnifying Party shall reimburse the Indemnified Party for out
of pocket expenses incurred by the Indemnified Party (such as travel costs, but
not internal time charges) and (ii) the Indemnified Party shall be entitled to
employ one counsel to represent itself if, in the opinion of counsel to the
Indemnified Party, an actual conflict of interest exists between the
Indemnifying Party and the Indemnified Party in respect of such Third-Party
Claim and in that event the reasonable fees and expenses of such counsel shall
be paid by the Indemnifying Party (it being understood that all Indemnified
Parties may employ not more than one counsel to represent them at the expense of
the Indemnified Party). Any Indemnified Party is hereby authorized prior to the
date on which it receives written notice from the Indemnifying Party that it
intends to assume the defense, appeal or settlement of such Third-Party Claim,
to file any motion, answer or other pleading and take such other action which it
shall reasonably deem necessary to protect its interest or that of the
Indemnifying Party until the date on which the Indemnified Party receives such
notice from the Indemnifying Party, provided that, prior to filing such motion,
answer or other pleading or taking such other action, the Indemnified Party
shall have made reasonable efforts to consult with the Indemnifying Party.
Failure by the Indemnifying Party to
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assume the defense, appeal or settlement of such Third-Party Claim within a
reasonable period of time, but in no event more than ten (10) business days
after written notice thereof shall have been given to the Indemnifying Party,
shall be deemed a waiver by the Indemnifying Party of its right to defend such
Third-Party Claim.
(c) If the Indemnifying Party shall not assume the
defense of the Third-Party Claim, the Indemnified Party may defend against such
Third-Party Claim in such manner as it deems appropriate, provided that the
Indemnified Party shall not settle such Third-Party Claim without providing
notice and a description of the proposed settlement to the Indemnifying Party.
If the Indemnified Party shall not receive from the Indemnifying Party within
ten (10) business days of the date of notice of such proposed settlement a
notice that the Indemnifying Party reasonably objects to such proposed
settlement accompanied by an acknowledgement by the Indemnifying Party that the
Third-Party Claim which is subject of the proposed settlement is subject to
indemnification pursuant to the provisions of this Article VIII, the Indemnified
Party shall be free to settle such Third-Party Claim. If no settlement of such
Third-Party Claim is made, the Indemnifying Party shall promptly reimburse the
Indemnified Party for the amount of any final judgment rendered with respect to
such Third-Party Claim and for the amount of all expenses, legal or otherwise,
incurred by the Indemnified Party in the defense against such Third-Party Claim,
provided that the Indemnified Party has contested such Third-Party Claim in good
faith. If the Indemnifying Party assumes the defense of any Third-Party Claim,
the Indemnifying Party shall not consent to entry of any judgment or enter into
any settlement, other than a judgment or settlement involving only the payment
of money damages by the Indemnifying Party, without the consent of the
Indemnified Party, which consent shall not be unreasonably withheld or
unreasonably delayed.
8.5 Matters Not Involving Third-Party Claims. Any
indemnifiable claim that is not a Third-Party Claim shall be asserted by written
notice to the Indemnifying Party.
8.6 Exclusive Remedy. If the Closing occurs, except as
specifically provided in Section 4.4 hereof, absent fraud, the indemnification
provided for in this Article VIII shall be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement.
ARTICLE IX
Miscellaneous Provisions
9.1 [Reserved]
9.2 Expenses. Parent and Seller shall pay all taxes
(including, without limitation, sales, use and transfer taxes) which may be
payable by reason of the consummation and sale of the Purchased Assets and the
assignment of the Leases and Equipment Leases to Purchaser. Subject to the
foregoing, each party hereto shall pay all of the costs and expenses incurred by
it in connection with this Agreement or in
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<PAGE> 32
consummating the transactions contemplated hereby (including, without
limitation, disbursements and expenses of its attorneys, accountants and
advisers).
9.3 Notices. All notices and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be effective upon delivery by hand or upon receipt if sent certified
or registered mail (postage prepaid and return receipt requested) or by a
nationally recognized overnight courier service (appropriately marked for
overnight delivery) or upon transmission if sent by telex or facsimile (with
request for immediate confirmation of receipt in a manner customary for
communications of such respective type and with physical delivery of the
communication being made by one of the other means specified in this Section 9.3
as promptly as practicable thereafter). Notices are to be addressed as follows:
If to Purchaser, to:
Heads & Threads International LLC
200 Kennedy Drive
Sayreville, New Jersey 08872
Attention: Mr. Steven R. Schonholtz
President
with copies to:
Alleghany Corporation
375 Park Avenue
New York, New York 10152
Attention: Robert M. Hart, Esq.
Senior Vice President and General Counsel
and
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Aileen C. Meehan, Esq.
If to Parent and Seller, to:
Acktion Corporation
65 Overlea Boulevard, Suite 400
Toronto, Ontario
CANADA M4H 1P1
Attention: Mr. Eugene Hretzay
Secretary
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<PAGE> 33
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: Robinson Markel, Esq.
Any party may change the person and address to which notices
or other communications are to be sent to it by giving written notice of any
such change in the manner provided herein.
9.4 Entire Agreement; Amendment. This Agreement, together
with the Schedules, exhibits and other documents delivered pursuant hereto, sets
forth the entire agreement and understanding of the parties hereto in respect of
the transactions contemplated hereby, and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof. This
Agreement may be amended, modified, superseded or supplemented only by an
instrument in writing executed and delivered by Purchaser, Parent and Seller.
9.5 Assignment. This Agreement shall inure to the benefit
of, and be binding upon, the respective successors, administrators, legal
representatives and permitted assigns of the parties hereto; provided, however,
that no assignment of any rights or delegation of any obligations provided for
herein shall be made by any party hereto without the express prior written
consent of each other party.
9.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the principles of conflicts of law thereof.
9.7 No Third-Party Beneficiaries. This Agreement is for
the benefit of the parties hereto and is not intended to confer upon any other
person any rights or remedies hereunder.
9.8 Consent to Jurisdiction. Except as otherwise
expressly provided in this Agreement, the parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in the United States District Court for the
Southern District of New York or any New York State court sitting in Manhattan,
and each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party
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<PAGE> 34
agrees that service of process on such party as provided in this Section 9.8
shall be deemed effective service of process on such party.
9.9 Waiver of Jury Trial. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
9.10 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall be deemed to be an
original, but which together shall constitute one and the same instrument.
9.11 Headings. The section headings contained in this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement.
9.12 Severability. In the event that any provision hereof
is prohibited or unenforceable in any jurisdiction, such provision shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
9.13 FIRPTA Certificate. On the Closing Date, Seller shall
execute and deliver to Purchaser the certificate described in Treas. Reg.
Section 1.1445-2(b)(2) to the effect that Seller is not a foreign person within
the meaning of Sections 897(c) and 1445 of the Code.
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<PAGE> 35
IN WITNESS WHEREOF, each party hereto has duly executed, or has caused this
Agreement to be duly executed, as of the date first above written.
<TABLE>
<S> <C>
HEADS & THREADS INTERNATIONAL LLC
Attest:
By: /s/ Steven R. Schonholtz
--------------------------------------
Steven R. Schonholtz
/s/ Michael Wrenn President
- -----------------------------------
Attest: ACKTION CORPORATION
/s/ Eugene Hretzay By: /s/ K. (Rai) Sahi
- ----------------------------------- --------------------------------------
K. (Rai) Sahi
Chairman and Chief Executive Officer
Attest:
/s/ Eugene Hretzay BY: /s/ Fraser R. Berrill
- ----------------------------------- --------------------------------------
Fraser R. Berrill
Senior Vice President
Attest: REYNOLDS FASTENERS, INC.
/s/ Eugene Hretzay By: /s/ Don Haggerty
- ----------------------------------- --------------------------------------
Don Haggerty
President
</TABLE>
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<PAGE> 1
Exhibit 10.2
List of Contents of Schedules to the Heads & Threads Asset Purchase Agreement
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
Schedule 1.1(b) Fixed Assets to be Purchased
Schedule 1.1(i) Prepaid Amounts
Schedule 1.4(a) Real Property Leases to be Assumed
Schedule 1.4(b) Equipment Leases to be Assumed
Schedule 1.4(f) Contracts to be Assumed
Schedule 1.5(a) Excluded Assets
Schedule 2.2 Restriction, Breaches, etc. Resulting from Sale of Assets
Schedule 2.4 Consents and Approvals; No Violations
Schedule 2.5 Title
Schedule 2.8 Accounts Receivable
Schedule 2.11(a) Litigation
Schedule 2.11(b) Knowledge of Certain Persons
Schedule 2.14 Insurance
Schedule 2.15 Environmental Matters
Schedule 2.16 Warranties
Schedule 2.17 Employee Matters
Schedule 2.18 Customers and Suppliers
Schedule 2.19 Certain Contracts and Commitments
</TABLE>
<PAGE> 1
Exhibit 10.3
CREDIT AGREEMENT
DATED AS OF APRIL 3, 2000
AMONG
HEADS & THREADS INTERNATIONAL LLC,
A DELAWARE LIMITED LIABILITY COMPANY,
VARIOUS LENDING INSTITUTIONS,
AND
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO,
AS AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS................................................................................1
1.1 Definitions....................................................................................1
1.2 Other Interpretive Provisions.................................................................15
1.3 Accounting Principles.........................................................................16
ARTICLE II THE CREDITS...............................................................................17
2.1 Description of Facility.......................................................................17
2.1.1 Revolving Facility...................................................................17
2.1.2 Term Facility........................................................................17
2.1.3 Use of Proceeds......................................................................17
2.2 Advances......................................................................................17
2.2.1 Commitment...........................................................................17
2.2.2 Termination..........................................................................17
2.2.3 Ratable Loans........................................................................17
2.2.4 Types of Advances....................................................................17
2.2.5 Minimum Amount of Each Advance.......................................................18
2.2.6 Method of Selecting Types and Interest Periods for New Advances......................18
2.2.7 Conversion and Continuation of Outstanding Advances..................................18
2.3 Facility Letters of Credit....................................................................19
2.3.1 Obligation to Issue. ................................................................19
2.3.2 Types and Amounts....................................................................19
2.3.3 Conditions...........................................................................19
2.3.4 Procedure for Issuance of Facility Letters of Credit.................................20
2.3.5 Reimbursement Obligations............................................................21
2.3.6 Participation........................................................................21
2.3.7 Payment of Reimbursement Obligations.................................................22
2.3.8 Compensation for Facility Letters of Credit..........................................23
2.3.9 Facility Letter of Credit Collateral Account.........................................23
2.4 General Facility Terms........................................................................24
2.4.1 Fees; Reductions in Aggregate Commitment.............................................24
2.4.2 Optional Principal Payments; Mandatory Principal Payments............................25
2.4.3 Changes in Interest Rate, etc........................................................25
2.4.4 Rates Applicable After Default.......................................................25
2.4.5 Method of Payment....................................................................26
2.4.6 Recovery of Payment..................................................................26
2.4.7 Collateral...........................................................................26
2.4.8 Notes; Telephonic Notices............................................................26
2.4.9 Interest Payment Dates; Interest and Fee Basis.......................................26
2.4.10 Principal and Interest Payments Upon The Term Loan...................................27
2.4.11 Notification of Advances, Interest Rates, and Prepayments............................27
2.4.12 Lending Installations................................................................27
2.4.13 Non-Receipt of Funds by the Agent....................................................27
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
2.4.14 Withholding Tax Exemption............................................................27
ARTICLE III CHANGE IN CIRCUMSTANCES...................................................................28
3.1 Yield Protection..............................................................................28
3.2 Changes in Capital Adequacy Regulations.......................................................29
3.3 Taxes.........................................................................................29
3.4 Lender Statements; Survival of Indemnity......................................................30
ARTICLE IV CONDITIONS PRECEDENT......................................................................31
4.1 Initial Advance and Facility Letter of Credit.................................................31
ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................34
5.1 Corporate Existence and Standing..............................................................34
5.2 Authorization and Validity....................................................................34
5.3 No Conflict; Government Consent...............................................................34
5.4 Financial Statements..........................................................................35
5.5 Material Adverse Change.......................................................................35
5.6 Taxes.........................................................................................35
5.7 Litigation and Contingent Obligations.........................................................35
5.8 Subsidiaries..................................................................................35
5.9 ERISA.........................................................................................36
5.10 Accuracy of Information.......................................................................36
5.11 Regulation U..................................................................................36
5.12 Material Agreements...........................................................................36
5.13 Compliance With Laws..........................................................................36
5.14 Ownership of Properties.......................................................................36
5.15 Environmental Matters.........................................................................37
5.16 Investment Company Act........................................................................37
5.17 Public Utility Holding Company Act............................................................37
5.18 Intentionally Omitted.........................................................................37
5.19 Intellectual Property.........................................................................37
5.20 Labor.........................................................................................37
5.21 Solvency......................................................................................37
5.22 Post-Retirement Benefits......................................................................38
5.23 Insurance.....................................................................................38
5.24 Insurance Certificate.........................................................................38
ARTICLE VI COVENANTS.................................................................................38
6.1 Financial Reporting...........................................................................39
6.2 Use of Proceeds...............................................................................41
6.3 Notice of Default.............................................................................41
6.4 Conduct of Business...........................................................................41
6.5 Taxes.........................................................................................41
6.6 Insurance.....................................................................................41
6.7 Compliance with Laws..........................................................................41
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C>
6.8 Maintenance of Properties.....................................................................41
6.9 Inspection....................................................................................42
6.10 Financial Covenants...........................................................................42
6.10.1 Leverage Ratio.......................................................................42
6.10.2 Interest Coverage Ratio..............................................................42
6.10.3 Fixed Charge Coverage Ratio..........................................................42
6.10.4 Capital Expenditures.................................................................42
6.11 [Intentionally Omitted].......................................................................43
6.12 Indebtedness..................................................................................43
6.13 Merger........................................................................................43
6.14 Sale of Assets................................................................................43
6.15 Investments and Acquisitions..................................................................44
6.16 Liens.........................................................................................44
6.17 Prohibition of Negative Pledge................................................................45
6.18 Affiliates....................................................................................45
6.19 Amendments to Agreements......................................................................45
6.20 Sale of Accounts..............................................................................46
6.21 Fiscal Year...................................................................................46
6.22 Limitation on the Creation of Subsidiaries....................................................46
6.23 Subsidiary Dividends..........................................................................46
6.24 Repayment of Subordinated Debt................................................................46
ARTICLE VII DEFAULTS..................................................................................46
ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES............................................49
8.1 Acceleration..................................................................................49
8.2 Amendments....................................................................................49
8.3 Preservation of Rights........................................................................50
ARTICLE IX GENERAL PROVISIONS........................................................................50
9.1 Survival of Representations...................................................................50
9.2 Governmental Regulation.......................................................................51
9.3 Taxes.........................................................................................51
9.4 Headings......................................................................................51
9.5 Entire Agreement..............................................................................51
9.6 Several Obligations; Benefits of this Agreement...............................................51
9.7 Expenses; Indemnification.....................................................................51
9.8 Numbers of Documents..........................................................................52
9.9 Accounting....................................................................................52
9.10 Severability of Provisions....................................................................52
9.11 Nonliability of Lenders.......................................................................52
9.12 Confidentiality...............................................................................52
9.13 Nonreliance...................................................................................52
</TABLE>
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<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C>
ARTICLE X THE AGENT.................................................................................53
10.1 Appointment; Nature of Relationship...........................................................53
10.2 Powers........................................................................................53
10.3 General Immunity..............................................................................53
10.4 No Responsibility for Loans, Recitals, etc....................................................53
10.5 Action on Instructions of Lenders.............................................................54
10.6 Employment of Agents and Counsel..............................................................54
10.7 Reliance on Documents; Counsel................................................................54
10.8 Agent's Reimbursement and Indemnification.....................................................54
10.9 Notice of Default.............................................................................54
10.10 Rights as a Lender............................................................................55
10.11 Lender Credit Decision........................................................................55
10.12 Successor Agent...............................................................................55
ARTICLE XI SETOFF; RATABLE PAYMENTS..................................................................56
11.1 Setoff........................................................................................56
11.2 Ratable Payments..............................................................................56
ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATION..........................................56
12.1 Successors and Assigns........................................................................56
12.2 Participation.................................................................................57
12.2.1 Permitted Participants; Effect.......................................................57
12.2.2 Voting Rights........................................................................57
12.2.3 Benefit of Setoff....................................................................57
12.3 Assignments...................................................................................57
12.3.1 Permitted Assignments................................................................57
12.3.2 Effect; Effective Date...............................................................58
12.4 Dissemination of Information..................................................................58
12.5 Tax Treatment.................................................................................58
ARTICLE XIII NOTICES...................................................................................59
13.1 Notices.......................................................................................59
13.2 Change of Address.............................................................................59
ARTICLE XIV COUNTERPARTS..............................................................................59
ARTICLE XV CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL..............................59
15.1 Choice of Law.................................................................................59
15.2 Consent to Jurisdiction.......................................................................60
15.3 Waiver of Jury Trial..........................................................................60
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
SCHEDULE 1 Lenders and Commitments
SCHEDULE 1.1 Eligible Accounts
SCHEDULE 2 Lender Addresses
SCHEDULE 5.5 Material Adverse Changes since December 31, 1999
SCHEDULE 5.6 Exceptions to Tax Representations
SCHEDULE 5.7 Pending Litigation
SCHEDULE 5.8 Borrower's Subsidiaries
SCHEDULE 5.9 Exceptions to ERISA Representation with respect to Plan Withdrawals
SCHEDULE 5.14 Exceptions to Representation Concerning Ownership of Properties
SCHEDULE 5.15 Exceptions to Representation Concerning Environmental Matters
SCHEDULE 6.12 Permitted Indebtedness
SCHEDULE 6.15(viii) Description of Existing Investments
SCHEDULE 6.16 Description of Existing Liens
EXHIBIT A Form of Compliance Certificate
EXHIBIT B Form of Note
EXHIBIT C Form of Security Agreement
EXHIBIT D Form of Facility Letter of Credit Request
EXHIBIT E Form of Opinion of Outside Counsel For Borrower
EXHIBIT F Form of Written Money Transfer Instructions
EXHIBIT G Form of Assignment and Assumption Agreement
EXHIBIT H Borrowing Base Certificate
</TABLE>
<PAGE> 7
CREDIT AGREEMENT
This Credit Agreement (this "Agreement"), dated as of April 3, 2000, is
among HEADS & THREADS INTERNATIONAL LLC, a Delaware limited liability company
(the "Borrower"), the lenders listed from time to time on Schedule I hereto
(each a "Lender" and, collectively, the "Lenders"), and AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO, as Agent (the "Agent"). The parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings herein specified unless the context otherwise requires:
"Account" means any right to payment for goods sold or for services
rendered which is not evidenced by an instrument or chattel paper, whether or
not it has been earned by performance or delivery.
"Account Debtor" has the meaning stated therefor in the Security
Agreement.
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going concern business or
all or substantially all of the assets of any firm, corporation or division
thereof, whether through the purchase of assets, merger or otherwise or (ii)
directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding partnership interests of a partnership or membership
interests in a limited liability company.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by some or all of the Lenders to the Borrower
on the same Borrowing Date.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means American National Bank and Trust Company of Chicago in
its capacity as agent for the Lenders pursuant to Article X, and not in its
individual capacity as a Lender, and any successor Agent appointed pursuant to
Article X.
"Aggregate Available Revolving Commitment" means, at any date of
determination thereof, the Aggregate Revolving Commitment minus the sum of (i)
the Facility Letter of Credit Obligations then outstanding and (ii) the
aggregate principal amount of all Revolving Advances then outstanding.
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"Aggregate Commitment" means the aggregate of the Commitments of all
the Lenders, as reduced from time to time pursuant to the terms hereof.
"Aggregate Revolving Commitment" means $55,000,000.
"Agreement" means this Credit Agreement, as it may be amended or
modified and in effect from time to time.
"Alleghany" means Alleghany Corporation, a Delaware corporation, which
as of the date hereof is the sole member of the Borrower.
"ANB" means American National Bank and Trust Company of Chicago in its
individual capacity, and its successors.
"Applicable Bankers Acceptance Percentage" means at any time the
percentage set forth on the Pricing Schedule for Bankers Acceptances.
"Applicable Fee Rate" means, at any time, the percentage rate per annum
at which Commitment Fees are accruing on the unused portion of the Aggregate
Commitment as set forth in the Pricing Schedule.
"Applicable Letter of Credit Percentage" means at any time the
percentage set forth on the Pricing Schedule for Letters of Credit.
"Applicable Margin" means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type as set forth in the Pricing Schedule.
"Arranger" means American National Bank and Trust Company of Chicago.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the Chairman, President, Executive
Vice President, Vice President, Chief Financial Officer, Secretary or Treasurer
of the Borrower, or any other senior officer of the Borrower designated as such
in writing to the Agent by the Borrower, in each case acting singly.
"Bank One" means Bank One Corporation.
"Bankers Acceptance" means a bankers acceptance or similar instrument
which is issued by the Issuer pursuant to a documentary acceptance credit
agreement upon the application of such Person or upon which such Person is an
account party or for which such Person is in any way liable.
"Bankers Acceptance Fee" means with respect to any Bankers Acceptance
on the Issuance Date thereof the BA Rate plus the Applicable Bankers Acceptance
Percentage.
"BA Rate" means the rate customarily charged by the Issuer for the
issuance of Bankers Acceptances.
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<PAGE> 9
"Base Rate" means a rate per annum equal to the corporate base rate of
interest announced by ANB from time to time, changing when and as said corporate
base rate changes. Any change in the Base Rate shall take effect at the opening
of business on the date specified in the announcement of such change. The Base
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer. ANB may make commercial loans or other
loans at rates of interest at, above or below the Base Rate.
"Benefit Plan" means each employee benefit plan as defined in Section
3(3) of ERISA of the Borrower and its Subsidiaries.
"Borrower" means Heads & Threads International LLC, a Delaware limited
liability company, and, subject to the provisions herein, its successors and
assigns.
"Borrowing Base" means an amount equal to the lesser of (1) $55,000,000
or (2) an amount, adjusted as described below, equal to (a) 85% of the face
amount (less maximum discounts, credits and allowances which may be taken by or
granted to the Account Debtor thereof in connection therewith) of all existing
Eligible Accounts that are set forth in the Schedule of Accounts then most
recently delivered by the Borrower to the Agent and all existing Eligible
Accounts that are set forth in any Schedule of Accounts delivered by the
Borrower to the Agent since the date of such Schedule of Accounts, which amount
shall be reduced by 100% of the face amount of all payments which the Borrower
has received on or in connection with its Eligible Accounts since the date of
such Schedule of Accounts, plus (b) the lesser of (i) $35,000,000 or (ii) 60% of
Eligible Inventory, all as set forth in the Schedule of Inventory then most
recently delivered by the Borrower to the Agent and all existing Eligible
Inventory set forth in any Schedule of Inventory delivered by the Borrower to
the Agent since the date of such Schedule of Inventory; provided, however, that,
notwithstanding any contrary provision contained herein, the Agent may elect at
any time, if in its reasonable discretion, it is materially insecure, to change
the foregoing method of calculating the Borrowing Base by reducing advances
against Eligible Accounts and Eligible Inventory, or to deduct additional
reserves from the Borrowing Base. For purposes hereof, unless otherwise notified
by the Borrower, the Agent will assume that all monies collected in the Lock Box
(as defined in the Security Agreement) are payments of Eligible Accounts.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Business Day" means (i) with respect to any borrowing, payment and for
all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago, Illinois for the conduct of substantially all of
their commercial lending activities.
"Borrowing Notice" is defined in Section 2.2.6.
"Capital Expenditures" means, without duplication, any expenditures for
any purchase or other acquisition of any asset which would be classified as a
fixed or capital asset on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with GAAP.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with GAAP.
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"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Change" means (i) any change after the date of this Agreement in the
Risk-Based Capital Guidelines or (ii) any adoption of or change in any other
law, governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement which affects the amount of capital required or expected
to be maintained by any Lender or any Lending Installation or any corporation
controlling any Lender.
"Change in Control" means Alleghany Corporation shall fail to maintain
beneficial ownership, directly or indirectly, free and clear of any Lien other
than Liens in favor of the Agent and/or the Lenders, in the aggregate of at
least eighty percent (80%) of the membership interests of Borrower and its
Subsidiaries.
"Closing Date" means April 3, 2000.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" means all property and interests in property and proceeds
thereof now owned or hereafter acquired by the Borrower and its Subsidiaries in
or upon which a Lien now or hereafter exists in favor of the Lenders, or the
Agent on behalf of the Lenders (including without limitation as of the Closing
Date the assets acquired in the Reynolds Acquisition), whether under this
Agreement or under any other documents executed by any such Person and delivered
to the Agent or the Lenders.
"Commercial Letter of Credit" means any Facility Letter of Credit that
is a commercial or trade Letter of Credit.
"Commitment" means, for each Lender, the obligation of such Lender to
make Loans and purchase participations in Facility Letters of Credit in an
aggregate amount not exceeding the amount set forth opposite its name on
Schedule 1 hereto or as set forth in any Notice of Assignment relating to any
assignment that has become effective pursuant to Section 12.3.2, as such amount
may be modified from time to time pursuant to the terms hereof.
"Commitment Fee" has the meaning stated in Section 2.4.1.1(ii).
"Compliance Certificate" means a compliance certificate, substantially
in the form of Exhibit A hereto, signed by the chief financial officer or
treasurer of the Borrower, showing the calculations necessary to determine
compliance with this Agreement and stating that no Default or Unmatured Default
exists, or if any Default or Unmatured Default exists, stating the nature and
status thereof.
"Condemnation" is defined in Section 7.8.
"Consolidated Capital Expenditures" means, with reference to any
period, the Capital Expenditures of the Borrower and its Subsidiaries calculated
on a consolidated basis for such period.
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<PAGE> 11
"Consolidated Funded Indebtedness" means at any time the aggregate
dollar amount of Consolidated Indebtedness which has actually been funded and is
outstanding at such time, whether or not such amount is due or payable at such
time.
"Consolidated Indebtedness" means at any time the Indebtedness of the
Borrower and its Subsidiaries calculated on a consolidated basis as of such
time.
"Contingent Obligation" of a Person means, without duplication, any
agreement, undertaking or arrangement by which such Person directly or
indirectly assumes guarantees, endorses, contingently agrees to purchase or
provide funds for the payment of, or otherwise becomes or is contingently liable
upon, the obligation or liability of any other Person, or agrees to maintain the
net worth or working capital or other financial condition of any other Person,
or otherwise assures any creditor of such other Person against loss, including,
without limitation, any operating agreement, comfort letter, take-or-pay
contract or application or reimbursement agreement for a Letter of Credit but
excluding any endorsement of instruments for deposit or collection in the
ordinary course of business.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Credit Party" means the Borrower.
"Current Assets" means the value of the current assets of Borrower and
its Subsidiaries determined in accordance with GAAP.
"Current Liabilities" means as of any date, the aggregate amount of all
liabilities of Borrower and its Subsidiaries determined in accordance with GAAP
which would, in accordance with GAAP, be classified as current liabilities by a
Person conducting a business the same as or substantially similar to that of
Borrower.
"Debt" means as of any time the aggregate of all indebtedness,
obligations, liabilities, reserves and any other items which would be listed as
a liability on a consolidated balance sheet of the Borrower in accordance with
GAAP consistently applied, and in any event including all indebtedness and
liabilities of any other person which the Borrower or any of its Subsidiaries
may guarantee or otherwise be responsible or liable for (other than any
liability arising out of the endorsement of commercial paper for deposit or
collection in the ordinary course of business), all indebtedness and liabilities
secured by any lien on any property of the Borrower or any of its Subsidiaries,
whether or not the same would be classified as a liability on a balance sheet,
the liability of the Borrower or any of its Subsidiaries, in respect to banker's
acceptances and letters of credit, and the aggregate amount of rentals or other
consideration payable by the Borrower or any of its Subsidiaries over the
remaining unexpired term of all capital leases (determined in accordance with
GAAP), but excluding all general contingency reserves and reserves for deferred
income taxes and investment credit.
"Default" means an event described in Article VII.
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<PAGE> 12
"Dollars", "U.S. Dollars" and "$" mean dollars in lawful currency of
the United States of America.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization of the Borrower and its Subsidiaries taken as a whole calculated
(i) for any period from the Closing Date and ending on or prior to March 31,
2001, based upon such items for the elapsed period during the twelve-month
period ending March 31, 2001, annualized, and (ii) for any period commencing
after March 31, 2001, based upon such items for the immediately preceding
trailing twelve months.
"Eligible Account" means any of the Accounts of the Borrower or any of
its Subsidiaries which meets each of the following requirements: (i) if it
arises from the sale of goods, such goods have been shipped or delivered to the
Account Debtor thereof or such goods are being invoiced in accordance with the
Borrower's or such Subsidiary's customary progress billings in accordance with
GAAP; (ii) it is a valid, legally enforceable obligation of the Account Debtor
thereunder, and is not subject to any offset, counterclaim or other defense on
such Account Debtor's part or to any claim on such Account Debtor's part denying
liability thereunder in whole or in part; (iii) it is subject to a perfected
Lien in the Agent's favor and is not subject to any other Lien whatsoever,
except for Permitted Liens; (iv) it is evidenced by an invoice (dated not later
than the date of shipment to the Account Debtor or performance and having a due
date not more than 60 days after the date of invoice) rendered to such Account
Debtor, and is not evidenced by any instrument or chattel paper; (v) it is
payable in Dollars; (vi) it is not accounts owing by any governmental agency or
body, (vii) it is not owing by any Account Debtor residing, located or having
its principal activities or place of business outside the United States of
America or who is not subject to service of process within the continental
United States of America, unless it is secured by a letter of credit in form and
substance acceptable to the Agent in the Agent's sole discretion or, it is an
account owing by one or more of the Account Debtors listed on Schedule 1.1
hereto, as amended from time to time with the consent of the Agent, and such
accounts in the aggregate do not exceed twenty five percent (25%) of the total
of Eligible Accounts; (viii) it is not owing by any Account Debtor involved in
any bankruptcy or insolvency proceeding; (ix) it is not owing by any of the
Borrower's Affiliates; (x) it is not unpaid more than 90 days after the date of
such invoice; (xi) it is not owing by an Account Debtor which shall have failed
to pay in full any invoice evidencing any Account within 90 days after the date
of such invoice, unless the total invoice amounts of such Account Debtor which
have not been paid within 90 days of the date of such invoice represent less
than 25% of the total invoice amounts then outstanding of such Account Debtor;
(xii) it is not an account upon which the Account Debtor is any of the
Borrower's Subsidiaries; and (xiii) it is not an Account as to which the Agent,
at any time or times hereafter, determines, in good faith, that the prospect of
payment or performance by the Account Debtor thereof is or will be impaired. An
Account of the Borrower which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Account.
"Eligible Inventory" means the Borrower's and its Subsidiaries'
inventory at cost which meets each of the following requirements: (i) it is in
such condition that it may be sold in the ordinary course of the Borrower's and
its Subsidiaries' business; (ii) in the case of goods held for sale, it is
unused (except as the Bank may otherwise consent in writing); (iii) it is owned
by the Borrower or its Subsidiaries and is subject to a perfected Lien in the
Agent's favor and is not subject to any other Lien whatsoever, except for
Permitted Liens; (iv) it is maintained in compliance with all governmental and
governmental agency regulations; and (v) the Agent, in
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<PAGE> 13
good faith, has determined, in accordance with the Bank's customary business
practices, that it is not unacceptable due to age, type, category and/or
quantity. Any of the Borrower's and its Subsidiaries Inventory which is Eligible
Inventory at any time, but which subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be Eligible Inventory.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, injunctions, permits, grants, franchises, licenses,
agreements and other governmental restrictions relating to (i) the protection of
the environment, (ii) the effect of the environment on human health, (iii)
emissions, discharges or releases of pollutants, contaminants, hazardous
substances or wastes into surface water, ground water or land, or (iv) the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which, except as otherwise
provided herein, bears interest at the applicable Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
the relevant Interest Period, the rate determined by the Agent to be the rate at
which Bank One offers to place deposits in U.S. dollars with first-class banks
in the London interbank market at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period, in the approximate
amount of Bank One's relevant Eurodollar Loan and having a maturity equal to
such Interest Period.
"Eurodollar Loan" means a Loan which, except as otherwise provided in
Section 2.11, bears interest at the applicable Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher
multiple of 1/16 of 1.0% if the rate is not such a multiple.
"Excluded Taxes" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Lender or the Agent is incorporated or organized, (ii) the jurisdiction in
which the Agent's or such Lender's principal executive office or such Lender's
applicable Lending Installation is located, or (iii) any other taxes to which
such Lender or applicable Lending Installation would be subject without regard
to any Loan made pursuant to this Agreement.
"Facility Letter of Credit Collateral Account" is defined in Section
2.3.9.
"Facility Letter of Credit Obligations" means, at any date of
determination thereof, all liabilities, whether actual or contingent, of the
Borrower in respect of the Facility Letters of
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<PAGE> 14
Credit, including, without limitation, the sum of (i) Reimbursement Obligations
and (ii) the aggregate undrawn face amount of any outstanding Facility Letters
of Credit.
"Facility Letter of Credit Request" is defined in Section 2.3.4.
"Facility Letters of Credit" means, collectively, the Letters of Credit
and/or Bankers Acceptances issued by the Issuer pursuant to Section 2.3.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Fiscal Year" means, with respect to the Borrower or any of its
Subsidiaries, the one year fiscal period beginning on January 1 and ending on
the last day of each calendar year.
"Fixed Charge Coverage Ratio" for a given period means the ratio of (i)
EBITDA plus Rent minus Consolidated Capital Expenditures, to (ii) Interest
Expense, plus dividends paid by Borrower, plus Rent, plus scheduled principal
payments upon Consolidated Funded Indebtedness, plus Taxes due and owing during
such period.
"Floating Rate" means, for any day, a rate per annum equal to the Base
Rate for such day plus the Applicable Margin, in each case changing when and as
the Base Rate changes.
"Floating Rate Advance" means an Advance, which except as otherwise
provided herein, bears interest at the Floating Rate.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time; it being understood and agreed
that determinations in accordance with GAAP for purposes of Section 6.10,
including defined terms as used therein, shall utilize accounting principles and
policies in effect at the time of the preparation of, and in conformity with
those used to prepare, the December 31, 1999 consolidated financial statements
of the Borrower and its Subsidiaries heretofore delivered to the Lenders.
"Gross Up Event" means the occurrence of any of the events stated in
Sections 3.1 or 3.2 hereof.
"Indebtedness" of a Person means, without duplication, such Person's
(i) obligations for borrowed money, (ii) obligations representing the deferred
purchase price of Property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (iii) obligations, whether or not assumed, secured by Liens, or payable
out of the proceeds or production from property now or hereafter owned or
acquired by such Person, (iv) obligations which are evidenced by notes,
acceptances, or other instruments, (v) Capitalized Lease Obligations, (vi) Rate
Hedging Obligations, (vii) Contingent Obligations and (viii) Subordinated Debt.
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"Intangible Assets" means the amount (to the extent reflected in
determining consolidated stockholders' equity) of (i) all write-ups in the book
value of any asset owned or acquired by the Borrower or a Subsidiary, (ii) all
goodwill, covenants not to compete, prepayments, deferred charges, franchises,
patents, trademarks, service marks, trade names, brand names and copyrights,
(iii) all deferred financing costs (including, but not limited to, unamortized
debt discount and expense, organization expense and experimental and development
expenses, but excluding prepaid expenses), and (iv) leasehold improvements not
recoverable at the expiration of a lease.
"Intellectual Property" is defined in Section 5.19 hereof.
"Interest Coverage Ratio" means for a given period the ratio of (i)
EBITDA to (ii) Interest Expense.
"Interest Expense" means, for any period of calculation, all interest
expense on Indebtedness, calculated for such period for the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP.
"Interest Period" means, with respect to a Eurodollar Advance, a period
of one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"Internally Generated by Borrower's Operations" means with respect to
funds, funds which are (i) derived from Borrower's and its Subsidiaries'
ordinary course of business operations; (ii) proceeds of sales of Borrower's and
its Subsidiaries' assets permitted hereunder, or (iii) funds contributed to
Borrower by Alleghany.
"Inventory" shall have the meaning stated therefor in the Security
Agreement.
"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers, employees and sales agents
made in the ordinary course of business), extension of credit (other than
accounts receivable arising in the ordinary course of business on terms
customary in the trade) or contribution of capital by such Person, stocks,
bonds, mutual funds, partnership interests, notes, debentures or other
securities owned by such Person.
"Issuance Date" means, with respect to any Facility Letter of Credit,
the date on which such Facility Letter of Credit is issued hereunder.
"Issuance Fee" means, with respect to any Letter of Credit on the
Issuance Date thereof, the Applicable Letter of Credit Percentage times the
maximum amount of such Letter of Credit
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or such other issuance fee as the Borrower and the Issuer of such Letter of
Credit shall have agreed upon in writing.
"Issuer" is defined in Section 2.3.1.
"KPMG" means KPMG LLP, certified public accountants.
"Lender" is defined in the preamble to this Agreement.
"Lending Installation" means, with respect to a Lender or the Agent,
any office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit, or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Leverage Ratio" means the ratio for Borrower of (i) Borrower's
Consolidated Funded Indebtedness less Subordinated Debt to (ii) Operating Cash
Flow.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, filed financing statement, assignment, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means, with respect to a Lender, a loan or any continuation
thereof made by such Lender pursuant to Article II.
"Loan Documents" means this Agreement, the Notes, the Security
Agreement and any other documents and agreements contemplated hereby and
executed by the Borrower or a Subsidiary in favor of the Agent or any Lender.
"Lock Box" shall have the meaning stated therefor in the Security
Agreement.
"Lock Box Account" shall have the meaning stated therefor in the
Security Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, financial condition or results of operations of the Borrower
and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to
perform its respective obligations under any of the Loan Documents, or (iii) the
validity or enforceability of any of the Loan Documents or the rights or
remedies of the Agent or the Lenders thereunder.
"Material Indebtedness" is defined in Section 7.5.
"Multiemployer Plan" means a Plan defined in Section 3(37) of ERISA to
which the Borrower or any member of the Controlled Group may have any liability.
"Net Capital Expenditures" means all of the Borrower's and its
Subsidiaries' Capital Expenditures which are not funded from Advances hereunder.
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"Net Income" shall mean, for any period, the net income (or loss),
after provision for taxes, of the Borrower and its Subsidiaries on a
consolidated basis for such period taken as a single accounting period but
excluding any unrealized losses and gains for such period resulting from
mark-to-market of Rate Hedging Agreements.
"Non-U.S. Lender" is defined in Section 3.3(iv).
"Note" means a promissory note, substantially in the form of Exhibit B
hereto, with appropriate insertions, duly executed and delivered to the Agent by
the Borrower for the account of a Lender and payable to the order of such Lender
in the amount of its Commitment, including any amendment, modification, renewal
or replacement of such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all accrued and unpaid fees arising under the Loan
Documents, all Facility Letter of Credit Obligations, Rate Hedging Obligations,
and all expenses, reimbursements, indemnities and other obligations of the
Borrower to the Lenders or to any Lender, the Agent or any indemnified party
hereunder arising under the Loan Documents or under any Rate Hedging Agreement.
"Operating Cash Flow" for a given period means EBITDA less Consolidated
Capital Expenditures, measured (i) for any period from the Closing Date and
ending on or prior to March 31, 2001, based upon such items for the period
elapsed during the twelve-month period ending March 31, 2001, annualized, and
(ii) for any period commencing after March 31, 2001, based upon such items for
the immediately preceding trailing twelve months.
"Operating Lease" of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals effective at the option of the lessor) of one
year or more.
"Other Taxes" is defined in Section 3.3(ii).
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last Business Day of each month commencing
April 30, 2000, and ending on the later to occur of the Revolving Facility
Termination Date and the Term Facility Termination Date.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Lien" is defined in Section 6.16.
"Person" means any natural person, corporation, limited liability
company, firm, joint venture, partnership, association, enterprise, trust or
other entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 302 of
ERISA or Section 412 of the Code as to which the Borrower or any member of the
Controlled Group may have any liability.
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"Prepayment Date" is defined in Section 2.4.1.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Pro Rata Share" means, with respect to each Lender at any time, the
ratio such Lender's Commitment bears to the Aggregate Commitment.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Rate Hedging Agreement" means an agreement, device or arrangement
providing for payments which are related to fluctuations of interest rates,
exchange rates or forward rates. including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Hedging Agreement.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reimbursement Obligations" means, at any time, the aggregate of the
obligations of the Borrower to the Issuer and the Lenders in respect of all
unreimbursed payments or disbursements made by the Issuer and the Lenders under
or in respect of drawings or payments otherwise under the Facility Letters of
Credit.
"Rent" of a Person means for any given period the aggregate amounts
paid by such Person under all Operating Leases.
"Rentals" of a Person means the aggregate fixed amounts payable by such
Person under any Operating Lease.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided, however, that a failure to
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meet the minimum funding standard of Section 412 of the Code and of Section 302
of ERISA shall be a Reportable Event regardless of the issuance of any such
waiver of the notice requirement in accordance with either Section 4043(a) of
ERISA or Section 412(d) of the Code.
"Required Lenders" means, at any time, Lenders in the aggregate having
at least 66-2/3% of the Aggregate Commitment or, subsequent to the Facility
Termination Date, Lenders in the aggregate holding at least 66-2/3% of the sum
of (i) the aggregate unpaid principal amount of the outstanding Advances and
(ii) the Facility Letter of Credit Obligations.
"Reserve Requirement" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed under Regulation D
on Eurocurrency liabilities.
"Revolving Advance" means an Advance under the Revolving Facility
pursuant to Section 2.1.1.
"Revolving Facility Termination Date" means with respect to Revolving
Advances and Facility Letter of Credit Obligations, April 3, 2003 or any earlier
date on which the Aggregate Revolving Commitment is reduced to zero or otherwise
terminated pursuant to the terms hereof.
"Reynolds Acquisition" means Borrower's acquisition of certain assets
of Reynolds Fasteners, Inc., a Delaware corporation and a wholly-owned
subsidiary of Acktion Corporation, a Canadian corporation.
"Reynolds Purchase Agreement" means the Asset Purchase Agreement dated
on or about April 3, 2000 by and among Borrower, Reynolds Fasteners, Inc. and
Acktion Corporation, together with the schedules, exhibits and closing documents
delivered pursuant thereto.
"Risk-Based Capital Guidelines" means (i) the risk-based capital
guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing the
July 1988 report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
"Security Agreement" means that certain Security Agreement and
Financing Statement between Borrower and Agent dated April 3, 2000 in
substantially the form of Exhibit C hereto.
"Schedule of Accounts" means an aged trial balance and reconciliation
to the Borrowing Base in form and substance satisfactory to the Agent (which may
at the Agent's discretion include copies of original invoices) listing the
Borrower's and its Subsidiaries' Accounts, to be delivered to the Agent by the
Borrower and its Subsidiaries pursuant to Section 6.1(iv).
"Schedule of Inventory" means a schedule in form and substance
satisfactory to the Agent listing the Borrower's and its Subsidiaries'
Inventory, to be delivered to the Agent by the Borrower pursuant to Section
6.1(iv), describing such Inventory by category, age and type.
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"Schedule of Payables" means a detailed aged schedule in form and
substance satisfactory to the Agent listing the Borrower's and its Subsidiaries'
accounts payable, to be delivered on a monthly basis to the Agent by the
Borrower pursuant to Section 6.1(iv).
"SEC" means the Securities and Exchange Commission, or any Person
succeeding to any of its principal functions.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Security Agreement" means the Security Agreement and Financing
Statement to be delivered to Agent by the Borrower substantially in the form of
Exhibit C hereto.
"Senior Funded Debt" means all Indebtedness that is not Subordinated
Debt.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Standby Letter of Credit" means any Facility Letter of Credit that is
a standby Letter of Credit.
"Subordinated Debt" means any unsecured Indebtedness of the Borrower
(a) no part of the principal of which is stated to be payable or is required to
be paid (whether by way of mandatory sinking fund, mandatory redemption,
mandatory prepayment or otherwise) prior to the later of the Revolving Facility
Termination Date or the Term Facility Termination Date, and the payment of the
principal of and interest on which and other obligations of the Borrower in
respect thereof are subordinated to the prior payment in full of principal of
and interest (including post-petition interest) on the Notes and all other
obligations and liabilities of the Borrower to the Agent and the Lenders
hereunder on terms and conditions first approved in writing by the Required
Lenders and (b) otherwise containing terms, covenants and conditions
satisfactory in form and substance to the Required Lenders, as evidenced by
their prior written approval thereof, including without limitation the
Indebtedness evidenced by the Subordinated Notes.
"Subordinated Notes" means collectively all notes evidencing
Subordinated Debt whether now existing or hereafter arising and substitutions or
replacements therefor.
"Subsidiary" of any Person means (i) any corporation more than 50% of
whose stock of any class or classes having by the terms thereof ordinary voting
power to elect a majority of the directors of such corporation (irrespective of
whether or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time owned by such Person directly or indirectly through
Subsidiaries and (ii) any partnership, association (including business trusts),
joint venture, limited liability company or other entity in which such Person
directly or indirectly through Subsidiaries, has more than 50% voting or equity
interest at the time.
"Substantial Portion" means, with respect to the Property of the
Borrower and its Subsidiaries, Property which (i) represents more than five
percent (5%) of the consolidated assets of the Borrower and its Subsidiaries as
at the last day of the calendar month ending on or most
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recently ended prior to the date on which such determination is made, or (ii) is
responsible for more than five percent (5%) of the consolidated net sales or of
the consolidated net income of the Borrower and its Subsidiaries for the period
of twelve complete consecutive calendar months ending on or most recently ended
prior to the date on which such determination is made.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes.
"Term Commitment" means $5,000,000.
"Term Facility Termination Date" means the earlier of (i) the date on
which all Obligations become due and payable under Section 8.1 hereof or (ii)
April 3, 2003.
"Term Loan" is defined in Section 2.1.2.
"Transferee" is defined in Section 12.4.
"Type" means with respect to any Advance, its nature as a Floating Rate
Advance or a Eurodollar Advance.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans as if such Plans were terminating on such date under Section 4041 of
ERISA.
'Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (ii) any partnership, association, joint venture
or similar business organization 100% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled.
1.2 Other Interpretive Provisions. (a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement, and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
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(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from"
means "from and including"; the words "to" and "until" each
mean "to but excluding", and the word "through" means "to and
including."
(iv) The term "property" includes any kind of
property or asset, real, personal or mixed, tangible or
intangible.
(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and (ii)
references to any statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms. Unless otherwise
expressly provided, any reference to any action of the Agent or the Lenders by
way of consent, approval or waiver shall be deemed modified by the phrase "in
its/their sole discretion."
(g) This Agreement and the other Loan Documents are the
result of negotiations among and have been reviewed by counsel to the Agent, the
Borrower and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Lenders or the Agent merely
because of the Agent's or Lenders' involvement in their preparation.
1.3 Accounting Principles. (a) Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement shall be
made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal
quarter" refer to such fiscal periods of the Borrower.
ARTICLE II
THE CREDITS
2.1 Description of Facility.
2.1.1 Revolving Facility. Upon the terms and subject to the
conditions set forth in this Agreement, the Lenders hereby grant to the Borrower
a revolving credit facility pursuant to which: (i) each Lender severally agrees
to make Revolving Advances to the Borrower in accordance with Section 2.2; and
(ii) each Lender severally agrees to purchase participations in
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Facility Letters of Credit in accordance with Section 2.3; provided, however,
that in no event may the sum of (1) the aggregate principal amount of all
outstanding Revolving Advances and (2) the Facility Letter of Credit Obligations
exceed the Aggregate Revolving Commitment.
2.1.2 Term Facility. Each Lender severally agrees, on the
terms and conditions set forth herein, to make a single loan to the Borrower
("Term Loan") on the Closing Date in an amount not to exceed such Lender's Pro
Rata Share of the Term Commitment. Amounts borrowed upon the Term Loan which are
repaid by the Borrower or from any other source may not be reborrowed.
2.1.3 Use of Proceeds. The proceeds of the Revolving
Advances and the Term Loan will be used solely to refinance the Borrower's
existing indebtedness, to finance a portion of the Reynolds Acquisition and for
Borrower's general business purposes.
2.2 Advances.
2.2.1 Commitment. From and including the date of this
Agreement and prior to the Revolving Facility Termination Date, each Lender
severally agrees, on the terms and conditions set forth in this Agreement, to
make Loans to the Borrower from time to time in amounts not to exceed in the
aggregate at any one time outstanding (after giving effect to the intended use
of proceeds of any Loan used to repay any outstanding Reimbursement Obligations)
the amount of its Commitment. Subject to the terms of this Agreement, the
Borrower may borrow, repay, and reborrow Revolving Advances only from each
Lender at any time prior to the Revolving Facility Termination Date. The
Commitment of each Lender to lend hereunder shall expire on the Revolving
Facility Termination Date.
2.2.2 Termination. All outstanding Revolving Advances owing
to each Lender shall be paid in full by the Borrower on the Revolving Facility
Termination Date. All outstanding Term Loans owing to each Lender shall be paid
in full by the Borrower on the Term Facility Termination Date. All other unpaid
Obligations owing to any Lender shall be paid on the later to occur of the
Revolving Facility Termination Date and the Term Facility Termination Date.
2.2.3 Ratable Loans. Each Advance hereunder shall consist
of Loans made from the several Lenders ratably in proportion to their respective
Pro Rata Shares.
2.2.4 Types of Advances. The Advances may be Floating Rate
Advances or Eurodollar Advances, or a combination thereof, selected by the
Borrower in accordance with Sections 2.2.6 and 2.2.7.
2.2.5 Minimum Amount of Each Advance. Each Eurodollar
Advance shall be in the minimum amount of $300,000 (and in multiples of $100,000
if in excess thereof) and each Floating Advance shall be in the minimum amount
of $10,000 (and in multiples of $10,000 if in excess thereof); provided,
however, that any Advance may be in the amount of the unused Aggregate Available
Revolving Commitment should the Aggregate Available Revolving Commitment be less
than $300,000.
2.2.6 Method of Selecting Types and Interest Periods for
New Advances. The Borrower shall select the Type of Advance and, in the case of
each Eurodollar Advance, the
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Interest Period applicable thereto from time to time. The Borrower shall give
the Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m.
(Chicago time) on the Borrowing Date of each Floating Rate Advance and three
Business Days before the Borrowing Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a
Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the
Interest Period applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIII. The Agent will make
the funds so received from the Lenders available to the Borrower at the Agent's
aforesaid address.
2.2.7 Conversion and Continuation of Outstanding Advances.
Floating Rate Advances shall continue as Floating Rate Advances unless and until
such Floating Rate Advances are converted into Eurodollar Advances pursuant to
this Section 2.2.7 or are repaid in accordance with Section 2.3.7. Each
Eurodollar Advance shall continue as a Eurodollar Advance until the end of the
then applicable Interest Period therefor, at which time such Eurodollar Advance
shall be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.3.7 or (y) the
Borrower shall have given the Agent a Conversion/Continuation Notice (as defined
below) requesting that, at the end of such Interest Period, such Eurodollar
Advance continue as a Eurodollar Advance for the same or another Interest
Period. Subject to the terms of Section 2.2.6, the Borrower may elect from time
to time to convert all or any part of a Floating Rate Advance into a Eurodollar
Advance. The Borrower shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance not later than
10:00 a.m. (Chicago time) at least three Business Days prior to the date of the
requested conversion or continuation, specifying:
(i) the requested date, which shall be a
Business Day, of such conversion or continuation,
(ii) the aggregate amount and Type of the Advance
which is to be converted or continued, and
(iii) the amount of such Advance which is to be
converted into or continued as a Eurodollar Advance and the
duration of the Interest Period applicable thereto.
2.3 Facility Letters of Credit.
2.3.1 Obligation to Issue. From and including the date of
this Agreement and prior to the Business Day prior to the Revolving Facility
Termination Date, the Agent agrees, on
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the terms and conditions set forth in this Agreement and on behalf of each of
the Lenders, to issue for the account of the Borrower or one or more of its
Subsidiaries, one or more Letters of Credit and Bankers Acceptances in
accordance with this Section 2.3 (the Agent in such capacity is referred to as
the "Issuer").
2.3.2 Types and Amounts. The Issuer shall not have any
obligation to and shall not:
(i) issue any Facility Letter of Credit if the
aggregate maximum amount then available for drawing under
Facility Letters of Credit issued by the Issuer, after giving
effect to the Facility Letter of Credit requested hereunder,
shall exceed any limit imposed by law or regulation upon the
Issuer;
(ii) issue any Facility Letter of Credit if,
after giving effect thereto, the sum of (a) the Facility
Letter of Credit Obligations and (b) the aggregate unpaid
principal balance of the Revolving Advances would exceed the
Aggregate Revolving Commitment;
(iii) issue any Facility Letter of Credit which
has an expiry date (a) later than twelve months after the
Issuance Date thereof or (b) after the Facility Termination
Date; or
(iv) issue any Facility Letter of Credit if,
after giving effect to such Facility Letter of Credit
requested hereunder, the Facility Letter of Credit Obligations
would exceed $35,000,000 in the aggregate.
2.3.3 Conditions. In addition to being subject to the
satisfaction of the conditions contained in Sections 4.1 and 4.2, the obligation
of the Issuer to issue any Facility Letter of Credit is subject to the
satisfaction in full of each of the following conditions:
(i) the Borrower shall have delivered to the
Issuer at such times and in such manner as the Issuer may
reasonably prescribe such documents and materials as may be
required pursuant to the terms of the requested Facility
Letter of Credit (it being understood that if any
inconsistency exists between the Issuer's Facility Letter of
Credit documents and the Loan Documents, the terms of the Loan
Documents shall govern and control) and the requested Facility
Letter of Credit shall be reasonably satisfactory to the
Issuer as to form and content; and
(ii) as of the Issuance Date, no order, judgment
or decree of any court, arbitrator or governmental authority
shall purport by its terms to enjoin or restrain the Issuer
from issuing the requested Facility Letter of Credit and no
law, rule or regulation applicable to the Issuer and no
request or directive (whether or not having the force of law)
from any governmental authority with jurisdiction over the
Issuer shall prohibit or request that the Issuer refrain from
the issuance of Letters of Credit generally or the issuance of
such requested Facility Letter of Credit in particular.
2.3.4 Procedure for Issuance of Facility Letters of Credit.
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(a) The Borrower shall give the Issuer written notice not
later than noon (Chicago time) at least three Business Days before the Issuance
Date of any requested Facility Letter of Credit (each a "Facility Letter of
Credit Request") (except that, in lieu of such written notice, the Borrower may
give the Issuer notice of such request by tested telex or other tested
arrangement satisfactory to the Issuer). Such Facility Letter of Credit Request
shall be irrevocable and shall specify:
(1) the stated amount of such requested Facility Letter
of Credit;
(2) the Issuance Date (which day shall be a Business
Day);
(3) the date on which such requested Facility Letter of
Credit is to expire (which date shall be a Business
Day and shall in no event be later than either (i)
twelve months after its Issuance Date or (ii) the
Revolving Facility Termination Date);
(4) the purpose for which such Facility Letter of Credit
is to be issued;
(5) the Person for whose benefit the requested Facility
Letter of Credit is to be issued; and
(6) whether the requested Facility Letter of Credit will
be a Commercial Letter of Credit, a Standby Letter of
Credit or a Bankers Acceptance.
Prior to the issuance of the requested Facility Letter of Credit, the
Borrower shall provide the Issuer with a copy of the form of the
Facility Letter of Credit it is requesting be issued. The Issuer will
notify each Lender within a reasonable time following the issuance of
each Facility Letter of Credit.
(b) Subject to the terms and conditions of this Section
2.3.4 and provided that the applicable conditions set forth in Sections 4.1 (in
the case of the initial Facility Letter of Credit), 4.2 and 2.3.3 have been
satisfied, the Issuer shall, on the applicable Issuance Date, issue a Facility
Letter of Credit on behalf of the Borrower in accordance with the Issuer's usual
and customary business practices.
(c) The Issuer shall not extend or amend any Facility
Letter of Credit unless the requirements of Sections 2.3.2 and 2.3.4 are met.
2.3.5 Reimbursement Obligations.
(a) (i) The Issuer shall promptly notify the Borrower of
any draw or other payment under any Facility Letter of Credit. The
Borrower shall reimburse the Issuer for drawings under any such Letters
of Credit or payments under Bankers Acceptances (including the Issuer's
issuing costs) no later than the Business Day after the payment in
respect of such Facility Letter of Credit by the Issuer, together with
interest thereon at the Base Rate plus 2% per annum from the date of
payment on such Facility Letter of Credit by the Issuer to and
including the date on which the Issuer is reimbursed for such payment
by the Borrower.
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(ii) Any Reimbursement Obligation with respect to
any Facility Letter of Credit which is not paid on the date when due in
accordance with Section 2.3.5(a)(i) shall (A) if there is availability
for such an Advance pursuant to Section 2.1.1, be automatically
converted on such date into a Revolving Advance and shall bear interest
at the Floating Rate or (B) if there is no availability for an Advance
pursuant to Section 2.1.1, be payable on demand and bear interest until
paid at a rate per annum equal to the sum of (a) the Base Rate plus (b)
2% per annum.
(b) Any action taken or omitted to be taken by the Issuer
under or in connection with any Facility Letter of Credit, if taken or omitted
in the absence of willful misconduct or gross negligence, shall not put the
Issuer under any resulting liability to any Lender or, assuming that the Issuer
has complied with the procedures specified in Section 2.3.4(b) and such Lender
has not given a notice contemplated by Section 2.3.6(a) that continues in full
force and effect, relieve such Lender of its obligations hereunder to the
Issuer. In determining whether to pay under any Facility Letter of Credit, the
Issuer shall have no obligation relative to the Lenders or the Borrower other
than to confirm that any documents required to be delivered under such Facility
Letter of Credit appear to comply on their face with the requirements of such
Facility Letter of Credit.
2.3.6 Participation.
(a) Immediately upon issuance by the Issuer of any
Facility Letter of Credit in accordance with the procedures set forth in Section
2.3.4, each Lender shall be deemed to have irrevocably and unconditionally
purchased and received from the Issuer, without recourse or warranty, an
undivided interest and participation equal to its Pro Rata Share in such
Facility Letter of Credit (including, without limitation, all obligations of the
Borrower with respect thereto) and any security therefor or guaranty pertaining
thereto; provided, that a Letter of Credit or Bankers Acceptance issued by the
Issuer shall not be deemed to be a Facility Letter of Credit for purposes of
this Section 2.3.6 if the Issuer shall have received written notice from any
Lender on or before 10:00 a.m. (Chicago time) on the Issuance Date of such
Letter of Credit or Bankers Acceptance that one or more of the conditions
contained in Section 4.2 is not then satisfied, and, in the event the Issuer
receives such a notice, it shall have no further obligation to issue any
Facility Letter of Credit until such notice is withdrawn by such Lender or such
condition has been satisfied or has been effectively waived in accordance with
the provisions of this Agreement.
(b) In the event that the Issuer makes any payment under
any Facility Letter of Credit and the Borrower shall not have repaid such amount
to the Issuer pursuant to Section 2.3.5, the Issuer shall promptly notify each
Lender of such failure, and each Lender shall promptly and unconditionally pay
to the Issuer for the Issuer's account the amount of such Lender's Pro Rata
Share of the unreimbursed amount of any such payment. The failure of any Lender
to make available to the Issuer its Pro Rata Share of the unreimbursed amount of
any such payment shall not relieve any other Lender of its obligation hereunder
to make available to the Issuer its Pro Rata Share of the unreimbursed amount of
any payment on the date such payment is to be made, but no Lender shall be
responsible for the failure of any other Lender to make available to the Issuer
its Pro Rata Share of the unreimbursed amount of any payment on the date such
payment is to be made.
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(c) Whenever the Issuer receives a payment on account of
a Reimbursement Obligation, including any interest thereon, it shall promptly
pay to the account of each Lender which has funded its participating interest
therein, in immediately available funds, an amount equal to each such Lender's
Pro Rata Share thereof.
(d) The obligations of a Lender to make payments to the
Issuer with respect to a Facility Letter of Credit shall be absolute,
unconditional and irrevocable, not subject to any counterclaim, set-off,
qualification or exception whatsoever and shall be made in accordance with the
terms and conditions of this Agreement under all circumstances. Nothing
contained in this Section 2.3.6(d) shall impair or adversely affect any claim
any Lender may have against the Issuer or any other Lender with respect to any
gross negligence or willful misconduct of the Issuer or such other Lender in
respect of any Facility Letter of Credit.
2.3.7 Payment of Reimbursement Obligations.
(a) The Borrower agrees to pay to the Issuer the amount
of all Reimbursement Obligations, interest and other amounts payable to the
Issuer under or in connection with each Facility Letter of Credit immediately
when due, irrespective of any claim, set-off, defense or other right which the
Borrower or any Subsidiary may have at any time against the Issuer, the Agent or
any other Person, under all circumstances, including without limitation, any of
the following circumstances:
(i) any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense
or other right which the Borrower or any Subsidiary may have
at any time against a beneficiary named in a Facility Letter
of Credit or any transferee of any Facility Letter of Credit
(or any Person for whom any such transferee may be acting),
the Issuer, any Lender, or any other Person, whether in
connection with this Agreement, any Facility Letter of Credit,
the transactions contemplated herein or any unrelated
transactions (including any underlying transactions between
the Borrower or any Subsidiary and the beneficiary named in
any Facility Letter of Credit);
(iii) any draft, certificate or any other document
presented under the Facility Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any
respect;
(iv) the surrender or impairment of any security
for the performance or observance of any of the terms of any
of the Loan Documents;
(v) the occurrence of any Default or Unmatured
Default.
(b) In the event any payment by the Borrower or any
Subsidiary received by the Issuer with respect to a Facility Letter of Credit
and distributed to the Lenders on account of their participation is thereafter
set aside, avoided or recovered from the Agent for any reason or under any
circumstances including without limitation, in connection with any receivership,
liquidation, reorganization or bankruptcy proceeding, each Lender which received
such distribution shall, upon demand by the Issuer, contribute such Lender's Pro
Rata Share of the
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amount set aside, avoided or recovered together with interest at the rate
required to be paid by the Issuer upon the amount required to be repaid by it.
2.3.8 Compensation for Facility Letters of Credit. Borrower
shall pay to the Issuer on or before the Issuance Date of each Letter of Credit
(or such later date as the Borrower and such Issuer shall agree upon in
writing), and shall also pay from time to time such Issuer's reasonable and
customary costs of, and fees for, issuing and servicing such Letter of Credit.
The Borrower shall also pay to the Agent, for the account of the Lenders,
ratably based upon the Lenders' respective Pro Rata Shares, the Issuance Fee
with respect to each Letter of Credit, for the period from the Issuance Date
thereof to and including the final expiration date thereof. The Issuance Fee
shall be due and payable in arrears on each Payment Date and, to the extent any
such fees are then due and unpaid, on the Revolving Facility Termination Date.
The Agent shall promptly remit the Issuance Letter of Credit Fees, when paid to
the Lenders in accordance with their Pro Rata Share thereof.
Borrower shall pay to the Issuer on or before the Issuance Date of each
Bankers Acceptance (or such later date as the Borrower and such Issuer shall
agree upon in writing), and shall also pay from time to time such Issuer's
reasonable and customary costs of issuing and servicing such Bankers Acceptance.
The Borrower shall pay to the Agent, for the account of the Lenders, ratably
based upon the Lenders' respective Pro Rata Shares, the Bankers Acceptance Fee
with respect to each Bankers Acceptance, for the period from the Issuance Date
thereof to and including the final expiration date thereof. The Bankers
Acceptance Fee shall be due and payable in arrears on each Payment Date and, to
the extent any such fees are then due and unpaid, on the Revolving Facility
Termination Date. The Agent shall promptly remit the Bankers Acceptance Fees,
when paid to the Lenders in accordance with their Pro Rata Share thereof.
2.3.9 Facility Letter of Credit Collateral Account. The
Borrower hereby agrees that it will, until the final expiration date of any
Facility Letter of Credit and thereafter as long as any Facility Letter of
Credit Obligation is outstanding or payable to the Lenders, maintain a special
cash collateral account (the "Facility Letter of Credit Collateral Account") at
the Agent's office at the address specified pursuant to Article XIII, in the
name of the Borrower but under the sole dominion and control of the Agent, for
the ratable benefit of the Lenders and in which the Borrower shall have no
interest other than as set forth in Section 15 of the Security Agreement. Upon
demand of the Agent, the Borrower shall deposit funds into the Facility Letter
of Credit Collateral Account up to the amount of the Facility Letter of Credit
Obligations in existence from time to time. Nothing in this Section 2.3.9 shall
either obligate the Agent to require the Borrower to deposit any funds in the
Facility Letter of Credit Collateral Account or limit the right of the Agent to
release any funds held in the Facility Letter of Credit Collateral Account other
than as required by Section 15 of the Security Agreement.
2.4 General Facility Terms.
2.4.1 Fees; Reductions in Aggregate Commitment.
2.4.1.1 Fees. The Borrower agrees to pay to the
Agent the following fees:
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(i) Closing Fee. On the Closing Date, the
Borrower shall pay to the Agent for the ratable account of the
Lenders a one time non-refundable closing fee of $200,000.
(ii) Commitment Fee. For the account of each
Lender in proportion to such Lender's Pro Rata Share, a
nonrefundable quarterly commitment fee equal to (a) the
product of the figure designated on the Pricing Schedule as
the Applicable Fee Rate and (b) the average non-utilized
portion of the Aggregate Revolving Commitment during such
quarter, which commitment fee shall be deemed earned in its
entirety on the date of this Agreement (the "Commitment Fee").
The Commitment Fee shall be payable quarterly in arrears on
June 30, 2000 and on the last Business Day of each September,
December, March and June thereafter prior to the Facility
Termination Date for Revolving Advances with the outstanding
unpaid balance of such fee due on the Facility Termination
Date for Revolving Advances.
(iii) Agent Fees. For the Agent's own account,
such fees as the Borrower and the Agent shall have agreed upon
pursuant to that certain letter agreement dated March 9, 2000,
between the Borrower and the Agent, or as otherwise agreed
upon from time to time.
(iv) Prepayment Premium. In the event Borrower
prepays any amount of the Advances hereunder using funds not
Internally Generated by Borrower's Operations, Borrower shall
pay to Agent for the ratable benefit of the Lenders on the
date of such prepayment (the "Prepayment Date") in addition to
the amount prepaid, a prepayment premium of one percent (1%)
of the amount prepaid. If the balance of the Loans is
accelerated in accordance with the terms of this Agreement,
the resulting balance due shall be considered a prepayment due
and payable as of the date of acceleration with a prepayment
premium due and owing thereon in accordance with this Section
2.4.1.1. Borrower agrees that the prepayment premium is
payable as liquidated damages for the loss of a bargain, is a
reasonable estimate of loss and its payment shall not in any
way reduce, affect or impair any other Obligations of Borrower
under this Agreement.
2.4.1.2 Reductions in Aggregate Revolving Commitment. The
Borrower may permanently reduce the Aggregate Revolving Commitment in
whole, or in part ratably among the Lenders in integral multiples of
$1,000,000, upon at least three Business Days' written notice to the
Agent, which notice shall specify the amount of any such reduction,
provided, however, that the amount of the Aggregate Revolving
Commitment may not be reduced below an amount equal to the sum of (a)
the aggregate principal amount of the outstanding Revolving Advances
plus (b) the outstanding Facility Letter of Credit Obligations.
2.4.2 Optional Principal Payments; Mandatory Principal Payments.
In addition to funds collected in the Lock Box, the Borrower may from
time to time pay all outstanding Floating Rate Advances, or, pay in a minimum
aggregate amount of $300,000 or any integral
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multiple of $100,000 in excess thereof, without penalty or premium, any portion
of the outstanding Floating Rate Advances upon prior notice to the Agent not
later than 10:30 a.m. (Chicago time) at least one (1) Business Day before the
date of such prepayment. Notwithstanding anything in this Section 2.4.2 to the
contrary, if at any time (i) the sum of the aggregate unpaid principal balance
of the Advances plus the Facility Letter of Credit Obligations exceeds the
Aggregate Commitment, or (ii) the sum of the aggregate unpaid principal balance
of the Revolving Advances plus the Facility Letter of Credit Obligations exceeds
the Aggregate Revolving Commitment, the Borrower shall, make an immediate
mandatory payment on the Advances and/or Revolving Advances equal to such
excess.
2.4.3 Changes in Interest Rate, etc. Each Floating Rate
Advance shall bear interest on the outstanding principal amount thereof, for
each day from and including the date such Advance is made or is automatically
converted from a Eurodollar Advance into a Floating Rate Advance pursuant to
Section 2.2.7, to but excluding the date it is paid or is converted into a
Eurodollar Advance pursuant to Section 2.2.7 hereof, at a rate per annum equal
to the Floating Rate for such day. Changes in the rate of interest on that
portion of any Advance maintained as a Floating Rate Advance will take effect
simultaneously with each change in the Base Rate. Each Eurodollar Advance shall
bear interest on the outstanding principal amount thereof from and including the
first day of the Interest Period applicable thereto to (but not including) the
last day of such Interest Period at the interest rate determined by the Agent as
applicable to such Eurodollar Advance based upon the Borrower's selections under
Sections 2.2.6 and 2.2.7 and otherwise in accordance with the terms hereof. No
Interest Period may end after the Facility Termination Date.
2.4.4 Rates Applicable After Default. During the
continuance of a Default, the Required Lenders may, at their option, by notice
to the Borrower (which notice may be revoked at the option of the Required
Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent
of the Lenders to changes in interest rates), declare that each Advance shall
bear interest at a rate per annum equal to the rate otherwise applicable to the
Advance plus, to the extent permitted by law, 2% per annum, provided that,
during the continuance of a Default under Section 7.6 or 7.7, the interest rate
set forth in this sentence shall be applicable to all Advances without any
election or action on the part of the Agent or any Lender.
2.4.5 Method of Payment. All payments of the Obligations
hereunder shall be made, without setoff, deduction, or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to Article XIII, or at any other Lending Installation of the Agent
specified in writing by the Agent to the Borrower, by noon (local time at the
relevant Lending Installation) on the date when due and the Agent will promptly
distribute to each Lender its ratable share of each such payment received by the
Agent for the account of the Lenders; provided, however, that if on any date the
Borrower shall pay less than the full amount of Obligations owing on such date,
such payment shall be distributed to the Lenders ratably based upon the ratio of
the aggregate amount of Obligations owing to each such Lender on such date to
the aggregate amount of Obligations owing to all the Lenders on such date. Each
payment delivered to the Agent for the account of any Lender shall be delivered
promptly by the Agent to such Lender in the same type of funds that the Agent
received at its address specified pursuant to Article XIII or at any Lending
Installation specified in a notice received by the Agent from such Lender. The
Agent is hereby authorized to charge the account of the Borrower maintained with
ANB for each payment of principal, interest and fees as it becomes due
hereunder.
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2.4.6 Recovery of Payment. In the event any payment by the
Borrower or any Subsidiary received by the Agent and distributed to the Lenders
is thereafter set aside, avoided or recovered from the Agent for any reason for
under any circumstances including without limitation, in connection with any
receivership, liquidation, reorganization or bankruptcy proceeding, each Lender
which received such distribution shall, upon demand by the Agent, contribute
such Lender's Pro Rata Share of the amount set aside, avoided or recovered
together with interest at the rate required to be paid by the Agent upon the
amount required to be repaid by it.
2.4.7 Collateral. Payment and performance of all of the
Obligations shall be secured by the Collateral pursuant to the Security
Agreement.
2.4.8 Notes; Telephonic Notices. Each Lender is hereby
authorized to record the principal amount of each of its Loans and each
repayment on the schedule attached to its applicable Note(s), and such entries
shall be prima facie evidence of the existence and the amounts of the
Obligations therein recorded; provided, however, that neither the failure to so
record nor any error in such recordation shall affect the Borrower's obligations
under any such Note. The Borrower hereby authorizes the Lenders and the Agent to
extend, or continue Revolving Advances and to transfer funds and issue Facility
Letters of Credit in each case based on telephonic notices made by any
Authorized Officer or Authorized Officers the Agent or any Lender in good faith
believes to be acting on behalf of the Borrower. The Borrower agrees to deliver
promptly to the Agent a written confirmation if such confirmation is requested
by the Agent or any Lender, of each telephonic notice signed by an Authorized
Officer. If the written confirmation differs in any material respect from the
action taken by the Agent and the Lenders, the records of the Agent and the
Lenders shall govern absent manifest error.
2.4.9 Interest Payment Dates; Interest and Fee Basis.
Interest accrued on each Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof, on any date
on which such Advance is prepaid, whether due to acceleration or otherwise, and
at maturity. Interest accrued on that portion of the outstanding principal
amount of any Advance optionally prepaid on a day other than a Payment Date,
shall be payable on the Payment Date next succeeding the date of such
prepayment. Interest on all Advances and fees shall be calculated for actual
days elapsed on the basis of a 360-day year. Interest shall be payable for the
day an Advance is made but not for the day of any payment on the amount paid if
payment is received prior to noon (local time) at the place of payment. If any
payment of principal on an Advance shall become due on a day which is not a
Business Day and, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in computing interest in connection
with such payment.
2.4.10 Principal and Interest Payments Upon The Term Loan.
Commencing April 30, 2000 and on each Payment Date thereafter Borrower shall pay
to Lenders in addition to all interest and other payments due on such date, the
monthly principal amount of $83,333.33 upon the Term Loan. Interest on the Term
Loan shall be calculated based upon a five (5) year amortization with all
accrued interest due and payable on each Payment Date.
2.4.11 Notification of Advances, Interest Rates, and
Prepayments. Promptly after receipt thereof, the Agent will notify each Lender
of the contents of each Borrowing Notice, Facility Letter of Credit Request and
repayment notice received by it hereunder. The Agent will notify each Lender of
each change in the Base Rate.
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2.4.12 Lending Installations. Each Lender may book its Loans
at any Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written or telex
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.4.13 Non-Receipt of Funds by the Agent. Unless the
Borrower or a Lender, as the case may be, notifies the Agent prior to the date
on which it is scheduled to make payment to the Agent of (i) in the case of a
Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of
principal, interest or fees to the Agent for the account of the Lenders, that it
does not intend to make such payment, the Agent may assume that such payment has
been made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (i) in the case of repayment by a Lender,
the Federal Funds Effective Rate for such day or (ii) in the case of repayment
by the Borrower, the interest rate applicable to the relevant Advance.
2.4.14 Withholding Tax Exemption. At least five Business
Days prior to the first date on which interest or fees are payable hereunder for
the account of any Lender, each Lender that is not incorporated under the laws
of the United States of America, or a state thereof, agrees that it will deliver
to each of the Borrower and the Agent (i) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224 (or successor form),
certifying in either case that such Lender is entitled to receive payments under
this Agreement and the Notes without deduction or withholding of any United
States federal income taxes, and (ii) a United States Internal Revenue Form W-8
or W-9, as the case may be, and certify that it is entitled to an exemption from
United States backup withholding tax. Each Lender which so delivers a Form 1001
or 4224 (or successor form) further undertakes to deliver to each of the
Borrower and the Agent two additional copies of such form (or successor form) on
or before the date that such form expires (currently, three successive calendar
years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or
after the occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Agent, in each case
certifying that such Lender is entitled to receive payments under this Agreement
and the Notes without deduction or withholding of any United States federal
income taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the Agent that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax.
2.4.15 Maintenance of Balances and Lock Box Account.
Throughout the term of this Agreement the Borrower agrees (i) to utilize
American National Bank and Trust Company of Chicago as its primary depository
and remittance point, (ii) at all times to maintain the Lock Box and Lock Box
Account (as defined in the Security Agreement) with the Agent and (iii) in the
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event depository accounts for collection purposes are maintained with other
Persons, to cause such Persons to enter blocked account agreements with Agent,
reasonably acceptable to Agent.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1 Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law) adopted, enacted, modified or otherwise becoming
effective after the date hereof, or any interpretation thereof, or the
compliance of any Lender therewith,
(i) subjects any Lender or any applicable
Lending Installation to any tax, duty, charge or withholding
on or from payments due from the Borrower (excluding any
Excluded Tax), or changes the basis of taxation of payments to
any Lender in respect of its Loans, the Facility Letters of
Credit or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any
reserve, assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender or any
applicable Lending Installation (other than reserves and
assessments taken into account in determining the interest
rate applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of
which is to increase the cost to any Lender or any applicable
Lending Installation of making, funding, maintaining, issuing
or participating in loans or Letters of Credit or reduces any
amount receivable by any Lender or any applicable Lending
Installation in connection with loans or Letters of Credit, or
requires any Lender or any applicable Lending Installation to
make any payment calculated by reference to the amount of
loans held, Letters of Credit issued or participated in or
interest received by it, in each case by an amount deemed
material by such Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or reduction in an amount
received which such Lender reasonably determines is attributable to making,
funding and maintaining its Loans and its Commitment.
3.2 Changes in Capital Adequacy Regulations. If a Lender
determines the amount of capital required or expected to be maintained by such
Lender, any Lending Installation of such Lender or any corporation controlling
such Lender is increased as a result of a Change, then, within 15 days of demand
by such Lender, the Borrower shall pay such Lender the amount necessary to
compensate for any shortfall in the rate of return on the portion of such
increased capital which such Lender determines is attributable to this
Agreement, its Loans or its obligation to make Loans hereunder (after taking
into account such Lender's policies as to capital adequacy).
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3.3 Taxes.
(i) All payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any Note
shall be made free and clear of and without deduction for any
and all Taxes. If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, (a) the sum payable
shall be increased as necessary so that after making all
required deductions (including deductions applicable to
additional sums payable under this Section 3.3) such Lender or
the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made,
(b) the Borrower shall make such deductions, (c) the Borrower
shall pay the full amount deducted to the relevant authority
in accordance with applicable law and (d) the Borrower shall
furnish to the Agent the original copy of a receipt evidencing
payment thereof within 30 days after such payment is made.
(ii) In addition, the Borrower hereby agrees to
pay any present or future stamp or documentary taxes and any
other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or under any Note
or from the execution or delivery of, or otherwise with
respect to, this Agreement or any Note ("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the
Agent and each Lender for the full amount of Taxes or Other
Taxes (including, without limitation, any Taxes or Other Taxes
imposed on amounts payable under this Section 3.3) paid by the
Agent or such Lender and any liability (including penalties,
interest and expenses) arising therefrom or with respect
thereto. Payments due under this indemnification shall be made
within 30 days of the date the Agent or such Lender makes
demand therefor pursuant to Section 3.4.
(iv) Each Lender that is not incorporated under
the laws of the United States of America or a state thereof
(each a "Non-U.S. Lender") agrees that it will, not less than
ten (10) Business Days after the date of this Agreement, (x)
deliver to each of the Borrower and the Agent two duly
completed copies of United States Internal Revenue Service
Form 1001 or 4224, certifying in either case that such Lender
is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income
taxes, and (y) deliver to each of the Borrower and the Agent a
United States Internal Revenue Form W-8 or W-9, as the case
may be, and certify that it is entitled to an exemption from
United States backup withholding tax. Each Non-U.S. Lender
further undertakes to deliver to each of the Borrower and the
Agent (x) renewals or additional copies of such form (or any
successor form) on or before the date that such form expires
or becomes obsolete, and (y) after the occurrence of any event
requiring a change in the most recent forms so delivered by
it, such additional forms or amendments thereto as may be
reasonably requested by the Borrower or the Agent. All forms
or amendments described in the preceding sentence shall
certify that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United
States federal income taxes, unless an event (including
without limitation any change in treaty, law or
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regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such
forms inapplicable or which would prevent such Lender from
duly completing and delivering any such form or amendment with
respect to it and such Lender advises the Borrower and the
Agent that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
(v) For any period during which a Non-U.S.
Lender has failed to provide the Borrower with an appropriate
form pursuant to clause (iv), above (unless such failure is
due to a change in treaty, law or regulation, or any change in
the interpretation or administration thereof by any
governmental authority, occurring subsequent to the date on
which a form originally was required to be provided), such
Non-U.S. Lender shall not be entitled to indemnification under
this Section 3.3 with respect to Taxes imposed by the United
States; provided that, should a Non-U.S. Lender which is
otherwise exempt from or subject to a reduced rate of
withholding tax become subject to Taxes because of its failure
to deliver a form required under clause (iv), above, the
Borrower shall take such steps as such Non-U.S. Lender shall
reasonably request to assist such Non-U.S. Lender to recover
such Taxes.
(vi) Any Lender that is entitled to an exemption
from or reduction of withholding tax with respect to payments
under this Agreement or any Note pursuant to the law of any
relevant jurisdiction or any treaty shall deliver to the
Borrower (with a copy to the Agent), at the time or times
prescribed by applicable law, such properly completed and
executed documentation prescribed by applicable law as will
permit such payments to be made without withholding or at a
reduced rate.
3.4 Lender Statements; Survival of Indemnity. Each Lender shall
deliver a written statement of such Lender to the Borrower (with a copy to the
Agent) as to the amount due, if any, under Section 3.1, 3.2 or, 3.3. Such
written statement shall set forth in reasonable detail the calculations upon
which such Lender determined such amount and shall be final, conclusive and
binding on the Borrower. Unless otherwise provided herein, the amount specified
in the written statement of any Lender shall be payable on demand after receipt
by the Borrower of such written statement. The obligations of the Borrower under
Sections 3.1, 3.2 and 3.3 shall survive for a period of one year after the later
of the payment in full of the Obligations and the termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Initial Advance and Facility Letter of Credit. The Lenders
shall not be required to make the initial Advance hereunder and, if the initial
Advance shall not have been made, the Issuer shall not be required to issue any
Facility Letter of Credit hereunder unless the Borrower has furnished to the
Agent with sufficient copies for the Lenders the following, each dated as of the
initial Borrowing Date or Issuance Date, as the case may be (or such earlier
date as shall be acceptable to the Agent):
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(i) Copies of the certificate of formation of
Borrower, together with all amendments thereto, and
certificates of good standing of Borrower from each
jurisdiction in which Borrower is qualified to do business,
all certified by the appropriate governmental officers in
their respective jurisdiction.
(ii) Copies, certified by the Secretary or an
Assistant Secretary of Borrower, of its by-laws, operating
agreements and of Board of Directors' and members' resolutions
(and resolutions of other bodies, if any are deemed necessary
by counsel for the Agent) authorizing the execution of each of
the Loan Documents to which such Borrower is a party.
(iii) Incumbency certificates, executed by the
Secretary or an Assistant Secretary of each Borrower, which
shall identify by name and title and bear the signature of the
officers of Borrower authorized to sign the Loan Documents to
which it is a party and, with respect to the Borrower, to make
borrowings hereunder, upon which certificates the Agent and
the Lenders shall be entitled to rely until informed of any
change in writing by the Borrower.
(iv) A certificate, signed by the president or
chief financial officer of the Borrower, stating that on the
initial Borrowing Date that the Borrower is solvent and that
no Default or Unmatured Default has occurred and is
continuing.
(v) A written opinion of Dewey Ballantine LLP,
outside counsel to the Borrower, addressed to the Agent and
the Lenders in substantially the form of Exhibit E hereto.
(vi) This Agreement and the Notes fully executed
and payable to the order of each of the Lenders.
(vii) A Security Agreement executed by the
Borrower and (if applicable) the Subsidiaries in favor of the
Agent and the Lenders, together with:
(a) original copies of Uniform Commercial
Code financing statements (Form UCC-1), dated a date
reasonably near (but not subsequent to) to the
Closing Date naming the Borrower as Debtor and the
Agent as the secured party, in a form sufficient to
be filed under the Uniform Commercial Code of all
jurisdictions as may be necessary or, in the
reasonable opinion of the Agent or Required Lenders,
desirable to perfect the security interest of the
Agent and Lenders pursuant to the Security Agreement;
(b) executed copies of proper Uniform
Commercial Code termination statements (Form UCC-3)
and such other instruments or agreements to release
all Liens and other rights of any Person in any
collateral covered by the Collateral Documents;
(c) certified copies of Uniform Commercial
Code Requests for Information or copies, or a similar
search report certified by the Borrower, dated a date
reasonably near (but not subsequent to) to the
Closing Date,
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listing all effective financing statements which name
Reynolds Fasteners, Inc. as the debtor and which
relate to the assets purchased by the Borrower
pursuant to the Reynolds Purchase Agreement, none of
which financing statements (other than those
described in subsection (b) of this Section) shall
cover any collateral covered by the Security
Agreement.
(viii) Subordination agreements in form and
substance acceptable to the Agent with respect to Subordinated
Debt.
(ix) Written money transfer instructions
addressed to the Agent and signed by an Authorized Officer,
together with such other related money transfer authorizations
as the Agent may have reasonably requested.
(x) An executed copy of the Reynolds Purchase
Agreement in form and substance acceptable to Agent and the
Required Lenders in their sole discretion.
(xi) Proof satisfactory to Agent that Alleghany
has funded to the Borrower funds in excess of $8 million for
the Reynolds Acquisition and such funds will be used to pay a
portion of the purchase price in the Reynolds Acquisition.
(xii) The terms and conditions of the Reynolds
Acquisition and the Borrower's capitalization upon closing of
the Reynolds Acquisition are satisfactory to the Agent and the
Required Lenders.
(xiii) Completion of a field audit conducted by
Agent, the results of which are satisfactory to Agent, and
payment by Borrower to Agent of the full cost of such field
audit.
(xiv) A desk top appraisal of Borrower's fixed
assets in form and substance satisfactory to Agent.
(xv) Evidence satisfactory to the Agent that the
Borrower shall have paid, or concurrently with the making of
the initial Advance or the issuance of the initial Facility
Letter of Credit shall pay, in full, all fees required to be
paid pursuant to Section 2.4.1 on or before the initial
Borrowing Date or Issuance Date, as the case may be.
(xvi) The insurance certificate described in
Section 5.24 along with evidence that the Agent has been named
as loss payee under all policies of casualty insurance, and as
additional insured under all policies of liability insurance
required in accordance with Section 5.23 and under the
Security Agreement (in the form of certificates of insurance,
with standard lenders' loss payable endorsements acceptable to
Agent or other instruments or documents evidencing such
insurance coverage).
(xvii) Intentionally Omitted.
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(xviii) Such consents, estoppels, subordination
agreements and other documents and instruments executed by
landlords, tenants and other Persons party to material
contracts relating to any Collateral as to which the Agent
shall be granted a Lien for the benefit of the Lenders, as
requested by the Agent or any Lender.
(xix) Evidence that all other actions necessary
or, in the opinion of the Agent or the Lenders, desirable to
perfect and protect the first priority Lien created by the
Security Agreement, and to enhance the Agent's ability to
preserve and protect its interests in and access to the
Collateral, have been taken.
(xx) Such other documents as any Lender or its
counsel may have reasonably requested.
4.2 Each Advance and Facility Letter of Credit. The Lenders shall
not be required to make any Advance (other than an Advance that, after giving
effect thereto and to the application of the proceeds thereof, does not increase
the aggregate amount of outstanding Advances) and the Issuer shall not be
required to issue any Facility Letter of Credit, unless on the applicable
Borrowing Date or Issuance Date, as the case may be:
(i) There exists no Default or Unmatured
Default.
(ii) The representations and warranties contained
in Article V are true and correct as of such Borrowing Date
except to the extent any such representation or warranty is
stated to relate solely to an earlier date, in which case such
representation or warranty shall be true and correct on and as
of such earlier date.
Each Borrowing Notice with respect to each such Advance and each Facility Letter
of Credit Request with respect to each such Facility Letter of Credit shall
constitute a representation and warranty by the Borrower that the conditions
contained in Sections 4.2(i) and (ii) have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1 Corporate Existence and Standing. The Borrower is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Delaware, and each Subsidiary (if any) is a limited
liability company duly formed, or a corporation duly incorporated, validly
existing and in good standing under the laws of its respective state of
formation or incorporation. Each of the Borrower and the Subsidiaries is duly
qualified and in good standing as a foreign corporation or limited liability
company, as the case may be, authorized to do business in each jurisdiction
where such qualification is required because of the nature of its activities or
properties and where the failure to maintain such qualification would singly or
in the aggregate cause a Material Adverse Effect.
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5.2 Authorization and Validity. The Borrower has the power and
authority and legal right to execute and deliver the Loan Documents to which it
is a party and to perform its obligations thereunder. The execution and delivery
by the Borrower of the Loan Documents and the performance of its obligations
thereunder have been duly authorized by proper limited liability company
proceedings, and the Loan Documents constitute legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
the terms thereof, except as enforceability may be limited by bankruptcy,
insolvency or similar laws or general principles of equity relating to remedies
affecting or relating to the enforcement of creditors' rights generally.
5.3 No Conflict; Government Consent. Neither the execution and
delivery by the Borrower of the Loan Documents, nor the consummation of the
transactions therein contemplated, nor compliance with the provisions thereof
will violate any law, rule, regulation, order, writ, judgment, injunction,
decree or award binding on the Borrower or any of its Subsidiaries, or violate
the Borrower's or any Subsidiary's limited liability company agreement,
certificate of incorporation or by-laws, or the provisions of any indenture,
instrument or agreement to which the Borrower or any of its Subsidiaries is a
party or is subject, or by which it or its Property is bound, or conflict with
or constitute a default thereunder, or result in the creation or imposition of
any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to
the terms of any such indenture, instrument or agreement, except for any such
violation or conflict which would not singly or in the aggregate cause a
Material Adverse Effect. No order, consent, approval, license authorization, or
validation of, or filing, recording or registration with, or exemption by, or
other action in respect of any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection with
the execution, delivery and performance of, or the legality, validity, binding
effect of, any of the Loan Documents, except as may be applicable because of any
Lender, the Agent or an Issuer being a party thereto or except as may be
required with respect to particular Facility Letters of Credit, and except for
any failure to obtain any such order, consent, approval, license, authorization
or exemption or to make any such filing or recordation or to take any such other
action which would not singly or in the aggregate cause a Material Adverse
Effect.
5.4 Financial Statements. The December 31, 1999 consolidated
financial statements of the Borrower and its Subsidiaries heretofore delivered
to the Lenders were prepared in accordance with GAAP as in effect on the date
such statements were prepared and fairly present the consolidated financial
condition and operations of the Borrower and its Subsidiaries at such date and
the consolidated results of their operations for the period then ended.
5.5 Material Adverse Change. Except as set forth on Schedule 5.5
hereto, as amended from time to time, since December 31, 1999, there has been no
change in the business, Property, financial condition or results of operations
of the Borrower and its Subsidiaries, taken as a whole, which could reasonably
be expected to have a Material Adverse Effect.
5.6 Taxes. Except as set forth as of the date of this Agreement on
Schedule 5.6 hereto, the Borrower and its Subsidiaries have filed (or joined in
the filing of) all United States federal income tax returns and all other tax
returns which are required to be filed and have paid all taxes due pursuant to
said returns or pursuant to any assessment received by the Borrower or any of
its Subsidiaries, except such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided in accordance with
GAAP and as to which no Lien exists, except for failures to file or pay which
could not be reasonably expected to have a
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Material Adverse Effect. The United States federal income tax returns of (or
which include) the Borrower and its Subsidiaries have been audited by the
Internal Revenue Service through the Fiscal Year ended 1995. No tax liens (other
than those, if any, which are Permitted Liens) have been filed and no claims are
being asserted with respect to any such taxes. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of any
taxes or other governmental charges are adequate.
5.7 Litigation and Contingent Obligations. Except as set forth on
Schedule 5.7 hereto, as amended from time to time, there is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the best knowledge of any of their officers, threatened against or affecting the
Borrower or any of its Subsidiaries which could be reasonably expected to have a
Material Adverse Effect or which seeks to prevent, enjoin or delay the making of
the Loans or Advances. Other than any liability incidental to such litigation,
arbitration or proceedings, neither the Borrower nor any Subsidiary has any
material contingent obligations not provided for or disclosed in the financial
statements referred to in Section 5.4.
5.8 Subsidiaries. Except as otherwise disclosed to the Lenders in
writing on or prior to the date hereof, Schedule 5.8 hereto contains an accurate
list of all Subsidiaries of the Borrower as of the date of this Agreement,
setting forth their respective jurisdictions of formation or incorporation and
the percentage of their respective equity interests owned by the Borrower or
other Subsidiaries. Such Subsidiaries do not own any Collateral or if any
Collateral is owned, have delivered to Agent a Security Agreement and UCC
financing statements required by Agent. All of the issued and outstanding equity
interests of such Subsidiaries have been duly authorized and issued and those
equity interests which are owned by Borrower or one or more of its Subsidiaries
are fully paid and non-assessable.
5.9 ERISA. The projected benefit obligations at the end of 1999 in
excess of the fair value of plan assets at the end of 1999 (computed in
accordance with GAAP) of all Single Employer Plans did not exceed $1,500,000.
Neither the Borrower nor any other member of the Controlled Group has incurred,
or is reasonably expected to incur, any withdrawal liability to Multiemployer
Plans in excess of $100,000 in the aggregate. Each Benefit Plan complies in all
material respects with all applicable requirements of law and regulations, no
Reportable Event has occurred with respect to any Plan, neither the Borrower nor
any other members of the Controlled Group has withdrawn from any Plan, except as
set forth as of the date of this Agreement on Schedule 5.9 hereto, or initiated
steps to do so, and no steps have been taken to reorganize or terminate any
Plan. Each Benefit Plan is in substantial compliance with ERISA and the Code and
the Borrower has not received any notice from the government or any agency or
department thereof asserting that any Benefit Plan is not in compliance with
either ERISA or the Code.
5.10 Accuracy of Information. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading, provided that this Section 5.10 shall not apply to any plan,
forecast, projection or pro forma financial information contained in such
materials that is based upon good faith estimates and assumptions believed by
the Borrower or such Subsidiary to be reasonable at the time made.
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5.11 Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of those assets of the Borrower and each of its
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder.
5.12 Material Agreements. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement to which it is a party, except such
default which could not reasonably be expected to have a Material Adverse
Effect.
5.13 Compliance With Laws. The Borrower and each of its
Subsidiaries have complied with all applicable statutes, rules, regulations,
orders and restrictions of any domestic or foreign government or any
instrumentality or agency thereof, having jurisdiction over the conduct of their
respective businesses or the ownership of their respective Property except for
any failure to comply with any of the foregoing which could not reasonably be
expected to have a Material Adverse Effect.
5.14 Ownership of Properties. Except as set forth on Schedule 5.14
hereto and except for sales of inventory and other assets made in the ordinary
course of business since December 31, 1999, on the date of this Agreement, the
Borrower and its Subsidiaries will have good title, free of all Liens (other
than those permitted by Section 6.16), to all of the Property and assets
reflected as owned by it in the Borrower's December 31, 1999 consolidated
balance sheet heretofore delivered to the Lenders.
5.15 Environmental Matters. Except as set forth on Schedule 5.15
hereto, as amended from time to time, in the ordinary course of its business,
the officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
concluded that Environmental Laws cannot reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary has any reason
to believe that its operations are not in material compliance with any of the
requirements of applicable Environmental Laws or are the subject of any federal
or state investigation evaluating whether any remedial action is needed to
respond to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could reasonably be
expected to have a Material Adverse Effect.
5.16 Investment Company Act. Neither the Borrower nor any
Subsidiary thereof is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
5.17 Public Utility Holding Company Act. Neither the Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.18 Intentionally Omitted.
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5.19 Intellectual Property. Borrower owns, is licensed under, or
otherwise has the rights to, all patents, trademarks, trade names, copyrights,
technology, know-how and processes used in or necessary for the conduct of its
business as currently conducted (collectively, "Intellectual Property"), except
where the failure to own, be licensed under or otherwise have the rights to any
such Intellectual Property could not reasonably be expected to have a Material
Adverse Effect. All such patents, federally-registered trademarks and registered
copyrights included in the Intellectual Property are properly registered, filed
or issued in the appropriate office and jurisdictions for such registrations,
filing or issuances. No material claim has been asserted by any Person with
respect to the use of any Intellectual Property, or challenging or questioning
the validity or effectiveness of any Intellectual Property, and to the knowledge
of Borrower, the use of such Intellectual Property by Borrower does not infringe
on the rights of any Person.
5.20 Labor. There are no strikes, work stoppages, unfair labor
charges, equal employment opportunity proceedings, wage payment or material
unemployment compensation proceedings, material workmen's compensation
proceedings or other material labor or employee related controversies, pending
or, to Borrower's knowledge, threatened involving Borrower and any of its
employees, except for any of the foregoing which would not in the aggregate have
a Material Adverse Effect.
5.21 Solvency. After giving effect to the consummation of the
transactions contemplated by this Agreement, Borrower has capital sufficient to
carry on its business and transactions and all businesses and transactions in
which it is about to engage and is solvent and able to pay its debts as they
mature and Borrower owns property the fair saleable value of which is greater
than the amount required to pay Borrower's Indebtedness. No transfer of property
is being made and no Indebtedness is being incurred in connection with the
transactions contemplated by this Agreement with the intent to hinder, delay or
defraud either present or future creditors of Borrower or any Affiliate.
5.22 Post-Retirement Benefits. The present value of the expected
cost to the Borrower and its Subsidiaries of post-retirement medical and
insurance benefits provided by the Borrower and its Subsidiaries to its
employees and former employees, as estimated by the Borrower in accordance with
procedures and assumptions deemed reasonable by the Required Lenders, does not
exceed $250,000.
5.23 Insurance. In addition to insurance requirements set forth in
the Security Agreement, the Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons; including workers'
compensation insurance, public liability and property and casualty insurance
which amount shall not be reduced by the Borrower in the absence of 10 days'
prior notice to the Agent other than in the ordinary course of business. All
such insurance shall name the Agent as loss payee/mortgagee and as additional
insured, for the benefit of the Lenders, as their interests may appear. All
casualty and key man insurance maintained by the Borrower shall name the Agent
as loss payee and all liability insurance shall name the Agent as additional
insured for the benefit of the Lenders, as their interests may appear. Upon
request of the Agent or any Lender, the Borrower shall furnish the Agent, with
sufficient copies for each Lender, at reasonable intervals
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(but not more than once per calendar year) a certificate of a Responsible
Officer of the Borrower (and, if requested by the Agent, any insurance broker of
the Borrower) setting forth the nature and extent of all insurance maintained by
the Borrower and its Subsidiaries in accordance with this Section or the
Security Agreement (and which, in the case of a certificate of a broker, were
placed through such broker).
5.24 Insurance Certificate. The certificate delivered at Closing
signed by the President or Chief Financial Officer of the Borrower, that attests
to the existence and adequacy of, and summarizes, the property and casualty
insurance program carried by the Borrower with respect to itself and its
Subsidiaries and that has been furnished by the Borrower to the Agent and the
Lenders is complete and accurate. This summary includes the insurer's or
insurers' name(s), policy number(s), expiration date(s), amount(s) of coverage,
type(s) of coverage, exclusion(s), and deductibles. This summary also includes
similar information, and describes any reserves, relating to any self-insurance
program that is in effect.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1 Financial Reporting. The Borrower will maintain, for itself
and each Subsidiary, a system of accounting established and administered in
accordance with GAAP, and furnish to the Lenders:
(i) Within 90 days after the close of each of its Fiscal
Years, an unqualified (except for qualifications relating to changes in
generally accepted accounting principles or practices reflecting
changes in generally accepted accounting principles) audit report
certified by KPMG, or by other independent certified public accountants
reasonably acceptable to the Agent, prepared in accordance with GAAP on
a consolidated basis for itself and its Subsidiaries, including balance
sheets as of the end of such period, related profit and loss and
reconciliation of surplus statements, and a statement of cash flows,
and accompanied by a certificate of said accountants that, in the
course of their examination necessary for their certification of the
foregoing, they have obtained no knowledge of any Default or Unmatured
Default, or if, in the opinion of such accountants, any Default or
Unmatured Default shall exist, stating the nature and status thereof;
(ii) Within 30 days after the end of each month of each of
its Fiscal Years, for itself and its Subsidiaries, consolidated and
consolidating unaudited balance sheets as at the close of such month
most recently ended and consolidated and consolidating profit and loss
and reconciliation of surplus statements, and within 30 days after the
end of each fiscal quarter of its Fiscal Years, for itself and its
Subsidiaries, a statement of cash flows for the period from the
beginning of such Fiscal Year to the end of such month, all prepared in
accordance with GAAP and certified by the chief financial officer of
the Borrower;
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(iii) Together with the financial statements required under
Sections 6.1(i) and (ii), submitted at the end of each of the
Borrower's fiscal quarters, a Compliance Certificate.
(iv) Schedules of Accounts, Inventory and Payables. On or
before the fifteenth day of each calendar month a Schedule of Accounts,
a Schedule of Inventory and a Schedule of Payables as at the last day
of the immediately preceding calendar month, each showing an aging of
Accounts, Inventory and accounts payable respectively and otherwise in
form and substance satisfactory to the Agent.
(v) Sales and Collection Reports. Not less frequently
than weekly (and more frequently in the Agent's reasonable discretion),
a sales and collection report for the immediately preceding week, each
in form and substance satisfactory to the Agent.
(vi) Borrowing Base Certificate. Not less frequently than
monthly (and more frequently in the Agent's reasonable discretion) a
Borrowing Base Certificate in the form of Exhibit H hereto listing all
Accounts generated by the Borrower during the immediately prior month.
Unless the Agent provides notification otherwise, such Borrowing Base
Certificate shall be delivered to Agent on the fifteenth day of every
calendar month.
(vii) Forthwith upon Borrower's having knowledge, the
occurrence of a Default or Unmatured Default written notice describing
in detail such event.
(viii) Forthwith upon Borrower's having knowledge of the
institution of, or any adverse determination in any litigation,
arbitration proceeding or court proceeding in which any injunctive
relief is sought or in which money damages in excess of $500,000 in the
aggregate are sought, written notice describing such matter and the
Borrower's intended response.
(ix) [Intentionally Omitted].
(x) As soon as possible and in any event within 10 days
after the Borrower knows that any Reportable Event has occurred with
respect to any Benefit Plan, a statement, signed by the chief financial
officer of the Borrower, describing said Reportable Event and the
action which the Borrower proposes to take with respect thereto.
(xi) Notice as soon as possible and in any event within 10
days after the Borrower or any Controlled Group member withdraws from a
Multiemployer Plan and the liability from such withdrawal could
reasonably be expected to exceed $100,000.
(xii) Notice as soon as possible and in any event within 10
days after the Borrower terminates a Single Employer Plan under Section
4041 of ERISA or the Borrower knows that any Controlled Group Member
has terminated a Single Employer Plan that could result in the
imposition of a Lien on the property of Alleghany, the Borrower or any
Subsidiary.
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(xiii) Notice as soon as possible and in any event within 10
days after receipt by the Borrower of a written notice from the
government or any agency or department thereof that any Benefit Plan of
Borrower has violated the provisions of ERISA or the Code, which
violation could result in liability to the Borrower in excess of
$100,000.
(xiv) As soon as possible and in any event within 10 days
after receipt by the Borrower, a copy of (a) any notice or claim to the
effect that the Borrower or any of its Subsidiaries is or may be liable
to any Person as a result of the release by the Borrower, any of its
Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, and (b) any notice alleging any
violation of any federal, state or local environmental, health or
safety law or regulation by the Borrower or any of its Subsidiaries,
which, in either case, could reasonably be expected to have a Material
Adverse Effect.
(xv) Within thirty days following delivery to the
Borrower, a copy of each of the Borrower's auditor's management
letters, if prepared.
(xvi) Promptly, copies of all financial statements and
reports that the Borrower sends to its members.
(xvii) Such other information (including non-financial
information) as the Agent or any Lender may from time to time
reasonably request.
6.2 Use of Proceeds. The Borrower will, and will cause each
Subsidiary to, use the proceeds of the Revolving Advances and the Facility
Letters of Credit for working capital and for general corporate purposes. The
Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds
of the Advances or the Facility Letters of Credit to purchase or carry any
"margin stock" (as defined in Regulation U).
6.3 Notice of Default. The Borrower will give prompt notice in
writing to the Lenders of the occurrence of (i) any Default or Unmatured Default
and (ii) any other development, financial or otherwise, which development could
reasonably be expected to have a Material Adverse Effect.
6.4 Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and to do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and maintain all requisite authority to conduct its business in
each jurisdiction in which its business is conducted unless failure to maintain
such authority could not reasonably be expected to have a Material Adverse
Effect.
6.5 Taxes. The Borrower will, and will cause each Subsidiary to,
timely file (or join in the filing of) complete and correct United States
federal and applicable foreign, state and local tax returns required by law and
pay when due all taxes, assessments and governmental charges and levies upon it
or its income, profits or Property, except those which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves have been set aside in accordance with GAAP, and except to the extent
that the failure to file any return or the nonpayment of any tax could not
reasonably be expected to have a Material Adverse Effect.
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6.6 Insurance. The Borrower will, and will cause each Subsidiary
to, maintain with financially sound and reputable insurance companies insurance
on all their Property in such amounts and covering such risks as is consistent
with sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
6.7 Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject including,
without limitation, all Environmental Laws, except to the extent that
noncompliance could not reasonably be expected to have a Material Adverse
Effect.
6.8 Maintenance of Properties. The Borrower will, and will cause
each Subsidiary to, do all things necessary to maintain, preserve, protect and
keep its Property in good repair, working order and condition, and make all
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times,
except to the extent that failure to maintain such Property or make such repair
could not reasonably be expected to have a Material Adverse Effect.
6.9 Inspection. The Borrower will, and will cause each Subsidiary
to, permit the Agent and any Lender, by their respective representatives and
agents, to inspect any of the Property, corporate books and financial records of
the Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary, and to
discuss the affairs, finances and accounts of the Borrower and each Subsidiary
with, and to be advised as to the same by, their respective officers at such
reasonable times and intervals as the Agent or any Lender may designate.
Borrower shall upon demand reimburse Agent for each field audit in an amount
equal to $500 per auditor per day plus expenses, provided that Borrower's field
audit costs shall not exceed $2500 plus expenses in any calendar year.
6.10 Financial Covenants. The financial covenants referred to in
this Section 6.10 shall each be computed at the end of each fiscal quarter
(unless stated otherwise) by the Borrower, and such calculations shall be
included in the Compliance Certificate referred to in Section 6.1(iii). For
purposes of the restrictions on Capital Expenditures set forth in Section 6.10.4
below, Capital Expenditures shall include only such expenditures made with funds
derived from Borrower's and its Subsidiaries' ordinary course of business
operations; the covenant set forth in Section 6.10.4 below shall not be deemed
to restrict Capital Expenditures funded by funds contributed to Borrower by
Alleghany.
6.10.1 Leverage Ratio. The Borrower will maintain a Leverage
Ratio, at all times, of not greater than the following:
For the Fiscal Quarters Ending Leverage Ratio
Before March 31, 2001 6.00:1.00
March 31, 2001 5.25:1.00
June 30, 2001 5.00:1.00
September 30, 2001 4.50:1.00
December 31, 2001 4.00:1.00
March 31, 2002 3.75:1.00
June 30, 2002 3.50:1.00
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September 30, 2002 3.25:1.00
December 31, 2002
and thereafter 3.00:1.00
6.10.2 Interest Coverage Ratio. The Borrower will maintain
an Interest Coverage Ratio, at all times, of not less than 2.00 to 1.00.
6.10.3 Fixed Charge Coverage Ratio. The Borrower will
maintain a Fixed Charge Coverage Ratio, at all times for each of Borrower's
Fiscal Years to date of measurement of not less than (i) 1.10 to 1.00 for each
period up to, but not including March 31, 2001, and (ii) 1.20 to 1.00 for the
period ending on March 31, 2001 and each period thereafter.
6.10.4 Capital Expenditures. The Borrower and its
Subsidiaries will not expend or be committed to expend, in excess of $1,250,000
for Consolidated Capital Expenditures during any one Fiscal Year on a
non-cumulative basis in the aggregate for the Borrower and its Subsidiaries.
6.11 [Intentionally Omitted]
6.12 Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) Advances and Facility Letter of Credit Obligations
hereunder;
(ii) Indebtedness which (a) exists on the date hereof, (b)
is described in Schedule 6.12 hereto, and (c) has been previously
approved by the Agent;
(iii) Subordinated Debt which is subordinated to the
Advances and Facility Letter of Credit Obligations on terms which are
satisfactory to the Required Lenders;
(iv) Indebtedness incurred to refinance existing
Indebtedness permitted pursuant to this Section 6.12; provided,
however, that the maturity date of such new Indebtedness is no earlier
than the maturity date of the Indebtedness being refinanced and the
terms of such new Indebtedness (including, but not limited to, the
amount, the term, the amount of the annual loan payment or provision
for collateral or additional collateral) are no more disadvantageous to
the Lenders, the Borrower and its Subsidiaries than the terms of the
Indebtedness being refinanced;
(v) Indebtedness not exceeding $250,000 in the aggregate
evidenced by loans and advances to employees of the Borrower and its
Subsidiaries provided that no such loans will be made when there exists
no Unmatured Default or Default; and
(vi) Contingent Obligations not exceeding $250,000 at any
one time outstanding.
6.13 Merger. The Borrower will not, nor will it permit any
Subsidiary to, merge or consolidate with or into any other Person, except that a
Subsidiary may amalgamate, merge or consolidate with or into the Borrower or a
Wholly-Owned Subsidiary.
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6.14 Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of Property, to any other
Person, except:
(i) Sales of inventory in the ordinary course of
business.
(ii) Leases, sales or other dispositions of Property that,
together with all other Property of the Borrower and its Subsidiaries
previously leased, sold or disposed of (other than inventory in the
ordinary course of business) as permitted by this Section during the
twelve-month period ending with the month in which any such lease, sale
or other disposition occurs, do not constitute a Substantial Portion of
the Property of the Borrower and its Subsidiaries.
(iii) Sale of the Borrower's building located at 2727
Shermer Road, Northbrook, Illinois, to a bona fide third party
purchaser for an amount not less than $3.2 million.
6.15 Investments and Acquisitions. The Borrower will not, nor will
it permit any Subsidiary to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to become or remain a partner in any
partnership or joint venture, or member in a limited liability company, or to
make any Acquisition of any Person, except:
(i) Short-term obligations of, or fully guaranteed by,
the United States of America.
(ii) Commercial paper rated A-1 or better by Standard and
Poor's Corporation or P-1 or better by Moody's Investors Service, Inc.
(iii) Demand deposit accounts maintained in the ordinary
course of business.
(iv) Certificates of deposit issued by and time deposits
with commercial banks (whether domestic or foreign) having capital and
surplus in excess of $100,000,000.
(v) Investments not to exceed $5 million in the aggregate
at any one time outstanding in the common stock and investment grade
bonds of publicly held corporations which stock and bonds are traded on
the New York, American or NASDAQ stock exchanges.
(vi) Loans to employees of the Borrower or of any of its
Subsidiaries which do not exceed, in the aggregate for all such
employees at any one time outstanding, $150,000.
(vii) Existing Investments which (a) are in existence on
the date hereof, (b) are described in Schedule 6.15 (viii) hereto and
(c) have been previously approved by the Agent and the Lenders.
6.16 Liens. The Borrower will not, nor will it permit any
Subsidiary to create, incur, or suffer to exist any Lien in, of or on the
Property of the Borrower or any of its Subsidiaries, except the following
("Permitted Liens"):
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(i) Liens for taxes, assessments or governmental charges
or levies on its Property if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on
its books.
(ii) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in
the ordinary course of business which secure payment of obligations not
more than 60 days past due and which are being contested in good faith
by appropriate proceedings and for which adequate reserves shall have
been set aside on its books.
(iii) Liens arising out of pledges or deposits under
worker's compensation laws, unemployment insurance, old age pensions,
or other social security or retirement benefits, or similar
legislation.
(iv) Liens arising from a judgment rendered or claim
filed, not in excess, singly or in the aggregate, of $250,000 against
the Borrower or any of its Subsidiaries which the Borrower or such
Subsidiary shall be contesting diligently in good faith by proper legal
proceedings.
(v) Liens which exist on the date hereof incurred by
Borrower or its Subsidiaries in the ordinary course of business
securing Indebtedness less than $100,000 in the aggregate.
(vi) Liens securing obligations which are excluded from
Subsection (iii) of the definition of Indebtedness herein.
(vii) Easements, building restrictions and such other
encumbrances or charges against real property which do not in any
material way interfere with the use thereof by the Borrower.
(viii) Any extension, renewal or substitution of or for any
of the foregoing Liens described in this Section 6.16, provided in each
case that (a) the Indebtedness or other obligation or liability secured
by the applicable Lien shall not exceed the Indebtedness or other
obligation or liability existing immediately prior to such extension,
renewal or substitution and (b) the Lien securing such Indebtedness or
other obligation or liability shall be limited to the Property which,
immediately prior to such extension, renewal or substitution, secured
such Indebtedness or other obligation or liability, and improvements on
or additions to such Property.
6.17 Prohibition of Negative Pledge. The Borrower will not, nor
will it permit any of its Subsidiaries to agree, covenant, warrant, represent,
pledge or otherwise commit with or to any entity other than the Agent, to not
incur, create, assume or permit to exist, any mortgage, pledge, lien charge or
other encumbrance of any nature whatsoever on all or any of its assets now or
hereafter owned.
6.18 Affiliates. The Borrower will not, nor will it permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except in the ordinary course of business
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and pursuant to the reasonable requirements of the Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or such Subsidiary than the Borrower or such Subsidiary would
obtain in a comparable arms-length transaction.
6.19 Amendments to Agreements. The Borrower will not, nor will it
permit any Subsidiary to, amend any term or provision of any Subordinated Debt
except with the consent of the Required Lenders and all Lenders for the type of
amendments which would require the consent of the Required Lenders and all
Lenders respectively under Section 8.2 hereof. The Borrower shall deliver to the
Agent all amendments to the Subordinated Debt within five (5) days of such
amendment.
6.20 Sale of Accounts. The Borrower will not, nor will it permit
any Subsidiary to, sell or otherwise dispose of any notes receivable or
Accounts, with or without recourse, except for Accounts which are past due in an
aggregate amount not exceeding $1,000,000 for each of the Borrower's Fiscal
Years placed with a collection agent for collection at a commission not
exceeding twenty percent (20%) of the amount of such notes or Accounts
recovered.
6.21 Fiscal Year. The Borrower will not, nor will it permit any
Subsidiary to, change its Fiscal Year.
6.22 Limitation on the Creation of Subsidiaries. Notwithstanding
anything to the contrary contained in this Agreement, the Borrower will not, and
will not permit any of its Subsidiaries to, establish, create or acquire any
Subsidiary, unless such Subsidiary delivers to Agent a Security Agreement along
with all other documentation required by Agent to perfect a first priority
security interest in all Collateral owned or to be owned by such Subsidiary.
6.23 Subsidiary Dividends. The Borrower's Subsidiaries shall not in
any manner either directly or indirectly incur or be bound by any restrictions
on dividends from such Subsidiaries to the Borrower, other than those
restrictions required by applicable law.
6.24 Repayment of Subordinated Debt. The Borrower's and its
Subsidiaries' amounts of Subordinated Debt which become due and remain unpaid
plus the amount of the Borrower's and its Subsidiaries' actual payment of
Subordinated Debt, shall not exceed interest only on such Subordinated Debt in
amounts not exceeding the amounts permitted by the applicable subordination
agreements with respect to such Subordinated Debt.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
7.1 Any representation or warranty made (or deemed made pursuant
to Article IV) by or on behalf of the Borrower or any of its Subsidiaries to the
Lenders, the Issuer or the Agent under or in connection with this Agreement, any
Loan, any Facility Letter of Credit or any certificate or information delivered
in connection with this Agreement or any other Loan Document shall be false in
any material respect on the date as of which made (or deemed made).
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7.2 Nonpayment of principal of any Note or of any Reimbursement
Obligation when due (or in the case of any Reimbursement Obligation due pursuant
to Section 2.3.5(a)(ii)(B), upon demand), or nonpayment of interest upon any
Note or of any facility fee, agent fee, Issuance Fee or other obligations (other
than Reimbursement Obligations which have been converted into Advances pursuant
to Section 2.3.5(a)(ii)(A)) under any of the Loan Documents within three (3)
days after the same becomes due.
7.3 The breach by the Borrower of any of the terms or provisions
of Sections 6.2, 6.3, 6.6, 6.10, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.19, 6.20,
6.23 and 6.24.
7.4 The breach by the Borrower (other than a breach which
constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or
provisions of this Agreement which is not remedied within fifteen (15) days
after written notice from the Agent.
7.5 Failure of the Borrower or any of its Subsidiaries to pay when
due any Indebtedness to any of the Lenders or any other Indebtedness in excess
of, singly or in the aggregate, $250,000 (any such Indebtedness being herein
defined as "Material Indebtedness"); or the default by the Borrower or any of
its Subsidiaries in the performance of any term, provision or condition
contained in any agreement under which any such Material Indebtedness was
created or is governed, or any other event shall occur or condition exist, the
effect of which is to cause, or to permit the holder or holders of such Material
Indebtedness to cause, such Material Indebtedness to become due prior to its
stated maturity; or any Material Indebtedness of the Borrower or any of its
Subsidiaries shall be declared to be due and payable or required to be prepaid
or repurchased (other than by a regularly scheduled payment) prior to the stated
maturity thereof; or the Borrower or any of its Subsidiaries shall not pay, or
admit in writing its inability to pay, its debts generally as they become due.
7.6 The Borrower or any of its Subsidiaries shall (i) have an
order for relief entered with respect to it under the Federal bankruptcy laws or
the laws of any other jurisdiction relating to bankruptcy, insolvency,
reorganization or relief of debtors as now or hereafter in effect, (ii) make an
assignment for the benefit of creditors, (iii) apply for, seek, consent to, or
acquiesce in, the appointment of a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any Substantial Portion of its
Property, (iv) institute any proceeding seeking an order for relief under the
Federal bankruptcy laws or the laws of any other jurisdiction relating to
bankruptcy, insolvency, reorganization or relief of debtors as now or hereafter
in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed against
it, (v) take any corporate action to authorize or effect any of the foregoing
actions set forth in this Section 7.6 or (vi) fail to contest in good faith any
appointment or proceeding described in Section 7.7.
7.7 Without the application, approval or consent of the Borrower
or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in Section
7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and
such appointment continues undischarged or such proceeding continues undismissed
or unstayed for a period of sixty (60) consecutive days.
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7.8 Any court, government or governmental agency shall condemn,
seize or otherwise appropriate, or take custody or control of (each a
"Condemnation"), all or any portion of the Property of the Borrower and its
Subsidiaries which, when taken together with all other Property of the Borrower
and its Subsidiaries so condemned, seized, appropriated, or taken custody or
control of, during the twelve-month period ending with the month in which any
such Condemnation occurs, constitutes a Substantial Portion.
7.9 The Borrower or any of its Subsidiaries fail to pay, bond or
otherwise discharge within thirty (30) days any judgment or order for the
payment of money in excess of, singly or in the aggregate, $500,000, which is
not stayed on appeal or otherwise being appropriately contested in good faith
and as to which no enforcement actions have been commenced.
7.10 Any Reportable Event shall occur in connection with any
Benefit Plan which could result in liability to Borrower in excess of $100,000
or a Control Group Member has terminated a Single Employer Plan that could
result in the imposition of a Lien on the property of Alleghany, the Borrower or
any Subsidiary in excess of $500,000.
7.11 The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan in an amount which, when
aggregated with all other amounts required to be paid to Multiemployer Plans by
the Borrower or any other member of the Controlled Group as withdrawal liability
(determined as of the date of such notification), exceeds $500,000.
7.12 The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and the other
members of the Controlled Group (taken as a whole) to all Multiemployer Plans
which are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the
respective plan years of each such Multiemployer Plan immediately preceding the
plan year in which the reorganization or termination occurs by an amount
exceeding $100,000.
7.13 The Borrower or any Subsidiary shall terminate a Benefit Plan
resulting in Unfunded Liabilities to the Borrower in excess of $100,000.
7.14 The Borrower or any Subsidiary shall incur liability for a
violation of ERISA or the Code with respect to any Benefit Plan which exceeds
$100,000.
7.15 The Borrower or any of its Subsidiaries shall be the subject
of any proceeding pertaining to the release by the Borrower or any of its
Subsidiaries, or any other Person of any toxic or hazardous waste or substance
into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
7.16 Any Change in Control shall occur, except such Change in
Control consented to by the Agent and all Lenders.
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7.17 Nonpayment by the Borrower or any of its Subsidiaries of any
Rate Hedging Obligation when due or the default or breach by the Borrower or any
of its Subsidiaries of any term, provision or condition contained in any Rate
Hedging Agreement, which default or breach continues (without being waived)
beyond any period of grace therein provided.
7.18 The occurrence of any "default", as defined in any Loan
Document (other than this Agreement or the Notes) or the breach of any of the
terms or provisions of any Loan Document (other than this Agreement), which
default or breach continues beyond any period of grace therein provided and has
not been waived.
7.19 The subordination provisions of any agreement or instrument
governing any Subordinated Debt is for any reason revoked or invalidated, or
otherwise cease to be in full force and effect, any Person contests in any
manner the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder, or the Indebtedness hereunder is for any
reason subordinated or does not have the priority contemplated by this Agreement
or such subordination provisions.
7.20 Enforceability of Loan Documents. Either:
(i) any material provision of any Loan Document shall for
any reason cease to be valid and binding on or enforceable against the
Company or any Subsidiary party thereto, the Company or any Subsidiary
shall so state in writing or bring an action to limit its obligations
or liabilities thereunder; or
(ii) any Loan Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security
interest in the collateral purported to be covered thereby or such
security interest shall for any reason cease to be a perfected and
first priority security interest subject only to Permitted Liens.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1 Acceleration. If any Default described in Section 7.6 or 7.7
occurs with respect to the Borrower, the obligations of the Lenders to make
Loans and to participate in Facility Letters of Credit hereunder, and the
obligation of the Issuer to issue Facility Letters of Credit hereunder, shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent, the Issuer or
any Lender. If any other Default occurs, the Required Lenders (or the Agent with
the consent of the Required Lenders) (i) may terminate or suspend the
obligations of the Lenders to make Loans and to purchase participation in
Facility Letters of Credit hereunder, (ii) may terminate or suspend the
obligations of the Issuer to issue Facility Letters of Credit hereunder, and/or
(iii) declare the Obligations to be due and payable, whereupon the Obligations
shall become immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which the Borrower hereby expressly waives.
If, within 15 days after (x) acceleration of the maturity of the
Obligations, (y) termination of the obligations of the Issuer to issue Facility
Letters of Credit hereunder or (z) termination of
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the obligations of the Lenders to make Loans hereunder as a result of any
Default (other than any Default as described in Section 7.6 or 7.7 with respect
to the Borrower) and before any judgment or decree for the payment of the
Obligations due shall have been obtained or entered, the Required Lenders (in
their sole discretion) shall so direct, the Agent shall, by notice to the
Borrower, rescind and annul such acceleration and/or termination.
8.2 Amendments. Subject to the provisions of this Article VIII,
the Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto or to
any other Loan Document for the purpose of adding or modifying any provisions to
the Loan Documents or changing in any manner the rights of the Lenders or the
Borrower hereunder or thereunder or waiving any Default hereunder or thereunder;
provided, however, that no such supplemental agreement shall, without the
consent of each of the Lenders:
(i) Extend the maturity of any Loan, or extend the expiry
date of any Facility Letter of Credit beyond the Facility Termination
Date, or forgive all or any portion of the principal amount of any Loan
or Facility Letter of Credit Obligation, or reduce the rate or extend
the time of payment of Reimbursement Obligations, interest or fees
hereunder, or release any collateral securing the Obligations;
(ii) Reduce the percentage specified in the definition of
Required Lenders;
(iii) Extend the Facility Termination Date or increase the
amount of the Commitment of any Lender hereunder, or permit the
Borrower to assign its rights under this Agreement; or
(iv) Amend this Section 8.2 or the provisions of any other
section of this Agreement which designate a certain number of Lenders
required to consent to or compel actions.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fees required under Section 2.4.1(ii) or 12.3.2 without obtaining the
consent of any other party to this Agreement.
8.3 Preservation of Rights. No delay or omission of the Lenders,
the Issuer or the Agent to exercise any right under the Loan Documents shall
impair such right or be construed to be a waiver of any Default or an
acquiescence therein, and the making of a Loan or issuance of a Facility Letter
of Credit notwithstanding the existence of a Default or the inability of the
Borrower to satisfy the conditions precedent to such Loan shall not constitute
any waiver or acquiescence. Any single or partial exercise of any such right
shall not preclude other or further exercise thereof or the exercise of any
other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent, the Issuer and the Lenders until the Obligations have
been paid in full.
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ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Representations. All representations and
warranties of the Borrower contained in this Agreement shall survive delivery of
the Notes and the making of the Loans and the issuance of the Facility Letters
of Credit herein contemplated.
9.2 Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Lender shall be obligated to extend credit
to the Borrower or participate in Facility Letters of Credit in violation of any
limitation or prohibition provided by any applicable statute or regulation.
9.3 Taxes. Any taxes (excluding Excluded Taxes) or other similar
assessments or charges made by any governmental or revenue authority in respect
of the Loan Documents shall be paid by the Borrower, together with interest and
penalties, if any.
9.4 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
9.5 Entire Agreement. The Loan Documents embody the entire
agreement and understanding among the Borrower, the Agent, the Issuer, and the
Lenders and supersede all prior agreements and understandings among the
Borrower, the Agent, the Issuer and the Lenders relating to the subject matter
thereof.
9.6 Several Obligations; Benefits of this Agreement. The
respective obligations of the Lenders hereunder are several and not joint and no
Lender shall be the partner or agent of any other (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
9.7 Expenses; Indemnification. The Borrower shall reimburse the
Agent and the Arranger for any costs, internal charges and out-of-pocket
expenses (including reasonable attorneys' fees and time charges of attorneys for
the Agent, which attorneys may be employees of the Agent) paid or incurred by
the Agent in connection with the preparation, negotiation, execution, delivery,
review, amendment, modification, and administration of the Loan Documents. The
Borrower also agrees to reimburse the Agent, the Issuer and the Lenders for any
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' fees and time charges of attorneys for the Agent and the Lenders
which attorneys may be employees of the Agent or the Lenders) paid or incurred
by the Agent, the Issuer or any Lender in connection with the collection and
enforcement of the Loan Documents. The Borrower further agrees to indemnify the
Agent, the Issuer, and each Lender and their respective directors, officers and
employees against all losses, claims, damages, penalties, judgments, liabilities
and expenses (including, without limitation, all expenses of litigation or
preparation therefor whether or not the Agent, the Issuer or any Lender is a
party thereto) which any of them may pay or incur arising out of or relating to
this Agreement, the other Loan Documents, the transactions contemplated
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hereby or thereby or the direct or indirect application or proposed application
of the proceeds of any Loan or the direct or indirect use or intended use of any
Facility Letter of Credit hereunder except to the extent that they have resulted
from the gross negligence or willful misconduct of the party seeking
indemnification. The obligations of the Borrower under this Section shall
survive the termination of this Agreement.
9.8 Numbers of Documents. All originally executed statements,
notices, closing documents (other than the Notes), and requests hereunder shall
be furnished to the Agent with sufficient counterparts so that the Agent may
furnish one to each of the Lenders.
9.9 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP, except that any
calculation or determination which is to be made on a consolidated basis shall
be made for the Borrower and all its Subsidiaries, including those Subsidiaries,
if any, which are unconsolidated on the Borrower's audited financial statements.
9.10 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
9.11 Nonliability of Lenders. The relationship between the Borrower
and the Lenders shall be solely that of borrower and lender. Neither the Agent
nor any Lender shall have any fiduciary responsibilities to the Borrower.
Neither the Agent nor any Lender undertakes any responsibility to the Borrower
to review or inform the Borrower of any matter in connection with any phase of
the Borrower's business or operations. The Borrower agrees that none of the
Agent, the Issuer or any Lender shall have liability to the Borrower (whether
sounding in tort, contract or otherwise) for losses suffered by the Borrower in
connection with, arising out of, or in any way related to, the transactions
contemplated and the relationship established by the Loan Documents, or any act,
omission or event occurring in connection therewith, unless it is determined by
a court of competent jurisdiction in a final and non-appealable order that such
losses resulted from the gross negligence or willful misconduct of the party
from which recovery is sought.
9.12 Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates to the extent that such
Affiliate agrees to be bound by this obligation of confidentiality and to other
Lenders and their respective Affiliates to the extent that such Affiliate agrees
to be bound by this obligation of confidentiality, (ii) to legal counsel,
accountants, and other professional advisors to that Lender that agree to be
bound by this obligation of confidentiality, (iii) upon the request or demand of
any bank regulatory agency having jurisdiction over the Agent or any Lender,
(iv) to any Person as required by law, regulation, or legal process after notice
to Borrower (to the extent such notice is permitted by law), and (v) permitted
by Section 12.4.
9.13 Nonreliance. Each Lender hereby represents that it is not
relying on or looking to any margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) for the repayment of the Loans
provided for herein.
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ARTICLE X
THE AGENT
10.1 Appointment; Nature of Relationship. American National Bank
and Trust Company of Chicago is hereby appointed by the Lenders as the Agent
hereunder and under each other Loan Document, and each of the Lenders
irrevocably authorizes the Agent to act as the contractual representative of
such Lender with the rights and duties expressly set forth herein and in the
other Loan Documents. The Agent agrees to act as such contractual representative
upon the express conditions contained in this Article X. Notwithstanding the use
of the defined term "Agent," it is expressly understood and agreed that the
Agent shall not have any fiduciary responsibilities to any Lender by reason of
this Agreement or any other Loan Document and that the Agent is merely acting as
the representative of the Lenders with only those duties as are expressly set
forth in this Agreement and the other Loan Documents. In its capacity as the
Lenders' contractual representative, the Agent (i) does not hereby assume any
fiduciary duties to any of the Lenders, (ii) is a "representative" of the
Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and
(iii) is acting as an independent contractor, the rights and duties of which are
limited to those expressly set forth in this Agreement and the other Loan
Documents. Each of the Lenders hereby agrees to assert no claim against the
Agent for breach of fiduciary duty, all of which claims each Lender hereby
waives.
10.2 Powers. The Agent shall have and may exercise such powers
under the Loan Documents as are specifically delegated to the Agent by the terms
of each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is determined in a final non-appealable
judgment by a court of competent jurisdiction to have arisen from the gross
negligence or willful misconduct of such Person.
10.4 No Responsibility for Loans, Recitals, etc. Neither the Agent
nor any of its directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify: (i) any statement,
warranty or representation made in connection with any Loan Document or any
borrowing or issuance of a Facility Letter of Credit hereunder; (ii) the
performance or observance of any of the covenants or agreements of any obligor
under any Loan Document, including, without limitation, any agreement by an
obligor to furnish information directly to each Lender; (iii) the satisfaction
of any condition specified in Article IV, except receipt of items required to be
delivered to the Agent; (iv) the validity, enforceability, effectiveness,
sufficiency or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith; or (v) the value, sufficiency,
creation, perfection or priority of any interest in any collateral security. The
Agent shall have no duty to disclose to the Lenders information that is not
required to be furnished by the Borrower to the Agent at such time, but is
voluntarily furnished by the Borrower to the Agent (either in its capacity as
Agent or in its individual capacity).
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10.5 Action on Instructions of Lenders. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Loan Document in accordance with written instructions signed by
such of the Lenders as is required under the terms of this Agreement, and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Lenders and on all holders of Notes. The Lenders hereby
acknowledge that the Agent shall be under no duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
or any other Loan Document unless it shall be requested in writing to do so by
the Required Lenders. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it shall
first be indemnified to its satisfaction by the Lenders pro rata against any and
all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
10.6 Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8 Agent's Reimbursement and Indemnification. The Lenders agree
to reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if subsequent to the Facility Termination Date, in proportion
to their Commitments immediately prior to such date), without relieving the
Borrower of any of its Obligations hereunder, (i) for any amounts not reimbursed
by the Borrower for which the Agent is entitled to reimbursement by the Borrower
under the Loan Documents, (ii) for any other expenses incurred by the Agent on
behalf of the Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of the Loan Documents or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents, provided that no Lender shall
be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent. The obligations of the Lenders
under this Section 10.8 shall survive payment of the Obligations and termination
of this Agreement.
10.9 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Unmatured Default
hereunder unless the Agent has received written notice from a Lender or the
Borrower referring to this Agreement describing such Default or Unmatured
Default and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall give prompt notice thereof to
the Lenders.
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10.10 Rights as a Lender. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a
Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person.
10.11 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
10.12 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. The Agent may be removed at any time with or without cause
by written notice received by the Agent from the Required Lenders, such removal
to be effective on the date specified by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint,
with the consent of the Borrower, which consent shall not be unreasonably
withheld or delayed, on behalf of the Borrower and the Lenders, a successor
Agent; provided, however, that if a Default or Unmatured Default shall have
occurred and be continuing at the time of such resignation or removal, the
consent of the Borrower shall not be so required. If no successor Agent shall
have been so appointed by the Required Lenders, and, to the extent required
pursuant to the immediately preceding sentence, consented to by the Borrower,
and shall have accepted such appointment, within thirty days after the resigning
Agent's giving notice of its intention to resign, then the resigning Agent may
appoint, on behalf of the Borrower and the Lenders, a successor Agent. If the
Agent has resigned or been removed and no successor Agent has been appointed,
the Lenders may perform all the duties of the Agent hereunder and the Borrower
shall make all payments in respect of the Obligations to the applicable Lender
and for all other purposes shall deal directly with the Lenders. No successor
Agent shall be deemed to be appointed hereunder until such successor Agent has
accepted the appointment. Any such successor Agent shall be a commercial bank
having capital and retained earnings of at least $50,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Agent. Upon
the effectiveness of the resignation or removal of the Agent the resigning or
removed Agent shall be discharged from its duties and obligations hereunder and
under the Loan Documents. After the effectiveness of the resignation or removal
of an Agent, the provisions of this Article X shall continue in effect for the
benefit of such Agent in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent hereunder and under the other Loan
Documents. In the event that there is a successor to the Agent by merger,
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or the Agent assigns its duties and obligations to an Affiliate pursuant to this
Section 10.12, then the term "Corporate Base Rate" as used in this Agreement
shall mean the prime rate, base rate or other analogous rate of the new Agent.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1 Setoff. In addition to, and without limitation of, any rights
of the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender to
or for the credit or account of the Borrower may be offset and applied toward
the payment of the Obligations owing to such Lender, whether or not the
Obligations, or any part hereof, shall then be due.
11.2 Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it upon the Obligations owing to it (other than
payments received pursuant to Sections 3.1, 3.2 or 3.3) in a greater proportion
than that received by any other Lender, such Lender agrees, promptly upon
demand, to purchase a portion of the Obligations held by the other Lenders so
that after such purchase each Lender will hold its Pro Rata Share of the
Obligations. If any Lender, whether in connection with setoff or amounts which
might be subject to setoff or otherwise, receives collateral or other protection
for its Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to their
outstanding Obligations. In case any such payment is disturbed or avoided by
legal process, or otherwise, appropriate further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATION
12.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower, the
Agent, and the Lenders and their respective successors and assigns, except that
(i) the Borrower shall not have the right to assign their respective rights or
obligations under the Loan Documents and (ii) any assignment by any Lender must
be made in compliance with Section 12.3. Notwithstanding clause (ii) of this
Section, any Lender may at any time, without the consent of the Borrower or the
Agent, assign all or any portion of its rights under this Agreement and its
Notes to a Federal Reserve Bank; provided, however, that no such assignment to a
Federal Reserve Bank shall release the transferor Lender from its obligations
hereunder. The Agent may treat the payee of any Note as the owner thereof for
all purposes hereof unless and until such payee complies with Section 12.3 in
the case of an assignment thereof or, in the case of any other transfer, a
written notice of the transfer is filed with the Agent. Any assignee or
transferee of a Note agrees by acceptance thereof to be bound by all the terms
and provisions of the Loan Documents. Any request, authority or consent of any
Person, who at the time of making such request or giving such
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<PAGE> 62
authority or consent is the holder of any Note, shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
12.2 Participation.
12.2.1 Permitted Participants; Effect. Any Lender may,
subject to the provisions of this Section 12.2.1, in the ordinary course of its
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Lender, any Note held by such Lender, any Facility Letter of
Credit participated in by such Lender, any Commitment of such Lender or any
other interest of such Lender under the Loan Documents, provided that such
Participants are consented to in advance by the Borrower, such consent not to be
unreasonably withheld or delayed. In the event of any such sale by a Lender of
participating interests to a Participant, such Participant shall have no direct
rights hereunder, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall remain
the holder of any such Note for all purposes under the Loan Documents, all
amounts payable by the Borrower under this Agreement shall be determined as if
such Lender had not sold such participating interests, and the Borrower and the
Agent shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under the Loan Documents.
12.2.2 Voting Rights. Each Lender shall retain the sole
right to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than any
amendment, modification or waiver with respect to any Loan, Facility Letter of
Credit or Commitment in which such Participant has an interest which forgives
principal, interest or fees or reduces the interest rate or fees payable with
respect to any such Loan, Facility Letter of Credit or Commitment, postpones any
date fixed for any regularly-scheduled payment of principal of, or interest or
fees on, any such Loan, Facility Letter of Credit or Commitment, releases any
guarantor of any such Loan or releases any substantial portion of collateral, if
any, securing any such Loan or Facility Letter of Credit.
12.2.3 Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in Section 11.1
in respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under the Loan Documents, provided that each
Lender shall retain the right of setoff provided in Section 11.1 with respect to
the amount of participating interests sold to each Participant. The Lenders
agree to share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 11.1, agrees to share with each Lender, any
amount received pursuant to the exercise of its right of setoff, such amounts to
be shared in accordance with Section 11.2 as if each Participant were a Lender.
12.3 Assignments.
12.3.1 Permitted Assignments. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time assign to one or more banks or other entities other than the Borrower or
any of its Affiliates ("Purchasers") all or any part of its rights and
obligations under the Loan Documents. Such assignment shall be substantially in
the form of Exhibit G hereto or in such other form as may be agreed to by the
parties thereto. The consent
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of the Borrower which shall not be unreasonably withheld or delayed, and the
Agent shall be required prior to an assignment becoming effective with respect
to a Purchaser which is not a Lender or an Affiliate thereof; provided, however,
that if a Default has occurred and is continuing, the consent of the Borrower
shall not be required. Each such assignment shall be in an amount not less than
the lesser of (i) $5 million, and (ii) the remaining amount of the assigning
Lender's Commitment (calculated as at the date of such assignment).
12.3.2 Effect; Effective Date. Upon (i) delivery to the
Agent of a notice of assignment, substantially in the form attached to Exhibit G
hereto (a "Notice of Assignment"), together with any consents required by
Section 12.3.1, duly executed by the Purchaser, and (ii) payment by one or more
of the parties to such assignment (other than the Borrower) of a $3,000 fee to
the Agent for processing such assignment, such assignment shall become effective
on the effective date specified in such Notice of Assignment. The Notice of
Assignment shall contain a representation by the Purchaser to the effect that
none of the consideration used to make the purchase of the Commitment and Loans
under the applicable assignment agreement are "plan assets" as defined under
ERISA and that the rights and interests of the Purchaser in and under the Loan
Documents will not be "plan assets" under ERISA. On and after the effective date
of such assignment, such Purchaser shall for all purposes be a Lender party to
this Agreement and any other Loan Document executed by the Lenders and shall
have all the rights and obligations of a Lender under the Loan Documents, to the
same extent as if it were an original party hereto, and no further consent or
action by the Borrower, the Lenders or the Agent shall be required to release
the transferor Lender with respect to the percentage of the Aggregate
Commitment, Loans and interests in Facility Letters of Credit assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall
make appropriate arrangements so that (i) replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting their
Commitment, as adjusted pursuant to such assignment and (ii) Schedule 1 hereto
is amended to reflect such assignment.
12.4 Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Person acquiring
an interest in the Loan Documents by operation of law (each a "Transferee") and
any prospective Transferee any and all information in such Lender's possession
concerning the credit worthiness of the Borrower and its Subsidiaries; provided
that each Transferee and prospective Transferee agrees to be bound by Section
9.12 of this Agreement.
12.5 Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 2.4.14.
ARTICLE XIII
NOTICES
13.1 Notices. Except as otherwise permitted by Section 2.2.6 with
respect to borrowing notices, all notices, requests and other communications to
any party hereunder shall
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be in writing (including bank wire, telex, facsimile transmission or similar
writing) and shall be given to such party: (x) in the case of the Borrower, at
its address, facsimile number or telex number set forth on the signature pages
hereof, (y) in the case of the Agent or any Lender, at its address, facsimile
number or telex number set forth on Schedule 2 hereto or (z) in the case of any
party, such other address, facsimile number or telex number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (iii) if given by mail, three (3)
Business Days after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (iv) if given by any other
means, when delivered at the address specified in this Section; provided that
notices to the Agent under Article II shall not be effective until received.
13.2 Change of Address. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in writing to
the other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Agreement shall be effective when
it has been executed by the Borrower, the Agent and the Lenders and each party
has notified the Agent by telex or telephone, that it has taken such action. A
complete set of counterparts executed by all the parties hereto shall be lodged
with each of the Borrower and the Agent.
ARTICLE XV
CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL
15.1 Choice of Law. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING
A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS,
BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.2 Consent to Jurisdiction. THE PARTIES HERETO HEREBY IRREVOCABLY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE PARTIES HERETO HEREBY
IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE ANY OBJECTION ANY
OF THEM MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
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SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT,
THE ISSUER OR ANY LENDER OR ANY AFFILIATE OF THE AGENT, THE ISSUER OR ANY LENDER
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN
CHICAGO, ILLINOIS.
15.3 Waiver of Jury Trial. THE PARTIES HERETO HEREBY WAIVE TRIAL BY
JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED
THEREUNDER.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Borrower, the Lenders, the Issuer and the Agent
have executed this Agreement as of the date first above written.
BORROWER:
HEADS AND THREADS INTERNATIONAL
LLC, a Delaware limited liability company
By: /s/ Steven Schonholtz
---------------------------------------
Print Name: Steven Schonholtz
----------------------------
Title: President - CEO
---------------------------------
Address: 2727 Shermer Road
-------------------------------
Telephone No.: 847-564-1100
-------------------------
Telecopier No.:
------------------------
AGENT:
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, Individually and as
Agent and as Issuer
By: /s/ Linda K. Mikutis
---------------------------------------
Print Name: Linda K. Mikutis
----------------------------
Title: Officer
---------------------------------
Address: 120 S. LaSalle
-------------------------------
Telephone No.: 312.661.6881
-------------------------
Telecopier No.:
------------------------
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<PAGE> 67
LENDERS:
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By:/s/ Linda K. Mikutis
---------------------------------------
Print Name: Linda K. Mikutis
----------------------------
Title: Officer
---------------------------------
Address: 120 S. LaSalle
-------------------------------
Telephone No.: 312-661-6881
-------------------------
Telecopier No.:
------------------------
LASALLE BANK NATIONAL ASSOCIATION
By:/s/ Henry J. Munez
---------------------------------------
Print Name: Henry J. Munez
----------------------------
Title: Assistant Vice President
---------------------------------
Address: 135 South LaSalle Street
-------------------------------
Chicago, Illinois 60603
-------------------------------
Telephone No.: 312-904-7295
-------------------------
Telecopier No.:
------------------------
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<PAGE> 68
PRICING SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
MARGIN STATUS STATUS STATUS STATUS STATUS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eurodollar R 1.00% R 1.25% R 1.50% R 1.75% R 2.00%
Rate T 1.25% T 1.50% T 1.75% T 2.00% T 2.25%
- --------------------------------------------------------------------------------------------------------------
Floating Rate R 0.00% R 0.00% R 0.00% R 0.00% R 0.00%
T 0.25% T 0.25% T 0.25% T 0.50% T 0.75%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
FEE STATUS STATUS STATUS STATUS STATUS
MARGIN
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commitment Fee 6.25bp 12.50bp 12.50bp 12.50bp 25.00bp
Bankers .75% 1.00% 1.25% 1.50% 1.75%
Acceptances
- --------------------------------------------------------------------------------------------------------------
Letters of 1.00% 1.00% 1.00% 1.00% 1.00%
Credit
- --------------------------------------------------------------------------------------------------------------
</TABLE>
For the purposes of this Schedule, the following terms have the
following meanings, subject to the final paragraph of this Schedule:
"bp" means basis points.
"Financials" means the annual or quarterly financial statements of the
Borrower delivered pursuant to Section 6.1 (i) or (ii).
"Level I Status" exists at any date after the first anniversary of the
Closing if, as of the last day of the fiscal quarter of the Borrower referred to
in the most recent Financials, the Leverage Ratio is less than or equal to 2.99
to 1.00.
"Level II Status" exists at any date after the first anniversary of the
Closing if, as of the last day of the fiscal quarter of the Borrower referred to
in the most recent Financials, (i) the Borrower has not qualified for Level I
Status and (ii) the Leverage Ratio is less than or equal to 3.49 to 1.00.
"Level III Status" exists to and including the first anniversary of the
Closing and thereafter at any date if, as of the last day of the fiscal quarter
of the Borrower referred to in the most recent Financials, (i) the Borrower has
not qualified for Level I Status or Level II Status and (ii) the Leverage Ratio
is less than or equal to 3.99 to 1.00.
"Level IV Status" exists at any date after the first anniversary of the
Closing if, as of the last day of the fiscal quarter of the Borrower referred to
in the most recent Financials, (i) the Borrower has not qualified for Level I
Status, Level II Status or Level III Status and (ii) the Leverage Ratio is less
than or equal to 4.49 to 1.00.
<PAGE> 69
"Level V Status" exists at any date if the Borrower has not qualified
for Level I Status, Level II Status, Level III Status, or Level IV Status.
"R" means Revolving Advances.
"Status" means either Level I Status, Level II Status, Level III
Status, Level IV Status or Level V Status.
"T" means the Term Loan.
The Applicable Margin and Applicable Fee Rate shall be determined in
accordance with the foregoing table based on the Borrower's Status as reflected
in the then most recent Financials. Adjustments, if any, to the Applicable
Margin or Applicable Fee Rate shall be effective five Business Days after the
Agent has received the applicable Financials. If the Borrower fails to deliver
the Financials to the Agent at the time required pursuant to Section 6. 1, then
the Applicable Margin and Applicable Fee Rate shall be the highest Applicable
Margin and Applicable Fee Rate set forth in the foregoing table until five days
after such Financials are so delivered.
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<PAGE> 1
Exhibit 10.4
<TABLE>
<CAPTION>
List of Contents of Schedules and Exhibits to the Heads & Threads Credit Agreement
<S> <C>
SCHEDULE 1 Lenders and Commitments
SCHEDULE 1.1 Eligible Accounts
SCHEDULE 2 Lender Addresses
SCHEDULE 5.5 Material Adverse Changes since December 31, 1999
SCHEDULE 5.6 Exceptions to Tax Representations
SCHEDULE 5.7 Pending Litigation
SCHEDULE 5.8 Borrower's Subsidiaries
SCHEDULE 5.9 Exceptions to ERISA Representation with respect to Plan Withdrawals
SCHEDULE 5.14 Exceptions to Representation Concerning Ownership of Properties
SCHEDULE 5.15 Exceptions to Representation Concerning Environmental Matters
SCHEDULE 6.12 Permitted Indebtedness
SCHEDULE 6.15(viii) Description of Existing Investments
SCHEDULE 6.16 Description of Existing Liens
EXHIBIT A Form of Compliance Certificate
EXHIBIT B Form of Note
EXHIBIT C Form of Security Agreement
EXHIBIT D Form of Facility Letter of Credit Request
EXHIBIT E Form of Opinion of Outside Counsel For Borrower
EXHIBIT F Form of Written Money Transfer Instructions
EXHIBIT G Form of Assignment and Assumption Agreement
EXHIBIT H Borrowing Base Certificate
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEGHENY
CORPORATION SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE 3 MONTHS THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 1,443,620
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 450,464
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,894,084
<CASH> 48,449
<RECOVER-REINSURE> 882,236
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 4,496,821
<POLICY-LOSSES> 2,063,387
<UNEARNED-PREMIUMS> 356,811
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 399,791
0
0
<COMMON> 0
<OTHER-SE> 1,088,079
<TOTAL-LIABILITY-AND-EQUITY> 4,496,821
162,656
<INVESTMENT-INCOME> 53,488
<INVESTMENT-GAINS> 475
<OTHER-INCOME> 93,145
<BENEFITS> 135,076
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (207)
<INCOME-TAX> (689)
<INCOME-CONTINUING> 482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 482
<EPS-BASIC> .07
<EPS-DILUTED> .06
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<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
