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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 13, 1998
OFFICELAND INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada
(State or other jurisdiction of incorporation)
86732971
(Canadian Federal Tax Account No.)
312 Dolomite Drive, Suite 212
Downsview, Ontario M3J 2N2
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (416) 736-4000
On November 18, 1998, Officeland Inc. ("Officeland") filed a Current
Report on Form 8-K (the "Initial Report") with the Securities and Exchange
Commission, which reported Officeland's acquisition of all of the outstanding
capital stock of Telecom Corporation of Chicago (the "Acquisition"). On January
27, 1999, Officeland filed a Form 8-K/A with the Securities and Exchange
Commission to amend and supplement the Initial Report to include certain
financial statements and pro forma financial information which Officeland is
required to report pursuant to Items 7(a) and (b) of Form 8-K in connection with
the Acquisition. The purpose of this amendment and supplement is to provide
additional exhibits in connection with the Acquisition.
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Item 2 Acquisition of Assets
Pursuant to a Stock Purchase Agreement dated October 9, 1998, Officeland
Inc. ("Officeland") acquired the stock of Telecom Corporation of Chicago
("Telecom") on November 13, 1998 for the aggregate consideration of $3,100,000
in cash and 750,000 shares of Officeland common stock, plus an additional
earn-out amount payable in cash or common shares subject to Telecom's future
earnings. The acquisition was completed after Officeland received financing from
investors associated with International Capital Partners, Inc., a Connecticut
based investment management company. In connection with the acquisition: (i)
Telecom entered into an employment agreement with John Einarsen ("Einarsen"),
the former sole shareholder of Telecom, (ii) Telecom, as Tenant, entered into a
lease agreement with Einarsen, which lease is guaranteed by Officeland, and
(iii) Telecom entered into a Loan Agreement with American National Bank and
Trust Company of Chicago, which loan is guaranteed by Officeland.
Telecom is a leading re-manufacturer and marketer of used fax machines,
small copiers and printers. Telecom will continue to conduct its business as a
wholly-owned subsidiary of Officeland.
Item 7 Financial Statements and Exhibits
Exhibit 1* Press release of Officeland Inc. dated November 16, 1998
announcing the acquisition of Telecom Corporation of Chicago.
(a) Financial Statements of businesses acquired.
Exhibit 2* Audited Financial Statements of Telecom Corporation of Chicago
for the years ended December 31, 1997, 1996 and 1995, including the
Independent Auditors' Report of Manning Silverman & Company dated
October 27, 1998.
Exhibit 3* Consent of Independent Auditors
(b) Pro forma financial information.
Exhibit 4* Pro forma financial information showing combined results for
Telecom Corporation of Chicago and Officeland Inc.
(c) Exhibits
Exhibit 5 Stock Purchase Agreement between Officeland Inc. and John Einarsen
Exhibit 6 Employment Agreement by and Among John Einarsen, Telecom
Corporation of Chicago and Officeland Inc.
Exhibit 7 Lease Agreement by and between John Einarsen, as Landlord, and
Telecom Corporation of Chicago, as Tenant
Exhibit 8 Officeland Inc. Guaranty of Lease Agreement
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Exhibit 9 Loan and Security Agreement by and between Telecom Corporation of
Chicago and American National Bank and Trust Company of Chicago, a
National Banking Association
Exhibit 10 Officeland Continuing Guaranty of Loan and Security Agreement
Exhibit 11 Revolving Credit Note pursuant to and in accordance with Loan and
Security Agreement
* Previously filed on November 18, 1998 and January 27, 1999.
Additional exhibits and financial information will be filed by amendment.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OFFICELAND INC.
(Registrant)
Dated: January 29, 1999 By: /s/ Marvyn A. Budd
------------------
Marvyn A. Budd,
Chief Executive Officer and President
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Exhibit 5
Stock Purchase Agreement (the "Agreement") effective as of October 9,
1998, between Officeland Inc., an Ontario corporation with principal offices
located at 312 Dolomite Drive, Downsview, Ontario, Canada M3J 2N2 (the "Buyer"),
and John Einarsen, an individual residing at 20707 N. Swansway, Barrington,
Illinois (the "Seller"). The Buyer and Seller are referred to herein
collectively as the "Parties," and individually as a "Party."
WHEREAS the Seller owns all of the outstanding capital stock (the
"Subject Shares") of Telecom Corporation of Chicago, an Illinois corporation
with principal offices located at 285 Industrial Drive, Wauconda, Illinois 60084
( "Telecom");
WHEREAS the Seller, as sole shareholder of Telecom, for the purpose of
inducing Buyer to enter into this Agreement, agrees to make certain
representations and covenants concerning Telecom and the Subject Shares;
WHEREAS this Agreement contemplates a transaction in which the Buyer
will purchase from the Seller, and the Seller will sell to the Buyer, the
Subject Shares for purchase consideration consisting of cash and Buyer's common
shares;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1 Definitions.
1.1 "Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including reasonable court costs and attorneys' fees and
expenses.
1.2 "Buyer" has the meaning set forth in the preface above.
1.3 "Beneficial Ownership" shall be as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934.
1.4 "Closing" has the meaning set forth in Section 2.5 below.
1.5 "Closing Date" has the meaning set forth in Section 2.5 below.
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Confidential Information" means any information concerning the
businesses and affairs of Telecom or the Buyer that is not already generally
available to the public.
1.8 "Disclosure Schedule" has the meaning set forth in Section 4 below.
1.9 "Earn-Out Amount," "Earn-Out Shares," and "Earn-Out Cash," have the
meaning set forth in Section 2.3 below.
1.10 "EBT" has the meaning set forth in Section 2.3.1 below.
1.11 "Environmental, Health, and Safety Requirements" shall mean any of
the following which are applicable to Telecom: all federal, state and local
statutes, regulations, ordinances and other provisions having the force or
effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides,
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pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as in effect on
the Closing Date.
1.12 "Financial Statements" has the meaning set forth in Section 4.6
below.
1.13 "GAAP" means United States generally accepted accounting
principles as in effect from time to time.
1.14 "Indemnified Party" has the meaning set forth in Section 8.2
below.
1.15 "Indemnifying Party" has the meaning set forth in Section 8.2
below.
1.16 "Intellectual Property" means (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (iii) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (iv) all mask works and all applications,
registrations, and renewals in connection therewith, (v) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (vi) all computer software (including data and related
documentation), (vii) all other proprietary rights, and (viii) all copies and
tangible embodiments thereof (in whatever form or medium).
1.17 "Knowledge" means actual knowledge of a party after reasonable
investigation or constructive knowledge.
1.18 "Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
1.19 "Material," "Materiality," "Material Adverse Effect" or the like
shall mean any one or more item, circumstance or event which individually or in
the aggregate have a monetary value which exceeds $5,000.
1.20 "Most Recent Fiscal Year End" has the meaning set forth in Section
4.6 below.
1.21 "Most Recent Fiscal Period End" has the meaning set forth in
Section 4.6 below.
1.22 "Nasdaq Share Price" means the average of the closing ask and bid
prices as reported on the Nasdaq SmallCap Market.
1.23 "Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
1.24 "Party" has the meaning set forth in the preface above.
1.25 "Person" means an individual, a partnership, a corporation,
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
1.26 "Purchase Consideration" has the meaning set forth in Section 2.2
below.
1.27 "Purchase Shares" has the meaning set forth in Section 2.2 below.
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1.28 "Securities Act" means the Securities Act of 1933, as amended.
1.29 "Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (i) mechanic's, materialmen's,
and similar liens, (ii) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings,
(iii) purchase money liens and liens securing rental payments under capital
lease arrangements (iv) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money and (v) liens
disclosed in Section 4.5 of the Disclosure Schedule attached hereto and
incorporated herein.
1.30 "Seller" has the meaning set forth in the preface above.
1.31 "Subject Shares" has the meaning set forth in the recitals above.
1.32 "Subscription and Registration Rights Agreement" or "Subscription
Agreement" means the Subscription and Registration Rights Agreement &
Stockholder's Certificate annexed hereto as Exhibit A to be entered into by each
of the Seller, Brian Clifford, Jim Coyne and Jim Rae with the Buyer.
1.33 "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
1.34 "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
1.35 "Telecom" has the meaning set forth in the recitals above.
1.36 "Third Party Claim" has the meaning set forth in Section 8.2
below.
2 Purchase and Sale of the Subject Shares.
2.1 Basic Transaction. Section 4.2 of the Disclosure Schedule sets
forth the number of Subject Shares owned by the Seller. At the Closing, on and
subject to the terms and conditions of this Agreement, the Seller will transfer,
convey and deliver to the Buyer all of his right, title and interest in and to
all of the Subject Shares for the consideration specified in this Section 2.
2.2 Purchase Consideration. As consideration for the Subject Shares,
the Buyer shall deliver to the Seller the purchase consideration (the "Purchase
Consideration"), which shall consist of (i) an aggregate cash payment at Closing
in the amount of U.S.$2,600,000 (the "Cash Payment"), which shall consist of
$2,275,000 to Seller, $300,000 to Brian Clifford ("Clifford"), and $25,000 to
Jim Rae ("Rae"), as set forth in Section 3.1.3 of the Disclosure Schedule, (ii)
a cash payment in the amount of $500,000 plus interest, payable in 8 equal
installments of principal after the Closing Date and (iii) the aggregate amount
of 750,000 shares of the Buyer's common shares (the "Purchase Shares"), the
issuance of such shares to be effected according to the terms of a separate
Subscription and Registration Rights Agreement between the Seller and the Buyer.
The payment of the Purchase Consideration described in (ii) above shall be
evidenced by a promissory note of Buyer in the form attached hereto as Exhibit F
(the "Note"), which the Buyer shall deliver at the Closing. The remaining
Purchase Consideration shall be paid as provided below in this Section 2.2. At
the Closing, the Buyer shall deliver to the Seller and Clifford the Cash Payment
by wire transfer of immediately available funds to an account designated by the
Seller. At the Closing, subject to the terms set forth in the Subscription
Agreement, the Buyer shall deliver an
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irrevocable letter of direction to its transfer agent, American Stock Transfer
and Trust Company, to issue the Purchase Shares in installments as follows: (i)
On January 1, 2000: 145,589 Purchase Shares to Seller, 29,411 Purchase Shares to
Clifford, 45,000 Purchase Shares to Jim Coyne ("Coyne") and 5,000 Purchase
Shares to Rae, as set forth in Section 3.1.3 of the Disclosure Schedule; (ii) On
January 1, 2001: 295,000 Purchase Shares to Seller and 5,000 Purchase Shares to
Rae; and (iii) On January 1, 2002: 220,000 Purchase Shares to Seller and 5,000
Purchase Shares to Rae.
2.3 Additional Consideration. Subject to the terms of this Section 2.3
and the Subscription Agreement, as additional consideration, Seller shall be
paid an additional amount (the "Earn-Out Amount"), subject to the limitations on
the Earn-Out Amount set forth in Section 2.3.5 below, of cash (the "Earn-Out
Cash") or an additional number of Buyer's common shares (the "Earn-Out Shares")
for the three year period (the "Earn-Out Period") commencing December 1, 1998.
Buyer shall have discretion, on a year to year basis during the Earn-Out Period,
in determining whether Buyer will pay Seller the Earn-Out Amount in: (x)
Earn-Out Cash; (y) Earn-Out Shares; or, (z) part Earn-Out Cash and part Earn-Out
Shares. However, should Buyer determine to pay Seller more than 60% of the
Earn-Out Amount in Earn-Out Shares, then Seller shall have the option of
accepting Buyer's determination or receiving up to a maximum of 40% of the
Earn-Out Amount in Earn-Out Cash and the remainder in Earn-Out Shares. Buyer
shall pay the Earn-Out Amount no later than 15 business days after the receipt
by the Buyer of Telecom's audited financial statements for each fiscal year
ending November 30 during the Earn-Out Period. Any Earn-Out Shares payable to
Seller under this Section 2.3 shall be registered by the Buyer (at its sole
expense) pursuant to the Securities Act within six (6) months from the date upon
which Seller becomes entitled to such shares. The Earn-Out Amount will be based
upon the following:
2.3.1 If Telecom's audited earnings before taxes ("EBT") for the
fiscal year ending November 30, 1999 ("1999 EBT") exceeds U.S.$1,300,000, (the
exceeded amount hereinafter referred to as the "1999 Excess Amount"), then
Seller will be entitled to an Earn-Out Amount. Buyer shall pay the Earn-Out
Amount, subject to Section 2.3 above, as follows: (i) an amount of Earn-Out Cash
equal to the 1999 Excess Amount or (ii) a number of Earn-Out Shares determined
by dividing the 1999 Excess Amount by the Nasdaq Share Price for the 15 trading
days prior to the date upon which Telecom's audited financial statements for the
fiscal year ending November 30, 1999 are delivered to Buyer.
2.3.2 If Telecom's EBT for the fiscal year ending November 30, 2000
("2000 EBT") exceeds the greater of U.S.$1,500,000 or the 1999 EBT, (the
exceeded amount hereinafter referred to as the "2000 Excess Amount"), then
Seller will be entitled to an Earn-Out Amount. Buyer shall pay the Earn-Out
Amount subject to Section 2.3 above, as follows: (i) an amount of Earn-Out Cash
equal to the 2000 Excess Amount or (ii) a number of Earn-Out Shares determined
by dividing the 2000 Excess Amount by the Nasdaq Share Price for the 15 trading
days prior to the date upon which Telecom's audited financial statements for the
fiscal year ending November 30, 2000 are delivered to Buyer.
2.3.3 If Telecom's EBT for the fiscal year ending November 30, 2001
("2001 EBT") exceeds the greater of U.S.$1,700,000, 1999 EBT or 2000 EBT (the
exceeded amount hereinafter referred to as the "2001 Excess Amount"), then
Seller will be entitled to an Earn-Out Amount. Buyer shall pay the Earn-Out
Amount, subject to Section 2.3 above, as follows: (i) an amount of Earn-Out Cash
equal to the 2001 Excess Amount or (ii) a number of Earn-Out Shares determined
by dividing the 2001 Excess Amount by the Nasdaq Share Price for the 15 trading
days prior to the date upon which Telecom's audited financial statements for the
fiscal year ending November 30, 2001 are delivered to Buyer.
2.3.4 For the purposes of calculating the Earn-Out Amount under
Section 2.3, the Parties agree that the audited EBT will be calculated as if the
transactions contemplated in this
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Agreement have not occurred, excepting only the Adverse Consequences, and that
Telecom business was operated in the Ordinary Course of Business after the
Closing of this Agreement. In addition to, but not in limitation of the
forgoing, for the purposes of calculating EBT, the Parties agree to the
following:
2.3.4.1 all management fees and charges, allocations of parent
corporation overhead or similar expense or charge whatsoever made by the Buyer
or any of its affiliates, and any other charges made by the Buyer or its
affiliates, against the income of Telecom shall be disregarded (other than (i)
refinancings of current Telecom indebtedness, and (ii) increases in working
capital lines of credit related solely to the business of Telecom;
2.3.4.2 intercompany loans, interest, fees and other charges,
actual or imputed, that Buyer imposes in connection with such borrowings shall
be disregarded;
2.3.4.3 all interest and other costs and charges incurred in
connection with the Buyer's financing of the purchase of the Subject Shares
shall be disregarded;
2.3.4.4 depreciation and amortization shall be calculated as if the
transactions contemplated hereby had not occurred;
2.3.4.5 capital expenditures requested by Buyer shall be ignored;
2.3.4.6 intercompany purchases or sales of goods or services shall
be recalculated at an arm's-length, fair market value price; and
2.3.4.7 the calculation of EBT under this Section 2.3 will take
into account any Adverse Consequences actually due Buyer under this Agreement as
a result of a breach by the Seller of any representations, warranties, and
covenants contained in this Agreement.
2.3.5 Limitations on Earn-Out Amount. The maximum Earn-Out Amount
the Seller may earn during the Earn-Out Period shall be limited to: (i) 350,000
Earn-Out Shares; (ii) the equivalent value of 350,000 Earn-Out Shares in
Earn-Out Cash; or (iii) a number of Earn-Out Shares and an amount of Earn-Out
Cash, which together equal the value of 350,000 Earn-Out Shares. For purposes of
clarity, the following examples show how the provisions of this Paragraph 2.3.5.
will be applied:
2.3.5.1 Example No. 1.
Facts: 1999 Excess Amount is $100,000 and the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $5.00.
Results: Seller is entitled to, at Buyer's discretion,
(i) 20,000 Earn-Out Shares; (ii) $100,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $5.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $100,000 in value. In either, (i), (ii), or
(iii), Seller would have earned the value of 20,000 Earn-Out Shares towards the
maximum Earn-Out Amount.
2.3.5.2 Example No. 2.
Facts: 1999 Excess Amount is $800,000 and the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $2.00.
Results: Seller is entitled to, at Buyer's discretion,
(i) 350,000 Earn-Out Shares; (ii) $700,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $2.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $700,000 in value. In
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either, (i), (ii), or (iii), Seller would have earned the maximum Earn-Out
Amount.
2.3.5.3 Example No. 3.
Facts: 2000 Excess Amount is $1,000,000, the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $2.00 and Seller has
received 20,000 Earn-Out Shares as a result of a 1999 Excess Amount.
Results: Seller is entitled to, at Buyer's discretion,
(i) 330,000 Earn-Out Shares; (ii) $660,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $2.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $660,000 in value. In either, (i), (ii), or
(iii), Seller would have earned the maximum Earn-Out Amount.
2.3.5.4 Example No. 4.
Facts: 2000 Excess Amount is $1,000,000, the Nasdaq Share
Price for the 15 trading days period prior to the date upon which Telecom's
audited financial statements are delivered to the buyer is $5.00 and Seller has
received 20,000 Earn-Out Shares as a result of a 1999 Excess Amount.
Results: Seller is entitled to, at Buyer's discretion,
(i) 200,000 Earn-Out Shares; (ii) $1,000,000 in Earn-Out Cash; or (iii) a number
of Earn-Out Shares, valued at $5.00 per Earn-Out Share, and an amount of
Earn-Out Cash, that together equal $1,000,000 in value. In either, (i), (ii), or
(iii), Seller would have theretofore earned the value of 220,000 Earn-Out Shares
towards the maximum Earn-Out Amount.
2.4 Acceleration of Delivery of Shares. Notwithstanding the dates set
forth above for the delivery of the Purchase Shares and the Earn-Out Shares:
2.4.1 Prior to the date on which the entire Earn-Out Amount has
been earned or paid, if (i) Marvyn Budd ceases to be Chief Executive Officer
of the Buyer or (ii) if any Person has acquired, or obtained the right to
acquire all or substantially all of the assets of the Buyer or the Beneficial
Ownership of 50% or more of the Buyer's outstanding common shares by purchase,
option, right, consolidation or otherwise, (any of the forgoing events
hereinafter referred to as a "Control Event"), then Seller shall have the option
to immediately receive all remaining Purchase Shares not previously received and
all Earn-Out Shares earned and not previously delivered. The Earn-Out Shares
earned by the Seller prior to the Control Event shall be pro-rated accordingly,
if necessary. If Seller exercise his option under this Section 2.4.1, then the
Purchase Shares and the Earn-Out Shares shall immediately vest and be payable to
the Seller and the Earn-Out Amount shall be deemed all earned and fully paid and
no additional Earn-Out Amount shall be paid pursuant to Section 2.3 of this
Agreement. Subject to the Subscription Agreement, in the event the Seller shall
receive the Purchase Shares and the Earn-Out Shares as a result of the Control
Event, the Purchase Shares and the Earn-Out Shares shall be registered by the
Buyer (at its sole expense) pursuant to the Securities Act within six (6) months
from the date upon which Seller becomes entitled to such shares.
2.5 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Moskowitz Altman &
Hughes LLP in New York, New York, or such other place as may mutually be
determined by the Parties, on or about October 30, 1998 or upon the satisfaction
or waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will at the Closing itself) commencing at 9:00 a.m. local
time (the "Closing Date"). In the event the Closing does not occur by November
16, 1998, which date may mutually be extended by the Parties in writing, the
Parties agree that this Agreement shall immediately terminate and each Party
shall bear
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their own expenses in connection with this Agreement.
2.6 Closing Documents. At the Closing, (i) the Seller will deliver to
the Buyer the various certificates, instruments, and documents referred to in
Section 7.1 below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 7.2 below, (iii)
the Seller has delivered to the Buyer stock certificates representing all of the
Subject Shares, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) the Buyer has delivered to the Seller the Purchase
Consideration in accordance with the terms and conditions set forth in Section
2.2 above.
3 Representations and Warranties Concerning the Transaction.
3.1 Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this Section 3.1 are
correct and complete to Seller's Knowledge as of the date of this Agreement.
3.1.1 Authorization of Transaction. Seller has all necessary
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions except insofar as enforceability may be limited by bankruptcy,
insolvency or other creditors' rights, laws, or general principles of equity.
Except as otherwise disclosed pursuant to or contemplated by this Agreement,
Seller need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
3.1.2 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject, or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any Material agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a party or by
which he or it is bound or to which any of his or its assets is subject.
3.1.3 Brokers' Fees. Except as set forth in Section 3.1.3 of the
Disclosure Schedule, the Seller has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable or
obligated.
3.1.4 Investment. Seller (i) understands that the Purchase Shares
have not been registered under the Securities Act, or under any state securities
laws, and are being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (ii) is acquiring
the Purchase Shares solely for its own account for investment purposes, and not
with a view to the distribution thereof, (iii) is a sophisticated investor with
knowledge and experience in business and financial matters, (iv) has received
certain information concerning the Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Purchase Shares, and (v) is able to bear the economic
risk and lack of liquidity inherent in holding the Purchase Shares.
3.1.5 Subject Shares. The Seller holds of record and owns
beneficially the Subject Shares as set forth in Section 4.2 of the Disclosure
Schedule, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that
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could require the Seller to sell, transfer, or otherwise dispose of any capital
stock of Telecom (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Telecom.
3.2 Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller that the statements contained in this Section 3.2 are
correct and complete as of the date of this Agreement.
3.2.1 Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
3.2.2 Authorization of Transaction. The Buyer has all necessary
power and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions except insofar as
enforceability may be limited by bankruptcy, insolvency or other creditors'
rights, laws or general principles of equity. Except as otherwise disclosed
pursuant to or contemplated by this Agreement, the Buyer need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
3.2.3 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject.
3.2.4 Brokers' Fees. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
3.2.5 Investment. The Buyer is not acquiring the Subject Shares
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act. The Purchase Shares have been issued in
accordance with valid exemptions from registration under federal and applicable
state securities laws. The information delivered to Seller pursuant to Section
3.1.4(iv) and Buyer's filings with the Securities and Exchange Commission do not
contain any untrue statement of a material fact, or fail to state any material
fact necessary to make the statements made therein not misleading.
4 Representations and Warranties Concerning Telecom. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 4 are correct and complete to Seller's Knowledge as of the date of this
Agreement, except as set forth in the disclosure schedule delivered by the
Seller to the Buyer on the date hereof and initialed by the Parties (the
"Disclosure Schedule"). The Disclosure Schedule is arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
4.
4.1 Organization, Qualification, and Corporate Power. Telecom is a
corporation validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Telecom is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required except where the failure to be so qualified would not
have a Material Adverse Effect on Telecom. Telecom has all necessary corporate
power and authority and all governmental licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and
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to own and use the properties owned and used by it except where the failure to
obtain such licenses would not have a Material Adverse Effect on Telecom.
Section 4.1 of the Disclosure Schedule lists the directors and officers of
Telecom. The Seller has delivered to the Buyer correct and complete copies of
the articles of incorporation and bylaws of Telecom (as amended to date). The
minute books (containing the records of meetings of the stockholders, the board
of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of Telecom are correct and
complete in all Material respects. Telecom is not in default under or in
violation of any Material provision of its articles of incorporation charter or
bylaws.
4.2 Capitalization. The entire authorized capital stock of Telecom
consists of 1,000 shares of common stock, no par value, of which 1,000 are
issued and outstanding. All of the issued and outstanding shares of Telecom's
common stock have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the Seller as set forth in Section 4.2
of the Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require Telecom to issue,
sell, or otherwise cause to become outstanding any of its capital stock. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Telecom. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of Telecom.
4.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Material constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Telecom is subject or any provision of
the charter or bylaws of any of Telecom or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Telecom is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Telecom need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
4.4 Brokers' Fees. Telecom does not have any Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
4.5 Title to Assets. Except as set forth in Section 4.5 of the
Disclosure Schedule, Telecom has good title to, or a valid right to use the
properties and assets used by it, located on its premises, or shown in the
Financial Statements or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Financial Statements.
4.6 Financial Statements. Attached hereto as Exhibit B are the audited
balance sheet and statements of income, changes in stockholders' equity, and
cash flow (collectively the "Financial Statements") as of and for the fiscal
years ended December 31, 1995, December 31, 1996, and December 31, 1997 (the
"Most Recent Fiscal Year End") for Telecom and the unaudited Financial
Statements as of and for the eight months ended August 31, 1998 (the "Most
Recent Fiscal Period End") for Telecom, except the cash flow statement for the
Most Recent Fiscal Period End. Except as set forth in the Disclosure Schedule,
the Financial Statements (including the notes that may be required by GAAP) have
been prepared in accordance with GAAP (except the Financial Statements for the
Most Recent Fiscal Period do not contain notes thereto and year-end adjustments
required by GAAP) applied on a consistent basis throughout the period covered
thereby, present fairly in all
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Material respects the financial condition and the results of operations of
Telecom as of such periods, are correct and complete in all Material respects,
and are consistent with the books and records of Telecom (which books and
records are correct and complete in all Material respects), subject, in the case
of the Financial Statements for the Most Recent Fiscal Period, to normal
recurring year-end adjustments consistent with Telecom's past practices.
4.7 Events Subsequent to Most Recent Fiscal Year End. Except as set
forth in Section 4.7 of the Disclosure Schedule, since the Most Recent Fiscal
Year End, there has not been any material adverse change in the business,
financial condition, operations or results of operations of Telecom.
Without limiting the generality of the foregoing, since that date:
4.7.1 Telecom has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
4.7.2 Telecom has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and licenses)
either involving more than $10,000 or outside the Ordinary Course of Business.
4.7.3 no party (including Telecom) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than $10,000
to which Telecom is a party or by which it is bound;
4.7.4 Telecom has not imposed any Security Interest upon any of its
assets, tangible or intangible;
4.7.5 Telecom has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000 or outside the
Ordinary Course of Business;
4.7.6 Telecom has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or series
of related capital investments, loans, and acquisitions) either involving more
than $10,000 or outside the Ordinary Course of Business;
4.7.7 Telecom has not issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed any indebtedness for borrowed money
or capitalized lease obligation either involving more than $5,000 singly or
$10,000 in the aggregate;
4.7.8 Telecom has not delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course of Business;
4.7.9 Telecom has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either involving
more than $10,000 or outside the Ordinary Course of Business;
4.7.10 Telecom has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
4.7.11 there has been no change made or authorized in the articles
of incorporation or bylaws of Telecom;
4.7.12 Telecom has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
4.7.13 Telecom has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
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4.7.14 Telecom has not experienced any Material damage,
destruction, or loss (whether or not covered by insurance) to its property
outside the Ordinary Course of Business;
4.7.15 Telecom has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
4.7.16 Telecom has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
4.7.17 Telecom has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
4.7.18 Telecom has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);
4.7.19 Telecom has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary Course of
Business;
4.7.20 Telecom has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
4.7.21 there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving Telecom; and
4.7.22 Telecom has not committed to do any of the foregoing.
4.8 Undisclosed Liabilities. Telecom does not have any Material
Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Material Liability), except for (i) Liabilities
set forth on the face of the Financial Statements; (ii) Liabilities disclosed on
the Disclosure Schedule; and (iii) Liabilities which have arisen after the Most
Recent Fiscal Year End in the Ordinary Course of Business (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
4.9 Legal Compliance. Telecom has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) in all Material respects, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against Telecom alleging any failure so to
comply.
4.10 Tax Matters.
4.10.1 Except as set forth in Section 4.10.1 of the Disclosure
Schedule, Telecom has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed by
Telecom (whether or not shown on any Tax Return) have been paid. Telecom is not
currently the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction where
Telecom does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of
Telecom that arose in connection with any failure (or alleged failure) to pay
any Tax.
4.10.2 Telecom has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
4.10.3 Neither the Seller nor any director or officer (or employee
responsible for Tax
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matters) of Telecom expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of Telecom either (i) claimed or raised by any
authority in writing or (ii) as to which any of the Seller and the directors and
officers (and employees responsible for Tax matters) of Telecom has Knowledge
based upon personal contact with any agent of such authority. Section 4.10 of
the Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to Telecom for taxable periods ended on or after
December 31, 1993, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The Seller
has delivered to the Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by Telecom since December 31, 1993.
4.10.4 Telecom has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
4.10.5 Telecom has not filed a consent under Code Section 341(f)
concerning collapsible corporations. Telecom has not made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. Telecom has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). [Telecom has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662.] Telecom is not a party to any Tax allocation or
sharing agreement. Telecom (i) has not been a member of an Affiliated Group
(within the meaning of Code Section 1504(a) or similar provision of state, local
or foreign law) filing a consolidated federal income Tax Return (other than a
group the common parent of which was Telecom) or (ii) does not have any
Liability for the Taxes of any Person (other than Telecom ) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
4.10.6 Section 4.10 of the Disclosure Schedule sets forth the
following information with respect to Telecom as of the most recent practicable
date: (i) the basis of Telecom in its assets; and (ii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to Telecom.
4.10.7 Except as set forth in Section 4.10.7 of the Disclosure
Schedule, the unpaid Taxes of Telecom (i) did not, as of the Most Recent Fiscal
Year End, exceed the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the Financial Statements (rather than in any
notes thereto) and (ii) do not exceed that reserve as adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice
of Telecom in filing its Tax Returns.
4.11 Intellectual Property.
4.11.1 Except as set forth in Section 4.11.1 of the Disclosure
Schedule, Telecom owns or has the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property, free and clear of any
Security Interest or other restriction necessary for the operation of the
business of Telecom as presently conducted. Each item of Intellectual Property
owned or used by Telecom immediately prior to the Closing hereunder will be
owned or available for use by Telecom on identical terms and conditions
immediately subsequent to the Closing hereunder. Except as set forth in Section
4.11.1 of the Disclosure Schedule, Telecom has taken all reasonably necessary
action to maintain and protect each item of Intellectual Property that it owns
or uses.
4.11.2 Telecom has not interfered with, infringed upon or
misappropriated any Intellectual Property rights of third parties, and none of
the Seller and the directors and officers (and
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employees with responsibility for Intellectual Property matters) of Telecom has,
within the last 5 years from the date hereof, ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Telecom
must license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Seller and the directors and officers
(and employees with responsibility for Intellectual Property matters) of
Telecom, no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of Telecom.
4.11.3 Section 4.11.3 of the Disclosure Schedule (i) lists all of
the trademarks, unregistered trademarks, service marks, trade dress, logos,
trade names, and corporate names used in Telecom's business, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith; (ii) identifies each license, agreement, or
other permission which Telecom has granted to any third party with respect to
any of its Intellectual Property; and (iii) identifies each item of Intellectual
Property that any third party owns and that Telecom uses pursuant to license,
sublicense, agreement, or permission.
4.12 Tangible Assets. Telecom owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each such tangible asset is free from Material
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair excluding inventory
in various stages of remanufacturing (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
4.13 Inventory. The inventory of Telecom consists of used office
equipment held for resale, raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured
(except as set forth on the Disclosure Schedule), and none of which is
slow-moving, obsolete, damaged, or defective, subject only to the reserves set
forth on the face of the Financial Statements as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
Telecom. Section 4.13 of the Disclosure Schedule lists the inventory of Telecom
as of the Most Recent Fiscal Period End. At Closing, there is no change in the
inventory of Telecom set forth in Section 4.13 of the Disclosure Schedule other
than changes in the Ordinary Course of Business.
4.14 Contracts. Section 4.14 of the Disclosure Schedule lists the
following contracts and other agreements to which Telecom is a party:
4.14.1 any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $5,000 per annum;
4.14.2 any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year, result in a material
loss to Telecom, or involve consideration in excess of $5,000;
4.14.3 any agreement concerning a partnership or joint venture;
4.14.4 any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $5,000 or under which
it has imposed a Security Interest on any of its assets, tangible or intangible;
4.14.5 any agreement concerning confidentiality or noncompetition;
4.14.6 any agreement with any of the Seller or its affiliates
(other than Telecom);
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4.14.7 any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
4.14.8 any collective bargaining agreement;
4.14.9 any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $5,000 or providing severance benefits;
4.14.10 any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees;
4.14.11 any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of Telecom; or
4.14.12 any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4.14 of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4.14 of the Disclosure Schedule. With
respect to each such agreement: (i) the agreement is the legal, valid, binding
and enforceable obligation of Telecom, and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable obligation
of Telecom and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (iii) no party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (iv) no party has repudiated orally or in
writing to Telecom any provision of the agreement.
4.15 Notes and Accounts Receivable. All notes and accounts receivable
of Telecom are reflected properly on its books and records, are valid
receivables subject to no known setoffs or counterclaims, are collectible, and
will be collected in accordance with their terms at their recorded amounts,
subject only to the reserves set forth on the face of the Financial Statements
as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of Telecom.
4.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of Telecom.
4.17 Insurance. Section 4.17 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which Telecom has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
five years:
4.17.1 the name, address, and telephone number of the agent;
4.17.2 the name of the insurer, the name of the policyholder, and
the name of each covered insured;
4.17.3 the policy number and the period of coverage;
4.17.4 the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
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4.17.5 a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (i) the policy is legal, valid,
binding, enforceable and in full force and effect; (ii) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (iii) neither Telecom nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (iv) no party to the policy has
repudiated orally or in writing to Telecom or Seller any provision thereof.
Telecom has been covered during the past five years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. Section 4.17 of the Disclosure Schedule
describes any self-insurance arrangements affecting any Telecom.
4.18 Litigation. Section 4.18 of the Disclosure Schedule sets forth
each instance in which Telecom (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge specifically applicable to it or (ii)
is a party or is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4.18 of the Disclosure Schedule are expected
to result in any material adverse change in the business, financial condition,
operations or results of operations of Telecom. None of the Seller and the
director and officer (and employees with responsibility for litigation matters)
of Telecom has any reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against Telecom.
4.18.1 Representation concerning Graphic Enterprises, Inc. v. TAS
International, Inc. Notwithstanding the forgoing and anything contrary contained
in this Agreement, other than the specific indemnity contained in Section 8.5
hereof, the Seller represents and warrants to the Buyer that the litigation
entitiled Graphic Enterprises, Inc. v. TAS International, Inc. (the "TAS
Action") in which Telecom is named as a Third Party Defendant by Graphic
Enterprises, Inc., will not result in any material adverse change in the
business, financial condition, operations or results of operations of Telecom
other than the payment of attorneys' fees and expenses in connection with
defending such action and settlement or judgment thereto not exceeding $75,000.
To Seller's Knowledge, none of the Seller and the director and officer (and
employees with responsibility for litigation matters) of Telecom has any reason
to believe additional action, suit, proceeding, hearing, or investigation may be
brought or threatened against Telecom in connection with the TAS Action.
4.19 Product Warranty. Each product manufactured or sold by Telecom has
been in conformity with all applicable Material contractual commitments and all
express product warranties, and Telecom has no Material Liability for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Financial Statements as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Telecom. No product
manufactured or sold by Telecom is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale. Section
4.19 of the Disclosure Schedule sets forth the standard terms and conditions of
sale of Telecom (containing applicable guaranty, warranty, and indemnity
provisions).
4.20 Product Liability. Telecom does not have any Material Liability
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured or sold by Telecom.
4.21 Employees. To the Knowledge of the Seller, no executive, key
employee, or group of
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employees has any plans to terminate employment with Telecom. Telecom is not a
party to or bound by any collective bargaining agreement, nor has it experienced
any strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes within the last five years. Telecom has not committed any
unfair labor practice. None of the Seller and the directors and officers of
Telecom has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Telecom.
4.22 Employee Benefits.
4.22.1 Definitions. For the purpose of this Section 4.22, the
following terms shall have the meanings set forth below:
4.22.1.1 "Employee Benefit Plan" means any (i) nonqualified
deferred compensation or retirement plan or arrangement, (ii) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (iii) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (iv)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
4.22.1.2 "Employee Pension Benefit Plan" has the meaning set forth
in ERISA Section 3(2).
4.22.1.3 "Employee Welfare Benefit Plan" has the meaning set forth
in ERISA Section 3(1).
4.22.1.4 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
4.22.1.5 "ERISA Affiliate" means each entity which is treated as a
single employer with Telecom pursuant to the relevant provisions of Code Section
414.
4.22.1.6 "Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
4.22.1.7 "PBGC" means the Pension Benefit Guaranty Corporation.
4.22.2 Section 4.22 of the Disclosure Schedule lists each Employee
Benefit Plan that Telecom maintains or to which Telecom contributes.
4.22.2.1 Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA and the Code.
4.22.2.2 All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan.
4.22.2.3 Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Code Section
401(a).
4.22.2.4 As of the last day of the most recent prior plan year,
the market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equaled or
exceeded the present value of liabilities thereunder (determined in accordance
with then current funding assumptions).
4.22.2.5 The Seller has delivered to the Buyer correct and
complete copies
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of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
Form 5500 Annual Report, and all related trust agreements, insurance contracts,
and other funding agreements which implement each such Employee Benefit Plan.
4.22.3 With respect to each Employee Benefit Plan that Telecom or
any ERISA Affiliate maintains or has maintained during the prior six years or to
which any of them contributes, or has been required to contribute during the
prior six years:
4.22.3.1 No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending.
4.22.3.2 Telecom has not incurred any liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA (including any
withdrawal liability) with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
4.23 Guaranties. Telecom is not a guarantor and is not otherwise liable
for any Liability or obligation (including indebtedness) of any other Person.
4.24 Environmental, Health, and Safety Matters.
4.24.1 Each of Telecom and its predecessors and affiliates has
complied and is in compliance with all Material Environmental, Health, and
Safety Requirements which are applicable to it.
4.24.2 Without limiting the generality of the foregoing, Telecom
has obtained and complied with, and is in compliance with, in all Material
respects, all applicable permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business. Section 4.24 of
the Disclosure Schedule lists all such permits, licenses and other
authorizations.
4.24.3 Neither Telecom nor the Seller has received any written or
oral notice, report or other information regarding any actual or alleged
violation of Environmental, Health, and Safety Requirements, or any liabilities
or potential liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations,
relating to any of them or its facilities arising under Environmental, Health,
and Safety Requirements.
4.25 Certain Business Relationships with Telecom. Except as set
forth in Section 4.25 of the Disclosure Schedule, neither the Seller nor any of
his affiliates has been involved in any business arrangement or relationship
with Telecom within the past 12 months and neither the Seller nor any of his
affiliates owns any asset, tangible or intangible, which is used in the business
of Telecom.
4.26 Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5 Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
5.1 General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
5.2 Notices and Consents. The Seller will cause Telecom to give any
notices to third parties,
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and will cause Telecom to use its best efforts to obtain any third party
consents, that the Buyer reasonably may request in connection with the matters
referred to in Section 4.3 above. Each of the Parties will (and the Seller will
cause Telecom to) give any notices to, make any filings with, and use its best
efforts to obtain any Material authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Section 3.1.2, Section 3.2.3, and Section 4.3 above.
5.3 Operation of Business. The Seller will not cause or permit Telecom
to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Seller will not cause or permit Telecom to (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock, or
(ii) otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4.7 above.
5.4 Preservation of Business. The Seller will cause Telecom to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
5.5 Full Access. Upon reasonable prior notice, the Seller will permit,
and the Seller will cause Telecom to permit, representatives of the Buyer to
have full access to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to Telecom.
5.6 Notice of Developments. The Seller will give prompt written notice
to the Buyer of any Material adverse development causing any of the
representations and warranties in this Agreement to be untrue. Each Party will
give prompt written notice to the other of any Material adverse development
causing a breach of any of its own representations and warranties in Section 3
above.
5.7 Exclusivity. Subject to Paragraph 14 the Letter of Intent between
the Parties dated July 21, 1998, until the later of January 21, 1999 or the
termination of this Agreement, the Seller will not cause or permit Telecom to:
(i) solicit, initiate, or encourage the submission of any proposal or offer from
any Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of Telecom including any
acquisition structured as a merger, consolidation, or share exchange or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Until such date, the Seller will not vote his Subject Shares in favor
of any such acquisition structured as a merger, consolidation, or share
exchange. Until such date, the Seller will notify the Buyer immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6 Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
6.1 General. In case at any time after the Closing any further action
is necessary or mutually desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other Party may
reasonably request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 below). Seller acknowledges and agrees that from and after the Closing
the Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
Telecom; provided that Buyer will maintain, and will not destroy, all such
documents, books, records, agreements and data for a six year period after the
Closing, and during such period Seller, so long as he remains an employee of the
Buyer, shall have the right to inspect such records at its reasonable
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request for legitimate purposes.
6.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Telecom, the other Party will cooperate with him
or it and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8 below).
6.3 Transition. Seller shall not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of Telecom from maintaining the same
business relationships with Telecom after the Closing as it maintained with
Telecom prior to the Closing.
6.4 Confidentiality. Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his possession. In the
event that the Seller requests or is required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, Seller will notify the Buyer promptly of the request or requirement
so that the Buyer may seek an appropriate protective order or waive compliance
with the provisions of this Section 6.4. If, in the absence of a protective
order or the receipt of a waiver hereunder, the Seller is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, Seller may disclose the Confidential Information
to the tribunal; provided, however, that Seller shall use his best efforts to
obtain, at the request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
6.5 Covenant Not to Compete. In consideration of $30,000, an amount
which is included in the Purchase Consideration, for a period of five (5) years
from and after the Closing Date, the Seller will not engage directly or
indirectly in any business that Telecom conducts as of the Closing Date in any
geographic area in which Telecom conducts that business as of the Closing Date;
provided, however, that in the event the Seller owns any common shares of the
Buyer or less than 1% of the outstanding stock of any publicly-traded
corporation, the Seller shall not be deemed to engage solely by reason thereof
in any of its businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6.5 is invalid
or unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
6.6 Purchase Shares and Earn-Out Shares. The certificate or
certificates representing the Purchase Shares and Earn-Out Shares, if any, shall
be imprinted with a legend substantially in the
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following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT
BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED UNLESS
(I) A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT WITH RESPECT TO
THE SECURITIES OR (II) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER
MAY BE MADE PURSUANT TO RULE 144 OR RULE 144A OF THE ACT.
The Seller may not transfer their Purchase Shares and Earn-Out Shares, if any,
until they have first furnished the Buyer with (i) a written opinion
satisfactory to the Buyer in form and substance from counsel satisfactory to the
Buyer by reason of experience to the effect that the Seller may transfer his
Purchase Shares and Earn-Out Shares, if any, as desired without registration
under the Securities Act and (ii) a written undertaking executed by the desired
transferee satisfactory to the Buyer in form and substance agreeing to be bound
by the transfer contained herein. Transfer of the Purchase Shares and Earn-Out
Shares, if any, by the Seller is further restricted as provided below. The
restrictive legend described in this Section will be removed and all other
requirements described in this Section will be terminated after all the Purchase
Shares (or a portion thereof) and Earn-Out Shares (or a portion thereof), if
any, are registered under the Securities Act and a written opinion satisfactory
to the Buyer in form and substance from counsel satisfactory to the Buyer by
reason of experience to the effect that the Seller may transfer such shares.
6.7 Lock-up of Buyer's Common Shares. In the event the directors and
principal officers of the Buyer, for the purpose of furthering the business and
capital needs of the Buyer, unanimously agree to a binding "lock-up" of Buyer's
common shares owned by them, the Seller shall accede to and comply with such
"lock-up" with respect to Buyer's common shares (including the Purchase Shares
and Earn-Out Shares, if any) owned by the Seller for a period of not more than
180 days.
6.8 Lease Guaranty. Buyer shall guaranty Telecom's obligations under a
certain commercial lease dated October 30, 1998, for the premises located at 285
and 295 Industrial Drive, Wauconda, Illinois 60084 between the Seller, as
Landlord, and Telecom, as Tenant.
6.9 Qualification of Telecom "Key Employees" for Management Stock Bonus
Plan. Buyer, at its sole discretion, shall designate certain "key employees" of
Telecom as participants in Buyer's Management Stock Bonus Plan.
6.10 Subscription Agreement. Seller shall have entered into the
Subscription and Registration Rights Agreement and Stockholder's Certificate
with the Buyer substantially in the form set forth in Exhibit A attached hereto
and the same shall be in full force and effect;
6.11 Employment Agreement. Seller shall have entered into an Employment
Agreement with the Buyer substantially in the form set forth in Exhibit C
attached hereto and the same shall be in full force and effect.
7 Conditions to Obligation to Close.
7.1 Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
7.1.1 the Buyer shall have obtained, on terms and conditions
satisfactory to Buyer, the necessary financing required to both consummate the
transactions contemplated hereby and fund the working capital requirements of
Telecom after the Closing;
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7.1.2 the Seller and Telecom shall have entered into a commercial
lease for the premises located at 285 and 295 Industrial Drive in the city of
Wauconda, Lake County, Illinois, on terms and conditions satisfactory to the
Parties;
7.1.3 the Seller shall have filed releases in connection with all
liens as set forth in Section 4.5 of the Disclosure Schedule and the terms and
conditions of the termination of the liens shall be satisfactory to Buyer;
7.1.4 the representations and warranties set forth in Section 3.1
and Section 4 above shall be true and correct in all material respects at and as
of the Closing Date;
7.1.5 the Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the Closing;
7.1.6 no Material action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (iii) Materially and adversely affect the
right of the Buyer to own the Subject Shares and to control Telecom, or (iv)
Materially and adversely affect the right of Telecom to own its assets and to
operate its business (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
7.1.7 the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section 7.1.4 -- 7.1.6
is satisfied in all Material respects;
7.1.8 As of the date immediately preceding the Closing, the Most
Recent Financial Statement will not reflect an outstanding (i) note receivable
in the amount greater than U.S.$250,000 from Seller and (ii) any accounts
payable for "Barter Transactions," as the term is set forth in the Most Recent
Financial Statement.
7.1.9 the Seller shall have delivered or caused to be delivered to
the Buyer stock certificates representing the Subject Shares, endorsed in blank
or accompanied by duly executed assignment documents;
7.1.10 Each of the Seller, Clifford, Coyne and Rae shall have
entered into the Subscription and Registration Rights Agreement & Stockholder's
Certificate with the Buyer substantially in the form set forth in Exhibit A and
Exhibit A.1 attached hereto, and on terms and conditions satisfactory to the
Parties, and the same shall be in full force and effect;
7.1.11 the Seller shall have entered into an Employment Agreement
with the Buyer substantially in the form set forth in Exhibit C attached hereto
and the same shall be in full force and effect;
7.1.12 the Buyer shall have received from counsel to the Seller an
opinion in form and substance as set forth in Exhibit D attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
7.1.13 the Buyer shall have received the resignations, effective as
of the Closing, of each director and officer of Telecom other than those whom
the Buyer shall have specified in writing prior to the Closing;
7.1.14 the Buyer shall have received all corporate books and
records of Telecom; and
7.1.15 all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents
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required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 7.1 if it executes a
writing so stating at or prior to the Closing.
7.2 Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by him in connection with
the Closing is subject to satisfaction of the following conditions:
7.2.1 the Seller and Telecom shall have entered into a commercial
lease for the premises located at 285 and 295 Industrial Drive in the city of
Wauconda, Lake County, Illinois, on terms and conditions satisfactory to the
Parties;
7.2.2 Seller shall have received from American National Bank and
Trust Company of Chicago ("American") a full release and discharge as guarantor
under all loans made by American to Telecom;
7.2.3 the representations and warranties set forth in Section 3.2
above shall be true and correct in all Material respects at and as of the
Closing Date;
7.2.4 the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
7.2.5 no Material action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
7.2.6 the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section 7.2.3 -- 7.2.5
is satisfied in all Material respects;
7.2.7 the Seller shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to the Seller, and dated as of the Closing Date; and
7.2.8 all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all payment,
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Section 7.2 if he executes
a writing so stating at or prior to the Closing.
8 Remedies for Breaches of this Agreement.
8.1 Indemnification. Subject to the limitation set forth in this
Section 8, in the event either Party Materially breaches (or in the event any
third party alleges facts that, if true, would mean such Party has Materially
breached) any of its representations, warranties, and covenants contained
herein, and provided that a claiming Party makes a written claim within a
reasonable time for indemnification against the breaching Party pursuant to
Section 10.7 below, then the breaching Party agrees to indemnify the claiming
Party from and against the entirety of any Adverse Consequences the claiming
Party may suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach). All of the
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representations and warranties by the Seller contained in this Agreement, and
Seller's obligation to indemnify thereunder, (excluding Section 4.10, Section
4.22 , Section 4.24 and Seller's representations and warranties relating to the
TAS Action) shall survive the Closing hereunder (even if the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect until the later of April 15, 1999
or sixty (60) days after Telecom's audited financial statements for the fiscal
year ended November 30, 1998 are delivered to the Buyer. All of the other
representations and warranties of the Parties contained in Section 4.10, Section
4.22 and Section 4.24, including Seller's representations and warranties
relating to the TAS Action, and Seller's obligation to indemnify thereunder,
shall survive the Closing (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect forever thereafter subject to any applicable
statutes of limitations; provided, however, that the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse Consequences
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or alleged breach) of any representation or warranty of the Seller
contained in Section 4 (excluding Section 4.10, Section 4.22, Section 4.24,
including Seller's representations and warranties relating to the TAS Action,
and any Adverse Consequences resulting from wilful or intentional breach by any
Party) above until the Buyer has suffered Adverse Consequences by reason of any
one or all such breaches (or alleged breaches) in excess of a $150,000 aggregate
threshold, and only to the extent of such excess.
8.1.1 Indemnification Limitations. The liability of Seller under
Section 8, except for the liability of Seller set forth in Section 8.5, shall
not exceed $3,100,000. Notwithstanding anything to the contrary contained in
this Section 8.1, Buyer shall not be entitled to make any claim under the
provisions of this Section 8.1 or Section 8.5 in respect of Adverse Consequences
(i) accruing in the Ordinary Course of Business of Telecom subsequent to the
Closing Date or (ii) if any one or more Adverse Consequence individually or in
the aggregate is less than $5,000. Notwithstanding anything to the contrary
contained in this Section 8, the foregoing, and subject to the following
provisions, the amount of Adverse Consequences payable by Seller to Buyer shall
be limited by the following:
8.1.1.1 In computing the amount of Adverse Consequences,
there shall be deducted therefrom an amount equal to the United States, federal,
state or local income tax savings, if any, to which the Buyer or Telecom becomes
entitled from the income tax deduction or deferral, if any, to which the Buyer
or Telecom shall become entitled as a consequence of any loss, claim, damage,
liability, cost, expense or deficiency giving rise to the Adverse Consequences;
8.1.1.2 In the event that Adverse Consequences are payable to
the Buyer because all or a portion of the account receivables are not collected
by Telecom, the Buyer shall cause Telecom to assign (without recourse) such
accounts receivables (to the extent uncollected, and including any reserve for
doubtful accounts receivable) to the Seller promptly after payment by the Seller
of the Adverse Consequences becoming due as a result of such noncollection.
Prior to making such assignment, Buyer shall use its reasonable best efforts to
collect all of the accounts receivables and shall apply any payment received to
accounts receivables in chronological order beginning with the oldest accounts
receivables (and shall not advise any account debtor to direct the application
of proceeds to accounts receivables in any other manner). After such assignment,
the Seller may use any commercially reasonable means to collect the assigned
account receivables, including a reassignment of such account receivables to a
collection agency. If, after assignment to the Seller, Buyer receives payment
from an account debtor which has an account receivable which has been assigned
to the Seller, Buyer shall immediately deliver such payment, endorsed for
transfer where necessary, to the Seller until all of the assigned account
receivable with respect to such account debtor have been paid in full.
8.1.1.3 In computing the amount of Adverse Consequences,
there shall be
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deducted therefrom an amount equal to the sum of (i) insurance proceeds to which
the Buyer collects as a consequence of any loss, claim, damage, liability, cost,
expense or deficiency giving rise to Adverse Consequences, or (ii) all amount
collected by Buyer as a result of claims against third parties which reduces the
amount of Adverse Consequences. Buyer shall in good faith pursue and attempt to
collect all insurance proceeds and all claims against third parties which would
reduce the Adverse Consequences.
8.1.1.4 The Buyer shall not be entitled to recover Adverse
Consequences with respect to any matter (including any breach of this Agreement
by Seller) which was disclosed to Buyer under the Disclosure Schedule. If the
Seller prove by a preponderance of the evidence that the matter which forms a
basis for Buyer's claim for Adverse Consequences was disclosed in the Disclosure
Schedule and Buyer then elected to close the transactions contemplated by this
Agreement, then Buyer shall be deemed to have waived its claim for Adverse
Consequences with respect to such matter.
8.1.1.5 The Buyer shall not be entitled to Adverse
Consequences with respect to any contract, agreement, license, permit or other
document which is nonassignable or nontransferable, or the failure of the Seller
to obtain any consent or to fulfill any conditions imposed incident to the
giving of any consent, if such nonassignability, nontransferability of need for
consent or condition is disclosed on the Disclosure Schedule.
8.1.1.6 The sole remedy of the Parties for any monetary
claims for damages resulting or arising in any manner from or with respect to
this Agreement or the transactions contemplated hereby, whether such claims
arise out of contract, tort or violation of law, shall be made pursuant to, and
subject to the limitations of, this Section 8.
8.1.2 Additional Indemnification Provisions. Notwithstanding the
foregoing, neither Party shall be required to indemnify the other with respect
to any breach of warranty, representation, agreement or covenant contained
herein or in the attached documents unless the Party seeking indemnification
(the "Indemnitee") shall, with reasonable promptness from the time the
Indemnitee became aware of the Adverse Consequence, provide the Party (the
"Indemnitor") with copies of any claims or other documents received and shall
otherwise make available to the Indemnitor all relevant information material to
the defense of any claim against the Indemnitee which shall serve as the basis
for a claim by the Indemnitee pursuant to the terms hereof. The Indemnitor shall
have the election to join in the defense of any such claim and the Indemnitee
shall not settle or compromise any such claim unless it shall have first
obtained the written consent of the Indemnitor or unless suit shall have been
instituted against the Indemnitee and the Indemnitor shall have failed, after
the lapse of a reasonable time after written notice to the Indemnitor of such
suit, to take action to defend the same; provided however, that the Indemnitee's
failure to give prompt notice or to provide copies of documents or to furnish
relevant data shall not constitute a defense (in whole or in part) to any claim
by the Indemnitee unless such failure causes a material prejudice to the
Indemnitor.
8.2 Matters Involving Third Parties.
8.2.1 If any third party shall notify either Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
promptly notify the Indemnifying Party thereof in writing; provided, however,
that no delay on the part of the Indemnified Party in notifying the Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is prejudiced.
8.2.2 An Indemnifying Party will have the right to defend the
Indemnified Party
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against the Third Party Claim with counsel of its choice reasonably satisfactory
to the Indemnified Party so long as (i) the Indemnifying Party notifies the
Indemnified Party in writing within fifteen (15) days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) such equitable relief sought by the
Third Party Claim, if any, would not, if granted, result in a material adverse
effect on the Indemnified Party's business, and (iv) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
8.2.3 So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 8.2.2 above, (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (ii) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (iii) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
8.2.4 In the event any of the conditions in Section 8.2.2 above is
or becomes unsatisfied, however, (i) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not obtain the consent of the
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
8.3 Character of Indemnification Payments. All indemnification payments
under this Section 8 shall be deemed adjustments to the Purchase Consideration.
8.4 Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) either Party may
have with respect to Telecom or the transactions contemplated by this Agreement.
The Seller hereby agrees that it will not make any claim for indemnification
against Telecom by reason of the fact that he or it was a director, officer,
employee, or agent of Telecom or was serving at the request of Telecom as a
partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
the Buyer against such Seller (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or otherwise).
8.5 Specific Indemnification. The Seller shall indemnify Buyer for all
Adverse Consequences, including all legal expenses incurred by Telecom and or
Buyer, in excess of $75,000 (the "Repayment Amount") suffered by Telecom in
connection with, arising out of, relating to, in the nature of, or caused by
Telecom's involvement with the TAS Action. Notwithstanding anything contrary
contained in this Agreement, the representations and warranties contained in
this Agreement
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concerning the TAS Action shall survive the Closing hereunder, even if the Buyer
knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of the Closing, and continue in full force and effect
forever thereafter subject to any applicable statutes of limitations.
8.5.1 Limitation and Payment Under Specific Indemnification.
Notwithstanding anything contrary contained in this Agreement, Seller's
liability for any Repayment Amount under this Section 8.5, when combined with
all other liabilities of Seller pursuant to this Section 8, shall not exceed the
Purchase Consideration. The Repayment Amount that may be due to Buyer under this
Section 8.5 shall be paid by Seller up to a maximum Repayment Amount of
$3,100,000 in cash, plus any Repayment Amount over $3,100,000, shall be offset
by the value of the Purchase Shares due Seller under this Agreement, and any
additional Repayment Amount shall be offset by the value of Earn-Out Shares that
may be due Seller under this Agreement. For the purposes of the offset, the
value of the Purchase Shares and Earn-Out Shares shall be the Nasdaq Share Price
as of the settlement or disposition date of the TAS Action. The Buyer shall have
the option of recouping all or any part of any Repayment Amount, subject to the
limitations contained herein, by reducing the principal amount outstanding under
the Note, should there be any amount of the Note remaining unpaid at the time
that the Repayment Amount becomes due .
8.5.2 Additional Limitation. Buyer shall not be entitled to make
any claim under the provisions of this Section 8.5 in the event that Buyer
causes Telecom to settle the TAS Action without Seller's written consent.
9 Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Seller for certain tax matters following the
Closing Date:
9.1 Tax Periods Ending on or Before the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for Telecom for all periods ending on or prior to the Closing Date which are
filed after the Closing Date. Buyer shall permit Seller to review and comment on
each such Tax Return described in the preceding sentence prior to filing.
Telecom shall reimburse Buyer for Taxes of Telecom with respect to such periods
within fifteen (15) days after payment by Buyer or Telecom of such Taxes to the
extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Most Recent Financial
Statements.
9.2 Tax Periods Beginning Before and Ending After the Closing Date.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of Telecom for Tax periods which begin before the Closing Date and
end after the Closing Date. Telecom shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Most Recent Financial Statements. (For purposes of this Section
9.2, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (i) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(ii) in the case of any Tax based upon or related to income or receipts be
deemed equal to the amount which would be payable if the relevant Taxable period
ended on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give
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effect to the foregoing allocations shall be made in a manner consistent with
prior practice of Telecom.
9.3 Cooperation on Tax Matters.
9.3.1 Buyer, Telecom and Seller shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Telecom and Seller agree (i) to retain all books and records with
respect to Tax matters pertinent to Telecom relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer or Seller, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (ii) to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, Telecom or
Seller, as the case may be, shall allow the other party to take possession of
such books and records.
9.3.2 Buyer and Seller further agree, upon request, to use their
best efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby), provided however, that any
such efforts shall not result in any additional Taxes payable by the Seller due
to such efforts.
9.4 Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving Telecom shall be terminated as of the
Closing Date and, after the Closing Date, Telecom shall not be bound thereby or
have any liability thereunder.
9.5 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any Illinois
Gains Tax, Illinois Transfer Tax and any similar tax imposed in other states or
subdivisions), shall be paid by Seller when due, and Seller will, at its own
expense, file all necessary Tax Returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
10 Miscellaneous.
10.1 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; provided,
however, that the Buyer may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the Buyer will use its reasonable best
efforts to advise the Seller prior to making the disclosure).
10.2 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
10.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
10.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the
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benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of his or
its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
affiliates and (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
10.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument This Agreement shall become
effective when one or more counterparts have been signed and delivered to the
other Party via facsimile or in any other comparable manner followed by a
delivery of the original signed Agreement by express courier to the Party.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Copies to:
John Einarsen, President Alexander P. Fraser, Esq.
Telecom Corporation of Chicago Michael Best & Friedrich LLP
285 Industrial Drive 100 East Wisconsin Avenue
Wauconda, Illinois 60084 Milwaukee, Wisconsin 53202-4108
Tel: (847) 487-8100, Ext. 1311 Tel: (414) 271-6560
Jonathon D. Kron, Esq.
Thermo-Shield, Inc.
661 Glenn Avenue
Wheeling, Illinois 60090
Tel: (847) 520-4700, Ext. 117
If to the Buyer: Copy to:
Marvyn Budd, President Stanley Moskowitz, Esq.
Officeland Inc. Moskowitz Altman & Hughes LLP
312 Dolomite Drive 11 East 44th Street, Suite 504
Downsview, Ontario, Canada M3J 2N2 New York, NY 10017
Tel: (416) 736-4000 Tel: (212) 953-1121
Either Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Either
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule. The Parties agree to
the exclusive jurisdiction of the courts of (i) New York or the United States
District Court for the Southern District of New York in the event an action is
commenced
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hereunder by the Seller ; or (ii) Chicago, Illinois or any United States
District Court sitting in Chicago, Illinois in the event an action is commenced
hereunder by Buyer. Each of the Parties hereto agrees that process may be served
upon them in any manner authorized by the laws of the jurisdiction determined in
accordance with the previous sentence and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
10.9 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Party to be charged. No waiver by either Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.11 Expenses. Each of the Parties and Telecom will bear his or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, the Seller hereby assumes and agrees to reimburse
Telecom within five days of the Closing Date for fees paid by Telecom prior to
the Closing for legal and accounting fees and expenses in connection with this
Agreement and the transactions contemplated hereby in excess of U.S.$50,000.
10.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If either Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
10.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
10.14 Specific Performance. Seller acknowledges and agrees that the
Buyer would be damaged irreparably in the event Seller breaches his covenant not
to compete as set forth Section 6.5 of this Agreement. Accordingly, Seller
agrees that the Buyer shall be entitled to an injunction or injunctions to
prevent breaches of said covenant not to compete and to enforce specifically
said covenant not to compete in any action instituted in any state or federal
court sitting in the State of Illinois.
10.15 Currency. All references to currencies contained in this
Agreement are in United States dollars.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
Officeland Inc.
By: /s/ Marvyn Budd
-------------------------
Marvyn Budd, President
/s/ John Einarsen
- --------------------------
John Einarsen
Exhibit Document
- ------- --------
Exhibit A Form of Seller Subscription and Registration Rights Agreement
& Stockholder's Certificate
Exhibit A.1 Form of Consultant Subscription and Registration Rights
Agreement & Stockholder's Certificate
Exhibit B Financial Statements
Exhibit C Form of Employment Agreement
Exhibit D Form of Opinion of Counsel to the Seller
Exhibit E Form of Opinion of Counsel to the Buyer
Exhibit F Officeland Inc. Promissory Note
Disclosure Schedule Exceptions to Representations and Warranties Concerning
Telecom
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<PAGE>
Exhibit 6
EMPLOYMENT CONTRACT
THIS AGREEMENT made as of the day of October, 1998,
B E T W E E N :
JOHN EINARSEN, of the State of Illinois
(hereinafter called the "Employee")
OF THE FIRST PART
A N D :
TELECOM CORPORATION OF CHICAGO, a
corporation incorporated under the laws of the
State of Illinois
(hereinafter called the "Employer")
OF THE SECOND PART
A N D :
OFFICELAND INC., a corporation incorporated under
the laws of the Province of Ontario
(hereinafter called the "Officeland")
OF THE THIRD PART
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of
the mutual covenants and agreements herein contained, the parties hereby
mutually covenant and agree as follows:
ARTICLE 1.00 - EMPLOYMENT
1.1 The Employer hereby agrees to employ the Employee in the capacity of
Vice-President under the direction of its board of directors and/or the board
of directors of Officeland and the Employee agrees to accept such employment
upon the terms and conditions hereinafter set forth.
<PAGE>
-2-
1.2 For good and valuable consideration, the receipt of which is hereby
acknowledged by Officeland, Officeland hereby guarantees the performance by the
Employer of its obligations to the Employee hereunder. The Employee agrees that
at the option of Officeland, exercisable at any time and from time to time, any
one or more of the references hereunder to the Employer shall apply equally or
in the alternative to Officeland, either in whole or in part, as may be
determined by Officeland, such that Officeland shall be entitled to the benefit
of and to exercise all of the rights of the Employer hereunder either together
with or in the place and stead of the Employer.
ARTICLE 2.00 - TERM
2.1 The term of employment of the Employee hereunder shall be for a period
commencing on October , 1998 (the "Commencement Date") and expiring on
November 30, 2001 unless terminated at an earlier time in accordance with the
provisions of this Agreement (the "Term").
2.2 If, within ninety (90) days prior to the expiration of the Term, the
Employer and the Employee are unable to agree upon the terms of renewal of this
Agreement then this Agreement shall be at an end upon the expiration of the
Term.
ARTICLE 3.00 - OBLIGATIONS OF THE EMPLOYEE
3.1 During the Term and any renewal thereof, the Employee shall perform the
reasonable and lawful acts and duties required by the board of directors of the
Employer and/or by the board of directors of Officeland to be performed by the
Employee, which acts and duties shall not be inconsistent with the acts and
duties required to be performed by persons occupying similar positions in
businesses of similar nature and size.
3.2 The Employee shall devote his full time and attention to the business and
affairs of the Employer.
3.3 Subject to the approval of the Board of Directors of the Employer, the
Employee shall have the authority to hire, discharge and set the compensation
for the employees of the Employer (other than the compensation of the
Employee).
ARTICLE 4.00 - COMPENSATION
The Employer shall pay to the Employee compensation for services
rendered on the following terms and conditions:
4.1 The Employer shall pay as salary, during the first year of the Term,
commencing on the Commencement Date, the amount of One Hundred and Fifty
Thousand Dollars ($150,000)
<PAGE>
-3-
payable in equal weekly instalments in arrears or in such other periodic
instalments as may from time to time be mutually agreed upon by the Employer
and the Employee.
4.2 The salary paid to the Employee shall be reviewed sixty (60) days prior to
each anniversary of the Commencement Date and shall be adjusted effective on
each such anniversary date at such rate and on such terms as shall be mutually
agreed upon by the Employee and the Employer; provided that for any year or
portion thereof following the first year of this Employment Agreement, in no
event shall the salary paid to the Employee (pro rata for any period less than
a year) be less than the salary paid to the Employee in the immediately
preceding year, nor shall such salary, in any year (pro rata for any period
less than a year), be less than the salary payable to any of the Senior
Management Officers of Officeland Inc. In this Agreement, the term "Senior
Management Officers of Officeland Inc." means, collectively, Marvyn Budd,
Ronald Faust and Edwin (Ted) Lax.
4.3 The Employer shall provide, as an additional benefit by way of compensation
(the "Additional Benefits"), participation in any group benefit plan ordinarily
maintained by the Employer for salaried employees, to the levels provided by,
and in accordance with the Employer's usual policy, including medical plan,
dental plan or any other type of plan adopted by the Employer for the benefit
of its salaried employees.
4.4 In addition, the Employer shall provide the following to the Employee in
respect of the services to be performed hereunder:
(a) reimbursement of all out-of-pocket expenses properly incurred
by the Employee in connection with his employment including,
without limitation, all travelling and promotional expenses;
(b) an annual automobile allowance in the amount of Ninety-Six
Hundred Dollars ($9,600) and the reimbursement of all
reasonable business expenses pertaining to the use of an
automobile;
(c) an annual country club allowance in the amount of
Seventy-Five Hundred Dollars ($7,500); and
(d) payment of membership dues and fees of the Employee in such
other clubs and organizations as may be mutually agreed upon
by the parties hereto.
ARTICLE 5.00 - CONFIDENTIALITY
5.1 During the Term and any renewal thereof, the Employee will exert his best
efforts to promote the interests of the Employer. The Employee shall not,
either before or after the termination of this engagement, disclose any
confidential information respecting the business of
<PAGE>
-4-
the Employer or its customers, or make known any trade secrets of the Employer
to which he was given access by the Employer, either during the period of this
engagement or afterwards.
5.2 Upon the termination of his employment, regardless of the time, manner or
cause of termination, the Employee agrees to surrender to the Employer all
lists, books and records of or relating to the Employer and all other property
belonging to the Employer.
ARTICLE 6.00 - NON-COMPETITION
6.1 The Employee agrees that if his employment is terminated for any reason
whatsoever in accordance with the provisions of this Agreement, he will not,
during the period commencing on the date of such termination and ending on the
second anniversary of the date of such termination,
(a) within North America, by himself, or in partnership with or
in conjunction with or as an employee, officer, director,
manager or agent of any other person, firm or corporation or
in any other capacity whatsoever, either directly or
indirectly, undertake, carry on or be engaged in or have any
financial interest in, or in any other manner advise or
assist any person, firm or corporation other than the
Employer or pursuant to any agreement be engaged in or
interested in any business within the geographical area
restricted as aforesaid, directly or indirectly, competitive
with the business of the Employer; or
(b) interfere with or prejudice in any way the business
relationship between the Employer and its customers and
suppliers who were customers and suppliers of the Employer at
the date of termination of the Employee's employment,
including, without limiting the generality of the foregoing,
soliciting or assisting any other person to solicit, for the
benefit of any person other than the Employer, any such
supplier of the Employer with a view to requesting, inducing
or persuading such suppliers to supply merchandise, goods
and/or services to any person other than the Employer,
identical or similar to the Employer; or solicit or assist
any other person to solicit, for the benefit of any person
other than the Employer, any such customer of the Employer
with a view to requesting, inducing or persuading such
customer to purchase merchandise, goods and/or services from
any person other than the Employer, identical or similar to
the merchandise, goods and/or services supplied by the
Employer to such customer .
6.2 The covenants agreed to and contained in this Article or part hereof are
each separate and distinct from every other covenant set forth in this
Agreement and it is agreed that if any court of competent jurisdiction adjudges
that the whole or any part of this Article is void or unenforceable then such
part shall be severable from and shall not render unenforceable the remainder
of this Article and this Agreement.
<PAGE>
-5-
6.3 The parties recognize and acknowledge that neither the Employer nor the
Employee has an adequate remedy in the event that the Employee violates any of
the covenants under this Article and each of them acknowledge that the
covenants and conditions of the Employee are reasonable and necessary for the
protection of the business of the Employer and therefore the Employer shall be
entitled to injunctive relief in the event of any violation by the Employee of
any such covenant or covenants. Without limiting the generality of the
foregoing, the Employee acknowledges and agrees that the Employee's covenants
in this Article 6.00 form a substantive part of the consideration and
inducement to Officeland to enter into a Stock Purchase Agreement effective as
of October 9, 1998 with the Employee pursuant to which Officeland agreed to
purchase all of the issued and outstanding shares of the Employer.
ARTICLE 7.00 - TERMINATION
7.1 The Employer may terminate this Agreement at any time for just cause
without any period of notice or compensation in lieu of notice, but upon
written notice to the Employee setting out, with reasonable particularity, the
circumstances constituting the basis for the termination for just cause.
Without limiting the generality of the foregoing, the occurrence of any one of
the following shall be deemed to constitute just cause:
(a) the death of the Employee; or
(b) the commission by the Employee of any fraud or theft against
the Corporation; or
(c) the commission by the Employee of any other criminal offence
which is incompatible with his role as an employee of the
Corporation and which results in the Employee being convicted
and incarcerated in respect thereof for a period of thirty
(30) days or more; or
(d) the wilful disregard or failure of the Employee to perform
those obligations which are within the Employee's control and
which are the essence hereof and such wilful disregard or
failure continues unremedied after thirty (30) days' written
notice thereof with particulars has been given to the
Employee; or
(e) the Employee is mentally or physically disabled and is unable
to perform his duties hereunder for a period of four (4)
consecutive months or six (6) months, in the aggregate, in
any twelve (12) month period.
7.2 In the event that the employment of the Employee is terminated for just
cause, he, or his personal representative, shall only be paid the agreed salary
and Additional Benefits or appropriate portion thereof and expenses up to the
date of termination of this Agreement and he shall have no further claim
against the Employer for compensation of any kind whatsoever.
<PAGE>
-6-
7.3 Without in any way limiting the Term or duration of this Agreement, the
parties hereto covenant and agree that, subject to the right of the Employer to
terminate this Agreement for just cause, neither party will give notice of
termination to the other prior to the second anniversary of the Commencement
Date.
7.4 On or after the second anniversary of the Commencement Date, the Employer
may terminate this Agreement for any reason upon payment to the Employee, in
addition to any amounts then owing to the Employee pursuant to this Agreement,
of an amount equal to the aggregate amount of remuneration payable to the
Employee pursuant to section 4.1 hereof for the unexpired balance of the Term
together with an amount equal to the aggregate of all amounts to which the
Employee would have been entitled by way of Additional Benefits had he remained
an employee of the Employer to the end of the Term.
7.5 On or after the second anniversary of the Commencement Date, the Employee
may terminate this Agreement upon giving reasonable written notice to the
Employer; however, upon receiving such notice, the Employer may, at its option,
exercisable at any time during the said notice period, choose to accept the
resignation of the Employee as being effective at a date within such notice
period chosen by the Employer and to provide reasonable compensation to the
Employee in compensation for the remaining portion of the notice period.
ARTICLE 8.00 - SEVERABILITY
8.1 In the event that any article or paragraph of this Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, such invalidity
or unenforceability shall not affect the remainder of the provisions hereof,
but such part shall be fully severable, and this Agreement. shall be construed
and enforced as if such invalid or unenforceable part had not been included
herein, and the parties do hereby agree that they would have signed this
Agreement without such invalid or unenforceable part.
ARTICLE 9.00 - VACATIONS
9.1 The Employee shall be entitled to five (5) weeks' paid vacation in each
year, provided that no more than two (2) consecutive weeks' vacation shall be
taken at any one time nor more than two (2) weeks in the aggregate in any
thirty (30) day period except as may be mutually agreed between the Employer
and the Employee.
<PAGE>
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ARTICLE 10.00 - GENERAL PROVISIONS
10.1 Any notice or writing required or permitted to be given hereunder for the
purposes hereof, shall be sufficiently given, if delivered to the party to whom
it is given or mailed by prepaid registered mail, addressed to such party as
follows:
(a) to the Employee at: o
(b) to the Employer at: 312 Dolomite Drive
Downsview, Ontario
M3J 2N2
or at such other address as the party to whom such writing is to be given shall
have last notified the other party giving the same in the manner provided in
this subarticle. Any notice or writing mailed as aforesaid shall be deemed to
have been given and received on the fourth (4th) business day next following
the date of its mailing. Any notice or writing delivered by the party hereto,
to whom it is addressed, shall be deemed to have been given and received on the
day it is delivered, provided that if such day is not a business day then the
notice or writing shall be deemed to have been given and received on the
business day next following such date.
10.2 This Agreement shall be interpreted and governed in accordance with the
laws of the State of Illinois.
10.3 Time shall be of the essence of this Agreement and every part hereof.
10.4 This Agreement shall constitute the entire agreement between the parties
hereto with respect to all the matters herein, and its execution has not been
induced by, nor do any of the parties hereto rely upon, or regard as material,
any representations or writings whatsoever, not incorporated herein and this
Agreement shall not be amended, altered or qualified except by memorandum in
writing signed by all the parties hereto.
10.5 Unless otherwise expressly provided herein, all dollar amounts referred to
in this Agreement are expressed in U.S. funds.
10.6 Neither this Agreement or any rights or obligations hereunder shall be
assignable by either party hereto without the prior written consent of the
other party. Subject thereto, this Agreement shall enure to the benefit and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
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10.7 The parties hereto shall do such things and sign such documents as may be
necessary or desirable to give full effect and force to this Agreement.
IN WITNESS WHEREOF the Employee hereto has hereunto set his hand
and seal, and the Employer hereto has hereunto caused to be affixed its
corporate seal duly attested to by the hands of its proper signing officers
authorized in that behalf, the date first above written.
SIGNED, SEALED AND DELIVERED )
in the presence of )
) /S/ John Einarsen
) ----------------------------
) JOHN EINARSEN
)
TELECOM CORPORATION OF
CHICAGO
Per: /S/ Marvyn Budd
-----------------------
Marvyn Budd, President
OFFICELAND INC.
Per: /S/ Marvyn Budd
-----------------------
Marvyn Budd, President
Per: /S/ Christopher Walker
-----------------------
Christopher Walker,
Assistant Secretary
<PAGE>
Exhibit 7
LEASE
THIS LEASE is made as of the 29th day of October, 1998
by and between JOHN EINARSEN, hereinafter referred to as
"Landlord", and TELECOM CORPORATION OF CHICAGO, an Illinois
corporation, hereinafter referred to as "Tenant".
I. DEMISE OF LEASED PREMISES
In consideration of the rents hereinafter reserved and the
covenants and agreements hereinafter contained, Landlord hereby leases to
Tenant all those premises (the "Leased Premises") with the building,
improvements and appurtenances now or hereafter located thereon, situated and
located at 285 and 295 Industrial Drive in the City of Wauconda, Lake County,
Illinois. This Lease for the Leased Premises is subject to municipal and zoning
ordinances regulating and restricting the use of said premises and construction
of any improvements thereon; recorded covenants, easements, restrictions and
grants, if any; and licenses and permits which may affect the Leased Premises.
II. TERM OF LEASE
1. The term of this Lease shall commence on the date hereof
(the "Commencement Date") and end at 11:59 p.m. on October 31, 2003 unless
sooner terminated in accordance with this Lease or extended pursuant to
Paragraph 2 below.
2. Tenant shall have the option to extend the term of this
Lease for two (2) additional and consecutive periods of five (5) years each,
the first option commencing upon the expiration of the initial term, and the
second option commencing on the expiration of the previous option. The first
option shall be exercised only by Tenant giving Landlord written notice thereof
which is received by Landlord on or before February 1, 2003, and the second
option shall be exercised only by Tenant giving Landlord written notice thereof
which is received by Landlord on or before February 1, 2008; provided, however,
Tenant shall be entitled to exercise the options granted herein and the term of
this Lease shall, in fact, be extended by reason of such exercise, only if this
Lease is in full force and effect and Tenant is not in default hereunder beyond
any applicable cure periods. Time shall be of the essence with respect to
Tenant's notice(s) as aforesaid. Tenant's failure to exercise any option
granted herein in accordance with this Article shall extinguish all subsequent
options. In the event that the term of this Lease is in fact extended pursuant
to the foregoing, then any such extension shall be upon all of the same terms
and provisions contained in this Lease except the monthly base rent shall be
adjusted as set forth in Article III, Paragraph 2 below.
III. RENTAL
1. From and after the Commencement Date and continuing during
the initial term of this Lease, Tenant shall pay to Landlord a monthly base
rent of $17,500.00 per month, payable on the first day of each and every
calendar month during the term. The base rent payable for any partial month
shall be prorated on a thirty (30) day basis.
2. The monthly base rent during the first extension period
set forth in Article II, Paragraph 2 shall be $20,000.00 per month. The monthly
base rent during the second extension period set forth in Article II, Paragraph
2 shall be #22,500.00 per month, provided, however, if the percentage increase
in the Cost of Living Index (as hereinafter defined) for the month of July,
2008 over the Cost of Living Index for the month of July, 2003 is more than
12.5%, then the monthly base rent payable during the second extension period
shall be a sum equal to $22,500.00 plus one-half of the CPI Increase (as
hereinafter defined). As used herein, "CPI Increase" means $20,000.00 increased
by the percentage increase in the Cost of Living Index for the month of July,
2008 over the Cost
<PAGE>
of Living Index for the month of July, 2003 to the extent such percentage
increase exceeds 12.5%. By way of example, if the Cost of Living Index for the
month of July, 2008 increases by 20% over the Cost of Living Index for the
month of July, 2003, then the monthly base rent for the second extension period
shall be $23,250.00 [$22,500.00 + 1/2(.20 - .125) x $20,000.00]. As used
herein, "Cost of Living Index" means the index presently known as "Consumer
Price Index, U.S. Average, All Items, All Urban Consumers (1982-84=100)"
published by the Bureau of Labor Statistics, United States Department of Labor.
If the computation and publication of the Cost of Living Index is transferred
to another governmental bureau, such bureau's publication shall be substituted
for the presently published index. If the Cost of Living Index is substantially
revised, or its method of calculation is substantially altered, adjustments
shall be made to such new index by Landlord as may be necessary to make it
comparable to the original index used; provided, however, that the addition or
elimination or particular items or commodities included in the Cost of Living
Index shall not be deemed a "substantial" revision or a "substantial"
alteration of its method of calculation. In the event the Bureau of Labor
Statistics or other governmental bureau to whom the publication of the Cost of
Living Index is transferred publishes such adjustment, then such adjustment as
published shall be controlling upon the parties. In the event the Cost of
Living Index is discontinued, Landlord and Tenant shall accept comparable
statistics on the purchasing power of the consumer dollar as published at the
time of such discontinuation by a responsible financial periodical or
recognized authority to be then, mutually agreed upon by Landlord and Tenant.
3. The base rent and any additional rent to be paid by Tenant
to Landlord under the terms of this Lease shall be paid to Landlord at the
address as hereinafter designated for notices to Landlord or at such other
place as Landlord may from time to time designate. It is intended hereby that
the rent stated herein shall be an absolute net return to Landlord for the
demised term, free from any expense, charges or any deduction or offset
whatsoever.
4. Tenant acknowledges that late payments of rent and
additional rental involve additional costs to Landlord for collection and
bookkeeping, and Tenant therefore agrees that if Tenant shall fail to pay any
monthly installment of base rent or additional rent by the fifth day after such
installment is due, then Tenant shall pay upon demand, as additional rent, a
late charge equal to five percent (5%) of the amount required to be paid. The
foregoing provision for payment of a late charge shall not be construed to
extend the date for payment of any sums required to be paid by Tenant hereunder
or to relieve Tenant of its obligation to pay all such sums at the time or
times herein stipulated, and neither the demand for, nor collection by,
Landlord of such late charge shall be construed as a cure of Tenant's default
in the payment of rent.
IV. TAXES
1. From and after the Commencement Date, Tenant agrees to pay
as additional rent all taxes, charges and assessments, general and special,
ordinary and extraordinary, of every nature and kind whatever, and all water
rates and sewage charges levied, assessed, imposed, due or payable during the
Lease term, upon the Leased Premises, whether such tax, rate, charge or
assessment shall be for city, town, county, state, federal or any other purpose
whatsoever, said Tenant hereby covenanting to pay taxes and assessments upon
the real estate as well as upon the improvements thereon. Tenant further
covenants and agrees to pay, as additional rent, all personal property taxes
levied and assessed against all furniture, fixtures, equipment and other items
of personal property constituting a part of the Leased Premises, used in
connection with the operation of the Leased Premises or situated on the Leased
Premises. Should any governmental agency or political subdivision impose any
taxes and/or assessments, whether or not now customary
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<PAGE>
or within the contemplation of the parties hereto, either by way of
substitution for taxes and assessments presently levied and assessed against
the real estate as well as the improvements thereon, or in addition thereto,
other than Landlord's personal income tax or any estate tax or inheritance tax,
such taxes and/or assessments shall be deemed to constitute a tax and/or
assessment upon the real estate as well as the improvements thereon for the
purpose of this Paragraph and shall be paid by Tenant.
2. Tenant shall pay all taxes, assessments and charges as
provided in Paragraph 1 above at the time the same are due and payable and in
any event before any fine, penalty, interest or additional cost may be added
thereto, and Tenant shall furnish to Landlord a receipted tax bill and other
satisfactory evidence of the payment of said taxes, assessments and charges
within thirty (30) days after the same are due and payable. Notwithstanding the
foregoing, upon receipt of written notice from Landlord, Tenant shall pay to
Landlord, as additional rent, on or before the first day of each calendar month
during the term hereof an amount estimated by Landlord to be equal to 1/12th of
Tenant's annual obligation for the real estate taxes and assessments payable by
Tenant hereunder. Within ninety (90) days after the end of each calendar year
during the term, Landlord shall furnish Tenant with a statement of the actual
amount of such taxes and assessments for the year in question. Within fifteen
(15) days after the rendition of each such statement to Tenant by Landlord,
Tenant shall pay to Landlord, or Landlord shall credit to the obligations of
Tenant, as the case may be, the difference between the payments actually made
by Tenant for the year in question and the actual amount of such taxes and
assessments for such year, as shown on such statement. A copy of a tax bill or
assessment bill submitted by Landlord to Tenant shall at all times be
sufficient evidence of the amount of taxes and/or assessments assessed or
levied against the property to which such bill relates. From time to time
hereafter, Landlord shall notify Tenant in writing of adjustments to Tenant's
monthly installments due hereunder, and Tenant shall adjust its installment
payments accordingly.
3. All real estate taxes and assessments shall be prorated
for any partial year of the term. Landlord's and Tenant's obligations under
this Article shall survive the expiration of the term of this Lease.
4. Tenant shall have the right to contest or protest any
increase in real estate taxes levied or assessed against the Leased Premises
subject, however, to the following terms and conditions: (i) Tenant shall give
Landlord not less than fifteen (15) days prior written notice of its intention
to contest or protest such taxes; (ii) any such contest or protest shall be
solely in Tenant's name unless Landlord shall be required by law to join in
such proceeding; (iii) Tenant shall post any bond or security required by law
in connection with such proceeding; (iv) any such proceeding shall be at
Tenant's sole cost and free of cost or expense to Landlord, and Tenant agrees
to indemnify and hold Landlord harmless from and against any and all expense
and liability arising from or out of such proceeding; and (v) Tenant shall
pursue any such proceeding in good faith and with due diligence. Should Tenant
be successful in obtaining a rebate of real estate taxes and assessments, such
rebate shall inure to Tenant for the years that Tenant is in possession of the
Leased Premises.
V. INSURANCE AND INDEMNITY
1. Tenant shall, at its own cost and expense, during the
Lease term keep the building and improvements on the Leased Premises insured
against loss or damage by fire and such other contingencies covered by a
special form or all-risk insurance policy in an amount of not less than the
full replacement cost of the building and improvements without provision for
co-insurance or deductible in excess of $1,000.00. Said policy shall provide,
subject to the rights of the holder of any mortgage of the fee of
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<PAGE>
the Leased Premises (the "Mortgagee") if any, that all proceeds payable
thereunder shall be paid directly to Landlord or the party designated by
Landlord. Said policy shall also include business interruption or loss-of-rent
insurance to insure, without provision for deductible or co-insurance, the
payment of rent under Article III of this Lease, the payment of taxes and
assessments under Article IV of this Lease, and the payment of insurance
premiums under this Article V for a period of not less than twelve (12) months
in the event of a casualty as contemplated by Article IX of this Lease.
2. Tenant shall, at its own cost and expense, during the
Lease term carry commercial general liability insurance with respect to the
Leased Premises and the business operated by Tenant in the Leased Premises and
including contractual liability for the indemnification obligations of Tenant
contained in this Lease in an amount of not less than Three Million Dollars
($3,000,000.00) combined single limit per occurrence, or such greater limit as
Landlord may reasonably determine in accordance with prudent real estate
management practices.
3. Tenant shall, at its own cost and expense, during the
Lease term carry boiler and machinery insurance in the amount of not less than
the replacement value of the building and improvements on the Leased Premises,
on any steam boilers, pressure vessels and pressure piping installed in the
Leased Premises. All proceeds of such insurance shall be payable directly to
Landlord.
4. Tenant shall, at its own cost and expense, during the
Lease term carry insurance against fire, vandalism, malicious mischief and such
other perils as are from time to time included in a standard extended coverage
endorsement, insuring any betterments and improvements made by Tenant to the
Leased Premises and all merchandise, furniture, trade fixtures and other items
of personal property located at the Leased Premises.
5. All insurance policies required hereunder shall be written
by an insurance company or companies acceptable to Landlord and in the name of
Landlord, Tenant, Mortgagee, if any, and any other party designated by
Landlord, as their interests appear. Such insurance shall be written as primary
policy coverage and not contributing with or in excess of any coverage which
Landlord may carry and shall be non-cancelable and non-amendable without thirty
(30) days written notice to all such parties. The original policies or evidence
thereof shall be furnished to Landlord with evidence of timely payment of the
premium therefor prior to the commencement of the Lease term and not less than
thirty (30) days prior to the expiration of any coverage. Landlord may at any
time and from time to time inspect and/or copy any and all insurance policies
required to be procured by Tenant under this Lease.
6. Notwithstanding the foregoing provisions of the Article,
if the provisions of any mortgage of the fee of the Leased Premises require
deposits for insurance premiums next due be made with the Mortgagee, Tenant
shall make such deposits with Mortgagee.
7. Tenant hereby agrees to indemnify and hold Landlord
harmless against and from any and all claims by or on behalf of any person
arising from the conduct or management of or from any work or thing whatsoever
done in or about the Leased Premises, or arising from any breach or default on
the part of Tenant in the performance of any covenant or agreement on the part
of Tenant to be performed pursuant to this Lease, or arising from any act or
negligence of Tenant, or any occupant of the Leased Premises or any part
thereof, or of its or their agents, contractors, employees, guests, invitees,
licensees or customers, or arising from any accident, injury or damage
whatsoever caused to any person or property occurring during the term of this
Lease in or about the Leased Premises, and from and against all judgments,
costs, expenses and liabilities incurred in or about any such claim. Tenant,
upon notice from Landlord, shall resist or defend such action or proceeding by
counsel reasonably satisfactory to
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<PAGE>
Landlord. The foregoing covenants and indemnification shall survive the
expiration of the term of this Lease.
8. Landlord shall not be responsible or liable for any damage
or injury to any property, fixtures, buildings or other improvements, or to any
person or persons, at any time, on the Leased Premises, including any damage or
injury to Tenant or to any of Tenant's agents, employees, contractors, guests,
invitees, licensees or customers, whether occasioned by or through any act or
neglect of Landlord or any other cause, negligent or otherwise, whatsoever.
9. Tenant hereby expressly waives any right of recovery it
may have against Landlord for a loss to the Leased Premises or its contents due
to fire or any peril included in the coverage of any applicable insurance
policy required to be carried hereunder, however caused, including such losses
as may be due to the negligence of Landlord or its agents or employees. All
policies of insurance required to be carried by Tenant hereunder shall contain
a provision that they are not invalidated by the foregoing waiver.
VI. CONDITION OF LEASED PREMISES; REPAIRS AND MAINTENANCE
1. Tenant acknowledges and confirms that it has inspected the
Leased Premises, knows the condition thereof, and is leasing the same in its
present "as is" condition. Landlord shall not be required to rework, remodel or
recondition the Leased Premises in any manner whatsoever for Tenant's use and
occupancy thereof. No warranties or representations are made or have been made
by Landlord or its agents and representatives that are not expressly set forth
herein.
2. Landlord shall be responsible for all maintenance, repair
and replacement of the roof, exterior walls (excluding window panes, glass and
glazing), bearing walls, foundation and other structural portions of the
building on the Leased Premises. Landlord shall also be responsible for
replacement and resurfacing (exclusive of repairs, seal coats, sweeping,
striping and snow and ice removal which shall be the obligation of Tenant) of
the parking area and roadways of the Leased Premises. Notwithstanding the
foregoing, if any such maintenance, repairs or replacements shall be occasioned
by the fault or neglect of Tenant, then such work shall be the obligation of
Tenant at its sole cost.
3. Except for the maintenance, repairs and replacements
Landlord is specifically obligated to make under Paragraph 2 above, Tenant
shall, at its own cost and expense, throughout the term of this Lease, keep and
maintain the entire Leased Premises in good condition and repair, including the
building, parking lot, landscaped areas and all other improvements situated
thereon, and all plumbing, electrical, heating, ventilating air conditioning
and other equipment and facilities contained in or about the Leased Premises so
that at the expiration of the Lease or any renewal or extension thereof, the
Leased Premises shall be surrendered to Landlord in the same condition that the
same are in at the commencement of this Lease, ordinary wear and tear excepted.
Tenant shall make such replacements as from time to time may be reasonably
necessary. Tenant shall not defer any repairs, renewals or replacements to the
Leased Premises by reason of anticipation of the expiration of the term hereof.
The surrender of the Leased Premises upon the expiration or early termination
of this Lease shall not relieve Tenant of the obligation to pay for all repairs
or replacements to the Leased Premises which Tenant was obligated to perform
during the Lease term, which obligation shall survive the expiration or early
termination of this Lease. Tenant shall also use all reasonable precaution to
prevent waste, damage or injury to the Leased Premises. Tenant shall keep the
Leased Premises in a clean, tenantable condition and shall not permit any
garbage, rubbish, refuse or dirt of any kind to accumulate in or about the
Leased Premises. Landlord shall not be required to make any repairs,
alterations or replacements in or to the Leased
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<PAGE>
Premises during the term of this Lease except as expressly provided herein.
VII. UTILITIES
From and after the Commencement Date, Tenant shall timely pay
for all utilities used or consumed in or about the Leased Premises. Tenant
shall keep the building on the Leased Premises sufficiently heated so as to
prevent freezing and deterioration thereof and/or the equipment and facilities
contained therein. In no event shall Landlord be liable for an interruption or
failure in the supply of any utility to the Leased Premises.
VIII. USE OF PREMISES
1. Tenant shall use the Leased Premises only as office,
warehouse and manufacturing facilities for Tenant's business or for any lawful
use. Tenant expressly acknowledges that it shall be the sole responsibility of
Tenant to secure all necessary and appropriate permits, licenses and approvals
from all governmental authorities having jurisdiction for the use of the Leased
Premises as set forth herein.
2. Tenant shall, at its own cost and expense, comply promptly
and conform with all present and future laws, ordinances, rules, requirements
and regulations of the federal, state, county and city governments and of any
and all other governmental authorities or agencies affecting the Leased
Premises or its use, and Tenant shall, at its own cost and expense, make all
additions, alterations or changes to the Leased Premises or any portion thereof
as may be required by any governmental authority or agency. Without limiting
the generality of the foregoing, Tenant agrees to comply with all present and
future laws, orders and regulations regarding the collection, sorting,
separation and recycling of waste products, garbage, refuse and trash into such
categories as provided by law.
3. Tenant shall, during the entire term of this Lease, comply
with all applicable federal, state and local environmental laws, ordinances and
all amendments thereto and rules and regulations implementing the same,
together with all common law requirements, which relate to discharge,
emissions, waste, nuisance, pollution control, hazardous or toxic substances
and other environmental matters as the same shall be in existence during the
term hereof. All of the foregoing laws, regulations and requirements are
hereinafter referred to as "Environmental Laws". Tenant shall obtain all
environmental licenses, permits, approvals, authorizations, exemptions,
classifications, certificates and registrations (hereinafter collectively
referred to as "Permits") and make all applicable filings required of Tenant
under the Environmental Laws required by Tenant to operate at the Leased
Premises. The Permits and required filings shall be made available for
inspection and copying by Landlord at Tenant's offices upon reasonable notice
and during business hours. Tenant shall not cause or permit any flammable
explosive, oil, contaminant, radioactive material, hazardous waste or material,
toxic waste or material or any similar substance (hereinafter collectively
referred to as "Hazardous Substances") to be brought upon, kept or used in or
about the Leased Premises except for small quantities of such substances as is
necessary for Tenant's business provided that Tenant shall handle, store, use
and dispose of any such Hazardous Substance in compliance with all applicable
laws and the highest standards prevailing in the industry for the storage and
use of such substances or materials, in a manner which is safe and does not
contaminate the Leased Premises, and Tenant shall give Landlord
written notice of the identity of such substances. If any lender or
governmental agency shall ever require testing to ascertain whether or not
there has been any release of any Hazardous Substance on or about the Leased
Premises, then the reasonable costs thereof shall be reimbursed by Tenant to
Landlord upon demand
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as additional rent. Tenant shall also, from time to time, at Landlord's
request, execute such other affidavits, representations and the like concerning
Tenant's best knowledge and belief regarding the presence of Hazardous
Substances on the Leased Premises. Tenant agrees to indemnify and hold Landlord
harmless from any liability, claim or injury, including reasonable attorney
fees and the cost of any required or necessary repair, clean-up, remediation or
detoxification, arising out of (i) the use, manufacture, handling, storage,
disposal or release of any Hazardous Substances by Tenant, its agents and
employees on, under or about the Leased Premises during the term of this Lease,
or (ii) an actual or alleged violation of Environmental Laws in connection with
the occupancy of the Leased Premises by Tenant or any occupant of the Leased
Premises or the operation of Tenant's business on the Leased Premises during
the term of this Lease. The foregoing indemnification shall survive the
expiration of the term of this Lease.
IX. DESTRUCTION OF LEASED PREMISES
In the event the building or improvements on the Leased
Premises are damaged or destroyed in whole or in part by fire or any other
cause whatsoever during the term of this Lease, this Lease shall continue in
full force and effect without any abatement in rent, taxes, charges,
assessments or other obligations of Tenant referred to in this Lease, and
Tenant shall, at its own cost and expense, with all reasonable dispatch and
diligence, rebuild, restore and/or repair the building or improvements as
aforesaid to a condition equal or greater in value to that just prior to said
damage or destruction in accordance with plans and specifications to be
approved in writing by Landlord prior to commencement of said rebuilding,
restoration and/or repair. Tenant shall complete said rebuilding, restoration
and/or repair of the building or improvements as aforesaid within a period not
to exceed six (6) months from the date of said damage or destruction, subject
to extension in the event of delays beyond the control of Tenant arising from
acts of God, general labor strikes, the acts of Landlord or other contingencies
which could not be anticipated or provided for by Tenant. For the purpose of
making such repairs and restorations, Landlord agrees that the proceeds of
insurance maintained under Article V, Paragraph 1 above and any additional
proceeds received by Landlord, subject to the rights of Mortgagee, if any, may
be used on account of the payment therefor in accordance with pay-out
procedures established by Landlord or Mortgagee, if any, to insure that there
are sufficient funds available for such repairs and restoration and that such
work is done in a good and workmanlike manner in accordance with the plans and
specifications approved by Landlord and free from any liens for services,
materials or supplies. Tenant's obligation to rebuild, restore and/or repair
shall be absolute whether or not the insurance proceeds available therefor
shall be sufficient to defray the entire cost thereof.
X. CONDEMNATION
1. If the whole of the Leased Premises shall be condemned by
any governmental agency or political subdivision or sold to any governmental
agency or political subdivision in lieu of condemnation, then this Lease shall
expire on the date the Leased Premises shall be so taken or the date of the
sale in lieu of condemnation and the rent shall be apportioned as of that date.
2. If a portion of the Leased Premises shall be condemned by
any governmental agency or political subdivision or sold to any governmental
agency or political subdivision in lieu of condemnation and if said taking or
sale does not directly affect the use of the building on the Leased Premises,
but only the lands surrounding said building, then this Lease shall remain in
full force and effect without any abatement of rent, and Tenant shall
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<PAGE>
restore the Leased Premises for Tenant's use in the manner set forth in
Paragraph 3 below.
3. If a portion of the Leased Premises shall be condemned by
any governmental agency or political subdivision or sold to any governmental
agency or political subdivision in lieu of condemnation and if said taking or
sale directly affects the building situated on the Leased Premises and results
in making said building unsuitable for the business of Tenant, then Tenant may
elect to terminate this Lease by written notice to Landlord within sixty (60)
days after the taking and the rent shall be apportioned as of that date. If
Tenant does not exercise its option herein contained, then this Lease shall
remain in full force and effect without any abatement of rent, and Tenant shall
restore said building for Tenant's use and, subject to the rights of Mortgagee,
if any, that portion of the award or proceeds of sale directly attributable to
the taking or sale of a portion of said building may be utilized by Tenant for
said restoration in accordance with pay-out procedures established by Landlord
and/or Mortgagee, if any, to insure that there are sufficient funds available
for such restoration and that such work is done in a good and workmanlike
manner in accordance with plans and specifications first approved by Landlord
and free from any liens for services, materials or supplies. Tenant's
obligation to restore shall be absolute whether or not the portion of the award
available therefor shall be sufficient to defray the entire cost thereof, and
if any surplus of funds remains after completion of such restoration, such
surplus shall be paid over to and become the property of Landlord.
4. No part of any award or proceeds of sale resulting from
the taking of the whole or a portion of the Leased Premises or a sale in lieu
of condemnation shall belong to Tenant; provided, however, Tenant shall have
the right to pursue such claim or claims as Tenant may have legally for
relocation expenses, interruption of business and such other items which do not
affect the award or proceeds of sale otherwise payable to Landlord. Tenant
hereby expressly waives any claim which it may have relating directly or
indirectly to the leasehold estate created under this Lease.
XI. ASSIGNMENT AND SUBLETTING
1. Tenant shall not, without the prior written consent of
Landlord, (a) assign or encumber this Lease or any interest under it; (b)
sublet the Leased Premises or any part thereof; (c) allow any transfer of
Tenant's interest herein or any lien upon Tenant's interest by operation of law
or otherwise; or (d) permit the use or occupancy of the Leased Premises or any
part thereof by anyone other than Tenant. In the event that Tenant, with or
without the prior consent of Landlord, does assign or in any manner transfer
this Lease or any estate or interest therein, Tenant shall in no way be
released from any of its obligations under this Lease. The following shall be
deemed to be an assignment of this Lease within the meaning of this Article:
(a) the sale, issuance, or transfer of any voting capital stock of Tenant or of
Tenant's permitted assigns and subtenants (if Tenant or such assigns or
subtenants be a non-public corporation) which results in a change in the voting
control of Tenant or such assigns or subtenants; (b) the sale, issuance, or
transfer of any partnership or membership interest in Tenant or in Tenant's
permitted assigns and subtenants (if Tenant or such assigns or subtenants be a
partnership or limited liability company); and (c) the death or incapacity of
Tenant or of Tenant's permitted assigns and subtenants (if Tenant or such
assigns or subtenants be a natural person). Tenant shall pay to Landlord, as
additional rent, any costs and expenses including reasonable attorney fees
incurred by Landlord in connection with any proposed or purported assignment,
sublease or other transfer.
2. Notwithstanding anything to the contrary contained in this
Article XI, Landlord's consent shall not be required for an assignment or other
transfer of Tenant's interest under this Lease
-8-
<PAGE>
or a sublease of the Leased Premises to an affiliate of Tenant provided that
(a) Tenant shall notify Landlord in writing of the proposed transaction and the
identity of the proposed assignee or subtenant and the address to which notices
may be sent, (b) at the time of such proposed assignment, transfer or sublease,
Tenant shall not be in default of any of the terms of this Lease, and (c) any
proposed assignee shall agree in a writing reasonably acceptable to Landlord
that it will assume and be bound by the terms of this Lease.
XII. ESTOPPEL CERTIFICATE AND SUBORDINATION
1. Tenant shall, without charge, at any time and from time to
time hereafter, within fifteen (15) days after written request of Landlord,
certify by written instrument duly executed and acknowledged to any mortgagee
or purchaser, or proposed mortgagee or proposed purchaser, or any other person,
firm or corporation specified in such request: (a) as to whether this Lease has
been supplemented or amended, and if so, the substance and manner of such
supplement or amendment; (b) as to the validity and force and effect of this
Lease in accordance with its tenor as then constituted; (c) as to the existence
of any default thereunder; (d) as to the existence of any offsets,
counterclaims or defenses thereto; (e) as to the commencement and expiration
dates of the term of this Lease; and (f) as to any other matters as may
reasonably be so requested. Any such certificate may be relied upon by the
party requesting it and any other person, firm or corporation to whom the same
may be exhibited or delivered, and the contents of such certificate shall be
binding on Tenant.
2. This Lease shall, at the option of Mortgagee or the holder
or holders of any mortgage or mortgages now or hereafter placed upon the Leased
Premises, be subject and subordinate to the lien of any such mortgage or
mortgages, and Tenant covenants and agrees to execute and deliver upon demand
such further instruments subordinating this Lease, in accordance with the
foregoing, to the lien of any such mortgage or mortgages as shall be requested
by Landlord, or Mortgagee, if any, or any proposed mortgagees, provided any
such mortgagees shall agree to recognize the rights of Tenant under this Lease
in the event of foreclosure if Tenant is not in default. In the event (i) of
any proceedings brought for the foreclosure of any mortgage or mortgages now or
hereafter placed upon the Leased Premises, or (ii) of the exercise of the power
of sale under any such mortgage or mortgages, Tenant shall, at the option of
the purchaser under such proceedings or power of sale, attorn to such purchaser
as Landlord under this Lease.
3. Failure of Tenant to execute the instruments set forth in
Paragraphs 1 and 2 above within fifteen (15) days upon written request so to do
by Landlord shall constitute a breach of this Lease and Landlord may, at its
option, cancel this Lease and terminate Tenant's interest therein. Further,
Tenant hereby irrevocably appoints Landlord the attorney-in-fact for Tenant to
execute and deliver any such instrument or instruments for and in the name of
Tenant.
XIII. ALTERATIONS AND SIGNS
No alterations, additions or improvements ("Alterations")
shall be made to the Leased Premises by Tenant nor shall any signs be erected
or installed on the Leased Premises by Tenant except with the prior written
consent of Landlord. Notwithstanding the foregoing, Tenant shall have the right
to keep the existing signage on the Leased Premises. Any alterations, additions
or improvements or the installation of any signs by Tenant, shall be made at
Tenant's own cost and expense and in a good workmanlike manner in accordance
with the laws, ordinances and codes relating thereto and free from any claim or
claims for construction liens. Tenant shall indemnify Landlord from any and all
claims, costs and expenses on account of such work.
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<PAGE>
XIV. SURRENDER AND HOLDING OVER
1. On the last day of the Lease term or on the sooner
termination thereof, Tenant shall peaceably and quietly surrender the Leased
Premises in good order, condition and repair consistent with Tenant's duty to
make repairs as herein provided. All Alterations (other than Tenant's furniture
and unattached movable personal property and equipment which may be removed by
Tenant at any time during the term and prior to the termination of this Lease
provided Tenant repairs any damage caused thereby) which may be made or
installed by either Landlord or Tenant upon the Leased Premises, shall be the
property of Landlord and shall remain upon and be surrendered with the Leased
Premises as a part thereof without disturbance, molestation or injury at the
termination of the term of this Lease, whether by the lapse of time or
otherwise, all without compensation or credit to Tenant. On or before the
termination of the Lease term, Tenant shall remove all of Tenant's furniture
and unattached movable personal property and equipment from the Leased Premises
and any such items not so removed shall be deemed abandoned by Tenant. Any
damage caused by the removal of such property shall be repaired by Tenant at
Tenant's sole cost and expense. If the Leased Premises are not surrendered at
the end of the term as set forth herein, Tenant shall indemnify Landlord
against all loss or liability resulting from delay by Tenant in so surrendering
the Leased Premises, including, without limitation, any claim made by any
succeeding tenant founded on such delay. Tenant shall also surrender all keys
to the Leased Premises and shall inform Landlord of combinations on any locks,
safes and vaults, if any, on the Leased Premises.
2. In the event Tenant remains in possession of the Leased
Premises after the expiration of this Lease with the consent of Landlord and
without the execution of a new lease, it shall be deemed to be occupying said
premises as a tenant from month-to-month, subject to all of the conditions,
provisions and obligations of this Lease insofar as the same are applicable to
a month-to-month tenancy. For any period that Tenant shall remain in possession
of the Leased Premises without Landlord's consent, Tenant shall pay a use and
occupancy charge equal to two (2) times the base rent in effect immediately
prior thereto, computed on a daily basis, in addition to the additional rent
and other charges payable by Tenant.
XV. NOTICES
Whenever in this Lease it shall be required or permitted that
notice be given to either party hereto by the other, such notice shall be in
writing and be given by personal delivery or by United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
To Landlord: John Einarsen
20707 North Swansway
Barrington, IL 60110
To Tenant: Telecom Corporation of Chicago
285 Industrial Drive
Wauconda, IL 60084
with a copy to:
Officeland, Inc.
312 Dolomite Drive, Suite 212
Toronto, Ontario
Canada M3J 2N2
Attn: Marvyn A. Budd
Either party may, upon prior notice to the other, specify a
different address for the giving of notice.
-10-
<PAGE>
XVI. ADDITIONAL COVENANTS OF TENANT
1. Tenant shall permit Landlord and its authorized
representatives to enter upon the Leased Premises at all reasonable times
during usual business hours for the purpose of exhibiting, inspecting,
repairing or replacing the same. In case of emergency (the existence of which
shall be determined by Landlord), if Tenant shall not be present to permit
entry, Landlord or its representatives may enter the same forcibly without
rendering Landlord or its representatives liable therefor or affecting Tenant's
obligations under this Lease. During the last six (6) months prior to the
expiration of the term of this Lease or any extension period, Tenant shall
permit a "For Rent" or "For Sale" sign to be placed on the Leased Premises.
2. Tenant shall not suffer or permit any liens under any
construction lien law or similar law to be filed or recorded against the Leased
Premises or against the interest of either Landlord or Tenant therein. If any
such lien at any time be filed or recorded, Tenant shall promptly obtain the
release of record of such lien or bond over such lien, at Tenant's own cost and
expense, if Tenant disputes the validity of such lien.
XVII. DEFAULTS OF TENANT
1. If (a) Tenant shall fail to pay the rental or other
charges due hereunder within ten (10) days after the same shall be due, or (b)
Tenant shall fail to perform any of the other terms, conditions or covenants of
this Lease to be performed or observed by Tenant for more than thirty (30) days
after notice of such default has been given to Tenant, or (c) Tenant shall
vacate the Leased Premises or abandon the same by failing to use and occupy the
same for more than ten (10) consecutive days, or (d) Tenant or any guarantor of
this Lease shall be adjudged bankrupt or insolvent or shall make an assignment
for the benefit of creditors, or (e) a receiver or trustee of Tenant's property
or that of any guarantor of this Lease shall be appointed and such receiver or
trustee, as the case may be, shall not be discharged within thirty (30) days
after such appointment, or (f) an execution or attachment is levied against
Tenant's property or that of any guarantor of this Lease or (g) this Lease
shall by operation of law devolve upon or pass to any person or persons other
than Tenant without Landlord's prior written consent, then in any such case,
Landlord may, upon notice to Tenant, recover possession of and re-enter the
Leased Premises without affecting Tenant's liability for past rent and other
charges due or future rent and other charges to accrue hereunder. In the event
of any such default, Landlord shall be entitled to recover from Tenant, in
addition to rent and other charges equivalent to rent, all other damages
sustained by Landlord on account of the breach of this Lease, including, but
not limited to, the costs, expenses and attorney fees incurred by Landlord in
enforcing the terms and provisions hereof and in re-entering and recovering
possession of the Leased Premises and for the cost of repairs, alterations and
brokerage and attorney fees connected with the reletting of the Leased
Premises. Further, at the election of Landlord, Landlord shall have the right
to declare this Lease terminated and cancelled, without any further rights or
obligations on the part of Landlord or Tenant (other than Tenant's obligation
for rent and other charges due and owing through the date of termination), so
that Landlord may relet the Leased Premises without any right on the part of
Tenant to any credit or payment resulting from any such reletting. In case of a
default under this Lease, Landlord may, in addition to terminating this Lease,
or in lieu thereof, pursue such other remedy or combination of remedies and
recover such other damages for breach of tenancy and/or contract as are
available at law or otherwise.
2. The rights and remedies of Landlord under this Lease shall
be cumulative and the exercise of any of them shall not be exclusive of any
other right or remedy provided by this Lease or allowed by law, and the waiver
by Landlord of any breach of any
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<PAGE>
covenant of this Lease shall be limited to the particular instance and shall
not operate or be deemed to waive any future breach of the same or any other
covenant on the same or any other occasion, nor operate as a waiver of
Landlord's right to enforce the payment of subsequent installments of rental or
any of Landlord's rights under this Lease by such remedies as may be
appropriate.
3. No extension of time, forbearance, neglect or waiver on
the part of Landlord with respect to any one or more of the covenants, terms or
conditions of this Lease, shall be construed as a waiver of any of the other
covenants, terms or conditions of this Lease, or as an estoppel against
Landlord, nor shall any extension of time, forbearance or waiver on the part of
Landlord in any one or more instances or particulars be construed to be a
waiver or estoppel with respect to any other instance or particular covered by
this Lease. After the service of a notice or the commencement of a suit or
after final judgment for possession of the premises, Landlord may receive and
collect any rent due and apply the same as and for use and occupancy, and the
payment and receipt thereof shall not waive or affect any such notice, suit or
judgment.
4. Landlord shall have the right at any time, after ten (10)
days notice to Tenant (or without notice in case of emergency or in case any
fine, penalty, interest or cost may otherwise be imposed or incurred) to make
any payment or perform any act required of Tenant under any provision of this
Lease, and in exercising such right, to incur necessary and incidental costs
and expenses, including reasonable attorney fees. Nothing herein shall imply
any obligation on the part of Landlord to make any payment or perform any act
required of Tenant, and this exercise of the right to so do shall not
constitute a release of any obligation or a waiver of any default. All payments
made and all costs and expenses incurred in connection with any exercise of
such right shall be reimbursed to Landlord by Tenant within ten (10) days after
such payment, together with interest at a rate equal to eighteen percent (18%)
per annum from the respective dates of the making of such payments or the
incurring of such costs and expenses. In the event of non-payment thereof,
Landlord shall have the rights and remedies it would have hereunder or by law
in the case of non-payment of rent.
5. Tenant shall pay all costs, expenses and reasonable
attorney fees that may be incurred or paid by Landlord in enforcing the
covenants and agreements of this Lease.
XVIII. QUIET ENJOYMENT
If and so long as Tenant pays the rent reserved by this Lease
and performs and observes all of the covenants and provisions hereof, Tenant
shall quietly enjoy the Leased Premises without hindrance, disturbance or
molestation from Landlord, subject, however, to the terms of this Lease.
XIX. MISCELLANEOUS
1. The consent or approval by Landlord to or of any act by
Tenant requiring Landlord's consent or approval shall not be deemed to render
unnecessary Landlord's consent or approval to or of any subsequent similar act
by Tenant. No breach of a covenant or condition of this Lease shall be deemed
to have been waived by Landlord, unless such waiver be in writing signed by
Landlord.
2. This Lease and the exhibits, if any, attached hereto and
forming a part hereof, set forth all the covenants, promises, agreements,
conditions and understandings between Landlord and Tenant concerning the Leased
Premises and there are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them other than are herein set
forth. No alteration, amendment, change or addition to this Lease shall be
-12-
<PAGE>
binding upon Landlord or Tenant unless reduced to writing and signed by each
party.
3. Whenever herein the singular number is used, the same
shall include the plural, and the masculine gender shall include the feminine
and neuter genders.
4. The captions and article numbers appearing in this Lease
are inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or intent of such sections or articles of this
Lease nor in any way affect this Lease.
5. Any amount due from Tenant to Landlord hereunder which is
not paid when due shall bear interest at the rate of eighteen percent (18%) per
annum from the date due until paid, unless otherwise specifically provided
herein, but the payment of such interest shall not excuse or cure any default
by Tenant under this Lease.
6. The covenant to pay rent is hereby declared to be an
independent covenant on the part of Tenant to be kept and performed, and no
offset thereto shall be permitted or allowed except as expressly set forth in
this Lease.
7. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement on and check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord shall accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in this Lease provided.
8. The submission of this Lease for examination does not
constitute a reservation of or option for the Leased Premises, and this Lease
shall become effective as a Lease only upon execution and delivery thereof by
Landlord and Tenant.
9. This Lease shall be governed by, and construed in
accordance with, the laws of the State of Illinois. If any provision of this
Lease or the application thereof to any person or circumstances shall, to any
extent, be invalid or unenforceable, the remainder of this Lease shall not be
affected thereby and each provision of the Lease shall be valid and enforceable
to the fullest extent permitted by the law.
10. Tenant shall, in the event of the sale or assignment of
Landlord's interest in the Leased Premises or in the event of any proceedings
brought for the foreclosure thereof, or in the event of exercise of the power
of sale under any mortgage covering the Leased Premises, attorn to the
purchaser and recognize such purchaser as Landlord under this Lease.
11. In the event of any sale or other transfer of the Leased
Premises by Landlord, the named Landlord shall be entirely relieved of all
obligations hereunder from and after the date of the transfer; provided,
however, that the transferee shall assume in writing Landlord's obligations
under this Lease and a copy of such assumption shall be provided to Tenant.
12. If Landlord shall fail to perform any covenant, term or
condition of this Lease upon Landlord's part to be performed, and if as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest of Landlord in the Leased Premises and out of rents or other
income from such property receivable by Landlord, or out of the consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title and
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<PAGE>
interest in the Leased Premises, and Landlord herein shall not be liable for
any deficiency.
13. In the event the Mortgagee or any proposed mortgagee
requests certain modifications or amendments to this Lease, then Tenant, on
demand, agrees to execute such modifications or amendments as required.
Notwithstanding the foregoing, Tenant shall not be required to execute any
modifications or amendments to this Lease which shall modify the provisions of
this Lease relating to the amount of rent reserved, the size and location of
the Leased Premises and the duration of the term of this Lease. Tenant further
agrees to furnish such financial information as may be required or otherwise
cooperate with the obtaining of said mortgage financing.
14. Nothing contained in this Lease shall be taken or
construed to create any agency between Landlord and Tenant or to authorize
Tenant to do any act or thing or to make any contract so as to encumber in any
manner the title to the Leased Premises or to create any claim or lien upon the
interest of Landlord in the Leased Premises.
15. The officers of Tenant who are executing and attesting to
this Lease hereby represent and warrant that they have full power, authority
and right to execute this Lease, and Tenant represents and warrants that the
execution and delivery of this Lease has been duly authorized by the board of
directors of Tenant, and the execution of this Lease by such officers is
sufficient and legally binding on Tenant without the joinder or approval of any
other party.
16. The parties acknowledge that Tenant presently occupies
the Leased Premises pursuant to the terms of a lease commencing on July 1, 1995
by and between Landlord and Tenant (the "Existing Lease"). Landlord and Tenant
agree that the Existing Lease shall terminate on the Commencement Date of this
Lease without further written agreement between the parties, provided, however,
Tenant shall remain liable for the payment of rent and other charges or the
performance of any of the terms and provisions of the Existing Lease due and
owing or accrued up to and including said date.
17. Except as expressly otherwise provided, all of the terms,
covenants and conditions hereof shall be binding upon and inure to the benefit
of the heirs, personal representatives, successors in interest and assigns of
the parties hereto.
SIGNED AND SEALED as of the date first written above.
LANDLORD: TENANT:
TELECOM CORPORATION OF CHICAGO
By:
/s/ Marvyn A. Budd
---------------------------------
/s/ John Einarsen Name: Marvyn A. Budd
- ----------------------- ----------------------------
John Einarsen
Title: President
---------------------------
Attest: /s/ Christopher Walker
-----------------------------
Name: Christopher Walker
-----------------------------
Title: Assistant Secretary
---------------------------
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<PAGE>
Exhibit 8
GUARANTY
FOR VALUE RECEIVED and in consideration of Landlord executing
the Lease with Telecom Corporation of Chicago, as Tenant (the "Lease") to which
this Guaranty is attached, the undersigned Guarantor does hereby, for itself,
its successors and assigns, unconditionally, absolutely and irrevocably
guarantee the payment of rent and the performance of all the terms, provisions,
covenants and conditions to be performed by Tenant under the Lease in the
manner and form as provided in the Lease during the term or any extension
thereof, and hereby expressly waives notices of (i) acceptance of this
Guaranty, (ii) defaults by Tenant under the Lease and (iii) amendments or
modifications to the Lease, and Landlord is hereby released from any duty or
lack of diligence in the enforcement of any of the terms, provisions, covenants
and conditions of the Lease. The undersigned Guarantor hereby expressly
consents to any modifications and amendments of the terms, provisions,
covenants and conditions of the Lease that may hereafter be made and agrees
that the same shall in no way relieve it from any liability under this
Guaranty. The undersigned Guarantor hereby expressly consents to any assignment
or subletting by Tenant or its successors or assigns and agrees that the same
shall in no way relieve it from any liability under this Guaranty, and hereby
expressly consents to Landlord proceeding directly against the undersigned on
this Guaranty without first exhausting any remedy or remedies which Landlord
may have against Tenant. The undersigned Guarantor further agrees to pay to
Landlord all damages that may be sustained by Landlord in consequence of any
default by Tenant under the Lease, together with all attorney fees, court costs
and other expenses incurred by Landlord in enforcing Tenant's covenants and
agreements set forth in the Lease or in enforcing the covenants and agreements
of the undersigned under this Guaranty. The undersigned Guarantor expressly
acknowledges that the Guarantor is an affiliate of Tenant and that it is in the
direct interest and benefit to Guarantor to assist Tenant in entering into the
Lease.
Notwithstanding anything to the contrary contained herein,
during any extension of the term of the Lease pursuant to Article II, Paragraph
2 thereof, the aggregate amount of Guarantor's liability under this Lease shall
be limited to a sum equal to one-half of the rent and other charges which
Tenant is obligated to pay to Landlord from the date of any default by Tenant
under the Lease until the end of the extension period then in effect but such
sum shall in no event be less than the sum of the rent and other charges which
Tenant is obligated to pay to Landlord for a period of one year from and after
the date of any default by Tenant under the Lease.
In the event of any bankruptcy, reorganization, winding up or
similar proceedings with respect to Tenant, no limitation on Tenant's liability
under the Lease which may now or hereafter be imposed by any federal, state or
any other statute, law or regulation applicable to such proceedings shall in
any way limit the obligation of the undersigned Guarantor hereunder, which
obligation is co-extensive with Tenant's liability as set forth in the Lease,
without regard to any such statutory or other limitation.
As part of the consideration for Landlord executing the
Lease, the undersigned Guarantor hereby consents to the jurisdiction of any
state or federal court located within the State of Illinois and waives personal
service of any and all process upon it and hereby consents that all such
service of process be made by certified mail directed to the Guarantor at the
address stated beneath Guarantor's signature below and service so made shall be
deemed to be completed upon actual receipt thereof. The Guarantor hereby waives
any objection to jurisdiction and venue of any action instituted against it as
provided herein and agrees not to assert any defense based on lack of
jurisdiction or venue.
The Guarantor represents and warrants that the execution and
delivery of this Guaranty has been duly authorized by Guarantor, and the
officers of Guarantor who are executing and attesting to this Guaranty have
full power, authority and right to do so, and the execution of this Guaranty by
such officers is sufficient and legally binding on Guarantor without the
joinder or approval of any other party.
<PAGE>
This Guaranty signed and sealed as of the date written below
is intended to take effect as a sealed instrument, and shall inure to the
benefit of Landlord named in the Lease and Landlord's successors and assigns.
Date: October 29th 1998 OFFICELAND, INC.
By: /s/ Marvyn A. Budd
------------------------------------
Name: Marvyn A. Budd
------------------------------
Title: President
------------------------------
Attest: /s/ Christopher Walker
------------------------------
Name: Christopher Walker
------------------------------
Title: Assistant Secretary
------------------------------
Address: 312 Dolomite Drive, Suite 212
------------------------------
Toronto, Ontario M3J 2N2
------------------------------
------------------------------
Telephone No. 416 738 4000
-------------------------
Telefacsimile No.: 416 736 8445
---------------------
FEIN: 86732971
---------------------------------
<PAGE>
Exibit 9
LOAN AND SECURITY AGREEMENT
by and between
Telecom Corporation of Chicago ("Debtor")
and
American National Bank and Trust Company of Chicago,
a National Banking Association ("Secured Party")
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (herein "Agreement") is made and
entered into this 10th day of December, 1998, by and between Telecom
Corporation of Chicago, a corporation organized and existing under the laws of
the State of Illinois, with its principal place of business located at 285
Industrial Drive, Wauconda, Illinois 60084, (herein "Debtor") and American
National Bank and Trust Company of Chicago, a national banking association,
with its office located at 120 S. LaSalle, Street, Chicago, Illinois 60603
(herein "Secured Party").
RECITALS
WHEREAS, Debtor has requested that Secured Party make loans and/or
otherwise extend credit to or on behalf of Debtor;
WHEREAS, Secured Party is willing to make such loans and/or
extensions of credit to Debtor upon the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual promises herein
contained, and each intending to be legally bound thereby, the parties hereto
agree as follows:
Section 1. DEFINITIONS
The following terms, when used in this Agreement or Other Agreements
(as hereinafter defined) shall have the meanings set forth herein, and such
meanings shall be applicable to the singular and plural form thereof giving
effect to the numerical difference.
1.01 "Acceptable Inventory"
"Acceptable Inventory" shall mean the Debtor's Inventory which meets
each of the following requirements:
(a) It is in good and marketable condition such that it
may be sold in the ordinary course of Debtor's business;
(b) In the case of goods held for sale or lease, it is of
the quantity, type and quality normally maintained in the ordinary
course of Debtor's business;
(c) It is not now and shall not at any time hereafter be
stored with a bailee, warehouseman or similar party;
(d) It is owned by Debtor and is subject to a perfected
security interest in favor of Secured Party and is not subject to any
other claim, lien, security interest or encumbrance whatsoever; and
(e) Secured Party, in good faith, has determined, in
accordance with Secured Party's customary business practices, that it
is not unacceptable due to age, type, category, quality and/or
quantity.
<PAGE>
Any of Debtor's Inventory which is Acceptable Inventory at any time,
but which subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be Acceptable Inventory.
1.02 "Acceptable Receivables"
"Acceptable Receivables" shall mean those Receivables (as defined
herein):
(a) which do not violate the warranties, representations and
negative covenants contained herein;
(b) which comply with the affirmative covenants contained
herein;
(c) which are due within ninety (90) days from the date of
the original invoice issued by Debtor (in the event more than 50% of
the Receivables owed by a particular Receivables Debtor, (as defined
herein) become or remain due more than (ninety) 90 days after the
date of the original invoice therefore, all Receivables owed by that
Receivables Debtor shall be unacceptable);
(d) which arise from sales made in the ordinary course of
Debtor's business to any Person (as defined herein) unless such
Person
(i) is an Affiliate (as defined herein) of the
Debtor (unless such Receivables from such Affiliate arise
from transactions based upon fair and reasonable terms which
are no less favorable to Debtor than those Debtor would
obtain in a comparable arm's length transaction with a
Person not Debtor's Affiliate); or
(ii) has filed a petition for bankruptcy or other
relief under the then existing Bankruptcy Code, made an
assignment for the benefit of its creditors, suspended its
business operations, become insolvent, suffered a receiver
or trustee to be appointed for its assets or affairs or
suffered a petition or other application for relief to be
filed against it; or
(iii) is a supplier to or creditor of Debtor,
unless such person has entered into an agreement with
Secured Party waiving its rights of setoff or unless the
Debtor's obligations to such supplier or creditor are backed
by a letter of credit acceptable to Secured Party, issued or
confirmed by a bank acceptable to Secured Party; or
(iv) is located outside the continental United
States or not subject to service of process in the United
States (except for Guarantor (as defined below)), unless
such sale is backed by a letter of credit acceptable to
Secured Party, confirmed or issued by a bank acceptable to
Secured Party, or which is insured by the Foreign Credit
Insurance Association upon such terms and conditions
acceptable to Secured Party; or
(v) is the United States of America or any
department, instrumentality, agency or political subdivision
thereof, unless Debtor has complied to Secured Party's
satisfaction with the provisions of the Federal Assignment
of Claims Act of 1940, as amended, including without
limitation, executing such assignments and notifications as
may be required by Secured Party to effectuate the
assignment of such account; or
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(vi) is a Receivables Debtor whose total
Receivables, Acceptable or otherwise, owed to Debtor, exceed
a credit limit determined by Secured Party in its sole
discretion;
(e) which the Receivables Debtor has not disputed, nor
objected to the goods or services of the Debtor nor rejected,
returned or refused to accept such goods or services nor made any
claim with respect to any other Receivables due from such Receivables
Debtor;
(f) which is not and may not become subject to any right of
setoff by the Receivables Debtor, unless the Receivables Debtor shall
have entered into an agreement with Secured Party waiving such right
of setoff;
(g) which does not arise out of a sale made on a
bill-and-hold, guaranteed sale, sale on approval, consignment, or any
other return or repurchase basis;
(h) which does not arise out of a contract containing a
prohibition against assigning or granting a security interest
therein; and
(i) which does not arise from an invoice, statement or other
evidence of indebtedness which has been re-dated.
1.03 "Affiliate"
"Affiliate" shall mean any Person (as defined herein) under common
control or having common shareholders owning at least ten percent (10%)
thereof, whether such common control be direct or indirect. All of Debtor's
officers, shareholders, directors, parent and subsidiary corporations, joint
venturers, and partners (whether general or limited) shall be deemed Debtor's
Affiliates for purposes of this Agreement.
1.04 "Borrowing Base"
"Borrowing Base" shall mean an amount equal to the sum of:
(a) 80% of the net value of Acceptable Receivables assigned
to Secured Party; and
(b) the lesser of (i) 50% of the lower of cost or market
value, determined in accordance with GAAP, of Acceptable Inventory
assigned to Secured Party and (ii) $1,500,000.
1.05 "Business Day"
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks in Chicago, Illinois are required to close.
1.05A "Cash Flow Available"
"Cash Flow Available" shall mean, with reference to any period,
Debtor's net income before interest expense and taxes for such period; plus
(1) all amounts properly charges for depreciation for fixed assets and
amortization of intangible assets during such period on the books of Debtor,
minus (2) federal, state and local income taxes for such period; plus or minus
(3) net changes in deferred taxes and LIFO adjustments for such period; minus
(4) Debtor's cash payments for capital expenditures not
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reflected as an expense (net of any borrowings to support the expenditures)
for such period; minus (5) dividends and distributions for such period.
1.06 "Charges"
"Charges" shall mean all national, federal, state, county, city,
municipal, and/or other governmental (including without limitation, the
Pension Benefit Guaranty Corporation) taxes, levies, assessments, charges,
liens, claims or encumbrances upon and/or relating to
(i) the Collateral,
(ii) the Obligations (as defined herein),
(iii) Debtor's employees, payroll, income and/or gross
receipts,
(iv) Debtor's ownership and/or use of any of its assets,
or
(v) any other aspect of Debtor's business.
1.07 "Closing Date"
"Closing Date" shall mean the date of initial disbursement of all or
any portion of the proceeds of the Loans which date shall occur no later than
December 10, 1998.
1.08 "Collateral"
"Collateral" shall mean all of Debtor's tangible and intangible
property, whether now or hereafter existing, and whether now or hereafter
owned, licensed, leased, consigned or acquired by Debtor, including without
limitation, all of Debtor's:
(a) All accounts, Receivables, contract rights, general
intangibles, goodwill, trademarks, trade names, copyrights, patent
rights, chattel paper, instruments, documents, acceptances, notes,
drafts, Inventory, goods, securities, deposits, cash, tax refunds,
books, records, customer and supplier lists, ledgers, invoices,
purchase and sales orders, data processing, computer and
telecommunications systems, including software systems incidental
thereto, insurance policies and certificates, guaranties, liens, and
other personal property, and all proceeds, products, renewals,
substitutions, replacements, additions and accessions thereto; and
(b) All monies, reserves, deposits, deposit accounts and
interest or dividends thereon, securities, cash, and cash equivalents
and other property now or at any time or times hereafter in the
possession or under the control of Secured Party or its bailee; and
(c) All machinery, equipment, apparatus, appliances,
furniture, furnishings, fixtures, supplies, whether now owned or
hereafter acquired, and all proceeds, substitutions, replacements,
additions and accessions; and
(d) All other Collateral or property with respect to which
Debtor has or may hereafter grant to Secured Party a lien or security
interest.
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1.08A "Debt"
"Debt" of any Person shall mean, without duplication, each of the
following, whether primary, secondary, direct, indirect, absolute, contingent,
fixed or otherwise, previously, currently or subsequently owing, due or
payable, however evidenced, created, incurred, acquired or owing, and however
arising, whether by agreement (written or oral), at law, in equity or
otherwise: (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than trade payables on
terms of 30 days or less incurred in the ordinary course of business of such
Person); (ii) all indebtedness of such Person evidenced by a note, bond,
debenture, or similar instrument; (iii) the principal component of all
capitalized lease obligations of such Person; (iv) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all unreimbursed amounts drawn under such letters of credit; (v)
all indebtedness of any other Person secured by any lien on any property such
Person owns, whether or not such indebtedness has been assumed; (vi) all
contingent obligations of such Person; and (vii) all payment obligations of
such Person under any interest rate protection agreement (including without
limitation any interest rate swaps, caps, floors, collars and similar
agreements) and currency swaps and similar agreements.
1.08B "Debt Service"
"Debt Service" shall mean, with reference to any period, the sum
(without duplication) of (i) the aggregate amount of payments required to be
made by Debtor during such period in respect of principal on all Debt of
Debtor, plus (ii) all interest expense for such period determined in
accordance with GAAP.
1.08C "Debt Service Coverage Ratio"
"Debt Service Coverage Ratio" shall mean the ratio of Debt Service to
Cash Flow Available.
1.09 "Default Rate"
2% in excess of the rates of interest in effect under Section 4.02.
1.10 "Event of Default"
"Event of Default:" shall mean any of the events listed in Section 9
hereof.
1.11 "Financials"
Except as listed on Exhibit A attached hereto, Debtor has provided
Secured Party with copies prior to the Closing Date of all requested financial
statements.
1.12 "Guaranty"
"Guaranty" shall mean the Continuing Guaranty executed by Officeland,
("Guarantor") in favor of Secured Party pursuant to which Guarantor shall
guarantee the Debtor's Obligations.
1.13 "Inventory"
"Inventory" shall mean all inventory of Debtor, whether now owned or
hereafter acquired, including without limitation:
(i) all goods manufactured or acquired for sale or lease,
and any piece goods, raw materials, work in process and finished
merchandise, goods, incidentals, office supplies,
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packaging materials, and any and all items, including machinery and
equipment used or consumed in the operation of the business of the
Debtor and which contribute to the finished product or to the sale,
promotion and shipment thereof, in which Debtor now or at any time
hereafter may have an interest whether or not such inventory is listed
in this Agreement or on any reports furnished to Secured Party from
time to time;
(ii) all inventory whether or not the same is in transit or
in the constructive, actual or exclusive occupancy or possession of
Debtor or is held by Debtor or by others for Debtor's account,
including without limitation all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers;
(iii) all inventory which may be located on premises of
Debtor or of any carrier, forwarding agents, truckers, warehousemen,
vendors, selling agents or third parties;
(iv) all general intangibles relating to or arising out of
inventory; and
(v) all proceeds and products of the foregoing resulting
from the sale, lease or other disposition of inventory, including
cash, accounts receivable, other non-cash proceeds and trade-ins.
1.14 "Loan Instruments"
"Loan Instruments" shall mean:
(i) Loan and Security Agreement, with attached exhibits;
(ii) Revolving Credit Note;
(iii) Guaranty;
(iv) Closing Certificate;
(v) Appropriate Uniform Commercial Code financing
statements; and
(vi) Such other instruments and documents as Secured Party
may require to evidence and perfect its Security Interest
1.15 "Loan"
"Loan" shall mean the Loan made by Secured Party to Debtor pursuant
to this Agreement and the Revolving Credit Loan.
1.15A "Maturity Date"
"Maturity Date" shall mean March 31, 1999.
1.16 "Obligations"
"Obligations" shall mean and include all loans, advances, debts,
liabilities, obligations, covenants and duties owing to Secured Party from
Debtor or any Affiliate of Debtor (other than the
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Guarantor if such obligation is not directly related to the business of
Debtor) of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under this Agreement
or under any other agreement, instrument or document, whether or not for the
payment of money, whether arising by reason of an extension of credit, opening
of a letter of credit, loan, guaranty, indemnification or in any other manner,
whether direct or indirect (including those acquired by assignment), absolute
or contingent, due or to become due, now existing or hereafter arising and
however acquired. The term includes, without limitation, all interest,
charges, expenses, fees, and any other sums chargeable to Debtor or Affiliate
of Debtor under this Agreement or any other Agreement with Debtor. The term
further includes, without limitations, all costs and expenses of attorneys
engaged by Secured Party, including local counsel fees and costs and expenses
incurred by paralegals and other staff employed by such attorneys, and
further, the fees, costs and expenses of appraisers, consultants, accountant
or other professionals, other than the salaried employees of Secured Party,
engaged in connection with the drafting and preparation of this Agreement or
the Other Agreements, and the administration, enforcement and defense of this
Agreement, the Other Agreements or the relationships and security interest
created thereunder, or Agreements or the relationships and security interest
created thereunder, or the collection of the Obligations. The term further
includes all out-of-pocket expenses incurred by Secured Party, or its agents
or employees incurred with respect to this Agreement, the Other Agreements,
the relationship and security interest created thereunder, or the
administration, defense or enforcement thereof and the collection of the
Obligations.
1.17 "Other Agreements"
"Other Agreements" shall mean all agreements, instruments and
documents including, without limitation, the Revolving Credit Note, the
Guaranty, notes, guaranties, mortgages, deeds of trust, pledges, powers of
attorney, consents, assignments, contracts, letters of credit, notices,
security agreements, leases, financing statements, applications and all other
written matter heretofore, now or hereafter executed by or on behalf of Debtor
and delivered to Secured Party, or in connection with which Debtor or any
Affiliate of Debtor (other than the Guarantors if such obligation is not
directly related to the business of Debtor) may be indebted, the provisions of
which are incorporated herein by reference.
1.18 "Person"
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (whether national, federal, state,
county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body, political subdivision or departments
thereof).
1.19 "Principal Balance"
"Principal Balance" shall mean the unpaid principal balance of the
Loan outstanding from time to time.
1.20 "Prime Rate"
"Prime Rate" shall mean the prime rate of interest Secured Party
quotes or announces from time to time, whether or not such rate is the best or
lowest rate available from Secured Party.
1.21 "Receivables"
"Receivables" shall mean and include all of Debtor's present and
future rights to payment for goods, merchandise or Inventory sold or leased or
for services rendered, including, without limitation, those which are not
evidenced by instruments or chattel paper, and whether or not they have been
earned
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by performance, whether or not the same are listed on any schedules, reports
or assignments furnished to Secured Party from time to time, or any letters of
credit on which Debtor is named as beneficiary, contract rights, chattel
paper, instruments, documents, insurance proceeds, and all such obligations
whatsoever owing to Debtor, together with all instruments and all documents of
title representing any of the foregoing, all rights in any goods, merchandise
or Inventory which any of the same may represent, all rights in any returned
or repossessed goods, merchandise and Inventory, and all right, title,
security and guaranties with respect to each of the foregoing, including,
without limitation, any right of stoppage in transit, replevin and reclamation
and all other rights and remedies of an unpaid vendor or lienor, and any liens
held by the Debtor as a mechanic, contractor, subcontractor, processor,
materialman, mechanist, manufacturer, artisan or otherwise.
1.22 "Receivables Debtor"
"Receivables Debtor" shall mean that Person obligated to Debtor on
any Receivable, whether one or more.
1.23 "Revolving Loan"
"Revolving Loan" shall mean the revolving line of credit made
available by Secured Party to Debtor in accordance with Section 4.01 hereof.
1.24 "Tangible Net Worth"
"Tangible Net Worth" shall mean as of any time, the difference
between: (a) Debtor's total assets as they would normally be shown on Debtor's
balance sheet, plus subordinated Debt, but excluding therefrom all values
attributable to goodwill, patents, copyrights, trademarks, licenses, prepaid
expenses, general intangibles, and receivables due to Debtor from its
Affiliates (other than those receivables from Affiliates that are Acceptable
Receivables as defined herein); and (b) Debtor's combined total liabilities
and deferred charges as they would usually be shown on the balance sheets,
including as liabilities all guaranties which Debtor has executed concerning
the indebtedness of any of its Affiliates, if any.
1.25 "Unsubordinated Debt"
"Unsubordinated Debt" shall mean all Debt of Debtor not subordinated
to Debtor's Obligations to Secured Party and evidenced by a subordination
agreement reasonably acceptable to Secured Party.
1.26 "General"
Unless otherwise specifically defined in this Agreement, any
accounting terms used in this Agreement which are not specifically defined
shall have the meanings customarily given them in accordance with Generally
Accepted Accounting Principles ("GAAP"). All other terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the Uniform Commercial Code of the State of Illinois ("Code")
to the extent the same are defined therein.
Section 2. REPRESENTATIONS AND WARRANTIES
Debtor makes the following representations and warranties to Secured Party and
all future holders of any part of the Obligations. Such representations and
warranties shall be true in all material respects throughout the entire term
of this Agreement and thereafter so long as any of the Obligations remain
unpaid.
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2.01 Places of Business.
The principal place of business of the Debtor is 285 Industrial
Drive, Wauconda, Illinois 60084. Debtor has no other place of business. Debtor
shall provide Secured Party written notice at least thirty (30) days in
advance of any change in, addition to, or discontinuance of Debtor's place of
business.
2.02 Financials and Information.
The Financials and other information which Debtor has submitted to
Secured Party to induce it to make and continue in force the Obligations have
been prepared from its books and records and fairly present the financial
condition of Debtor as of and for the periods ending and the respective dates
stated herein. There have been no material adverse changes in either Debtor's
financial condition or business since the date as of which the most recent
balance sheet submitted to Secured Party was prepared. The financial
statements and other information submitted by any guarantors of the
Obligations pursuant to Section 6.01(c) fairly present the financial condition
of such guarantors as of the respective dates stated therein, and there have
been no material adverse changes in such financial condition since those
dates.
2.03 Liens and Encumbrances.
None of the properties or assets of Debtor is subject to any liens or
encumbrances, except those listed on Exhibit F attached hereto.
2.04 Contingent Liabilities.
Debtor is not a party to any suretyship, guarantyship, or other
similar type agreement; nor has it offered its endorsement to any individual
concern or acted or failed to act in any manner which would in any way create
a contingent liability that does not appear in the Financials. Debtor has no
pending obligations or liabilities, except trade payables arising since the
date of the Financials in the ordinary course of business, which would
adversely affect its business operations or the Collateral.
2.05 Use of Proceeds.
The proceeds of the advances contemplated hereunder shall be used for
legal and proper corporate purposes, duly authorized by Debtor's Board of
Directors, but in no event shall be used, directly or indirectly, to purchase
traded securities or to repay indebtedness incurred to purchase such
securities. The proceeds of the Revolving Loan shall be used for working
capital purposes.
2.06 Authority.
The execution and delivery of this Agreement, and the performance by
Debtor of its obligations hereunder and under the Other Agreements has been
duly authorized by resolution of the Board of Directors of the Debtor, which
resolution remains in full force and effect, will not constitute a default
under or violate (whether by the lapse of time, the giving of notice or
otherwise) any provision of the Articles of Incorporation of the Debtor, its
Bylaws, or any contract, deed, agreement or other instrument to which the
Debtor or any of its properties are bound.
2.07 Organization.
Debtor is duly organized and existing in good standing under the laws
of the state of its incorporation, is qualified to do business and is in good
standing in all other states in which such qualifications and good standing
are necessary in order for Debtor to conduct its business and own its property
as conducted and owned in such states, and has all requisite powers and
authority, corporate or otherwise to conduct its business, to own its property
and to execute, deliver and perform all of its obligations under this Agreement.
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2.08 Other Identity.
During the preceding five years, Debtor has not been known by or done
business under any other name, corporate or fictitious.
2.09 Tax Returns, Assessments.
Except as listed on Exhibit B attached hereto, Debtor has duly filed
all required (federal, state and local) tax returns and has paid all taxes and
other sums due to any governmental authority. Debtor has provided Secured
Party with copies of any documents evidencing any government liens against
Debtor or its property.
2.10 Bankruptcies.
During the preceding five (5) years, Debtor has not filed or had
filed against it any bankruptcy, receivership or similar petitions nor has it
made any assignments for the benefit of creditors.
2.11 Contracts.
No contract, governmental or otherwise, to which Debtor is a party,
is subject to renegotiation, nor is Debtor in material default of any material
contract.
2.12 Litigation.
No actions or proceedings have been or expected by Debtor to be filed
before any court or administrative agency nor is there any basis or claim
therefore which will materially adversely affect the financial condition or
operation of Debtor.
2.13 Collective Bargaining Agreements, Employee Benefit Plans.
Debtor is not a party to any collective bargaining, union or pension
plan agreement.
2.14 ERISA Compliance.
No fact, including but not limited to, any "Reportable Event," as
that term is defined in Section 4043 of the Employee Retirement Income
Security Act of 1974, as the same may be amended from time to time ("Pension
Reform Act") exists in connection with any Pension Plan (herein called a
"Plan") of the Debtor which might constitute grounds for termination of any
such Plan by the Pension Benefit Guaranty Corporation or for the appointment
by the appropriate United States District Court of a Trustee to administer any
such Plan. No "Prohibited Transaction" within the meaning of Section 406 of
the Pension Reform Act exists to Debtor's knowledge or will exist upon the
execution and delivery of this Agreement or the performance by the parties
hereto of their respective duties, and obligations hereunder. Debtor agrees to
do all acts, including but not limited to contributions, necessary to maintain
compliance with the Pension Reform Act and agrees not to terminate any such
Plan in a manner or do or fail to do any act which could result in the
imposition of a lien on any property of the Debtor pursuant to Section 406B of
the Pension Reform Act. Debtor has incurred no withdrawal liability under the
Multiemployer Pension Plan Amendment Act of 1980.
2.15 Compliance with Laws, Regulations.
Debtor is not in violation of any notice, order, petition, or similar
document in connection with or arising out of any environmental, health or
safety law, regulation or order, and knows of no basis for any such violation
or threat thereof. To the best of Debtor's knowledge, Debtor is not in
violation of any other federal, state or local law, regulation or order.
Debtor covenants that it shall file or cause to be
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filed in a timely manner all other reports, applications, estimates, licenses
and other documents required by any governmental authority. If Debtor receives
(i) any notice of any violation or administrative or judicial complaint or
order having been filed or about to be requiring Debtor to take any action in
connection with the release and or clean-up of any "Hazardous Material" (any
hazardous, toxic or dangerous waste, substance or material defined as such in
or for purposes of "CERCLA" (the Comprehensive Environmental Response,
Compensation and Liability Act of 1990 (42 U.S.C. Sec. 9601, et seq.)) and all
other applicable federal, state or local laws, ordinances and regulations
referred to herein) or (ii) any notice from any governmental body or any other
Person alleging that Debtor is or may be liable for costs associated with a
response or clean-up of any Hazardous Materials or any damages resulting from
such release, Debtor, promptly upon receipt thereof, shall provide Secured
Party with a copy of such notice. Debtor shall, without cost and expense to
Secured Party, comply or cause compliance with the requirements of all
federal, state and local environmental protection, occupational, health,
safety and similar laws, ordinances, restrictions, licenses, and regulations,
including, without limitation, CERCLA, the Federal Water Pollution Control Act
(33 U.S.C. Sec. 1251 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Sec. 6901 et seq.), the Safe Drinking Water Act (42 U.S.C. Sec. 300f et
seq.,), the Toxic Substances Control Act (15 U.S.C. Sec. 2601 et seq.), the
Clean Air Act (42 U.S.C. Sec. 7401 et seq.) and other comparable federal,
state or local laws, rules and/or regulations.
2.16 Licenses, Permits.
Debtor requires no license, permit or other permission from any
governmental, agency or subdivision thereof, or from any licensing entity,
other than those listed in Exhibit C, which Debtor represents to be in good
standing and full force and effect. Debtor possesses adequate licenses, to
continue to conduct its business as heretofore conducted by it. Debtor has
provided Secured Party with copies of all items listed on Exhibit C.
2.17 Ownership of Collateral.
Subjected to the liens and encumbrances listed on Exhibit F attached
hereto, with respect to the Collateral at the time the Collateral becomes
subject to Secured Party's security interest, Debtor has and shall continue to
have so long as Debtor is obligated to Secured Party, good, indefeasible and
merchantable title to and ownership of the Collateral, free and clear of all
liens, encumbrances, security interest and claims except the lien and security
interests hereby granted Secured Party. Debtor is fully authorized to sell,
transfer, pledge and/or grant a security interest in each and every item of
the Collateral to Secured Party; all documents and agreements evidencing
ownership of Collateral shall be true and correct in all material respects
what they purport to be; all signatures and endorsements that appear thereon
shall be genuine and all signatories and endorsers shall have full capacity to
contract; none of the transactions underlying or giving rise to the Collateral
shall violate any applicable state or federal laws or regulations; all
documents relating to the Collateral shall be legally sufficient under such
laws or regulations and shall be legally enforceable in accordance with their
terms; and the Debtor agrees to defend the Collateral against the claims of
all persons other than Secured Party.
2.18 Additional Instruments.
Debtor shall from time to time do whatever Secured Party reasonably
may request by way of obtaining, executing, delivering and filing financing
statements, landlord's or mortgagee's waivers, and other notices, agreements,
documents, instruments and amendments and renewals thereof, and Debtor will
take any and all reasonable steps and observe such formalities as Secured
Party may request, in order to create and maintain a valid and enforceable
first lien upon, pledge of, and paramount security
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interest in, any and all of the Collateral. Secured Party is authorized to
file financing statements without Debtor's signature or to execute and file
such financing statements in Debtor's behalf as specified by the Uniform
Commercial Code to perfect or maintain its security interest in all of the
Collateral. Debtor agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. All charges, expenses and fees Secured Party may incur in
filing any of the foregoing, together with costs and expenses of any lien
search required by Secured Party, and any taxes relating thereto, shall be
charged to Debtor's Loan and added to the Obligations.
2.19 Debtor's Financial Condition.
Debtor now has and shall have at all times hereafter capital
sufficient to carry on its current business and other transactions and those
in which it may hereafter engage. Debtor is now and at all times hereafter
shall be solvent and able to pay its debts as they mature. Debtor now owns
property having a value, both at fair valuation and at present fair salable
value, greater than the amounts required to pay Debtor's debts.
2.20 Ownership of Receivables.
Debtor is the true and lawful owner of its Receivables, and has, or
at the time each Receivable comes into existence will have, good and clear
title to each Receivable, subject to Secured Party's rights thereto.
Each Receivable is, or at the time it comes into existence will be a
true and correct statement of:
a) the bona fide indebtedness of each Receivable Debtor; and
b) the amount owing for merchandise sold and delivered to,
or for services performed for and accepted by, such Receivable
Debtor.
There are no defenses, counterclaims, discounts or set offs that may
be asserted against Acceptable Receivables.
2.21 Machinery and Equipment - Vehicles.
Debtor has delivered to Secured Party a certificate of title for each
item of vehicles or mobile equipment. In the event any additions to machinery
and equipment consist of vehicles or mobile equipment for which a Certificate
of Title is required under the laws of the appropriate state, Debtor shall
transfer possession of such Certificate of Title to Secured Party and shall
take such other actions as may be required by Secured Party in connection
therewith. In addition, Debtor covenants to report to Secured Party, in
writing, no later than ten (10) days prior to the transfer of any item of
machinery, equipment or vehicles to any State other than that where it is
located at the date of this Agreement when such transfer is likely to be for a
period of more than ninety (90) days. Such writing shall identify the item,
the point to which it is being transferred and such other information as
Secured Party may require.
2.22 Incorporated Representations.
All representations and warranties of the Debtor contained in the
Loan Instruments are herein incorporated as if fully set forth herein.
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Section 3. COVENANTS
Debtor makes the following covenants which shall survive the initial
disbursement of any proceeds of the Loan and shall be in effect throughout the
term of this Agreement and so long as any Obligations remain unpaid:
3.01 Insurance.
Debtor shall have and maintain at all times:
(a) with respect to its property, including Inventory,
insurance against risks of fire, theft, pilferage, so-called extended
coverage and sprinkler leakage,
(b) with respect to motor vehicles, collision, comprehensive
and bodily injury insurance, and
(c) insurance against other risks (including without
limitation product and umbrella liability) customarily insured
against by companies engaged in businesses similar to that of Debtor.
All insurance shall be in amounts satisfactory to Secured Party, and
shall contain such terms, be in such form, be for such periods and be
written by such companies as may be satisfactory to Secured Party.
Debtor shall cause Secured Party to be endorsed as a loss payee with
a loss payable clause acceptable to Secured Party. In the event of
failure to provide and maintain insurance as herein provided, Secured
Party may, at its option, provide such insurance and charge the
amount thereof to the appropriate Loan account. Debtor shall furnish
to Secured Party certificates or other evidence satisfactory to
Secured Party of compliance with the foregoing insurance provisions.
In the Event of Default, Secured Party is hereby appointed Debtors'
attorney-in-fact to make proofs of loss and claims for insurance, and
to receive payments of the insurance and execute all documents,
checks and drafts in connection with payment of the insurance.
3.02 Taxes and Charges.
Debtor will comply with all applicable statutes and governmental
regulations and pay and discharge, before any penalty attaches thereto for
nonpayment thereof, all taxes, assessments and governmental charges of any
kind levied upon or assessed against Debtor, the Collateral, any income
therefrom or upon the subject of the security interest of Secured Party;
provided, however, that Debtor shall not be required to pay any such taxes,
assessments, or other governmental charges so long as it shall in good faith
contest the validity thereof, and if such contest is made Debtor will provide
for the payment of the taxes, assessments or other governmental charges so
contested in a manner satisfactory to Secured Party. In the event Debtor, at
any time, fails to pay such taxes and charges, or to obtain discharges,
subject to the provisions of the preceding sentence relative to contesting
such items, Secured Party may, in its sole discretion, without waiving or
releasing any Obligation or liability of Debtor or any Event of Default, make
such payment, or any part thereof, or obtain such discharge or take other
action with respect thereto which Secured Party deems advisable. All sums so
paid by Security Party and any expenses incurred by Secured Party in
connection therewith, including attorney's fees, shall be immediately due and
payable from Debtor to Secured Party.
3.03 Liens.
Secured Party shall have the right, but shall not be obligated, to
pay and to charge as an advance to Debtor's Revolving Loan account any lien or
other charge upon or against any or all Collateral
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including, without limitation, those liens or charges arising under any
statute or in favor of landlords, taxing authorities (including but not
limited to withholding taxes), governments, public and private warehousemen,
common and private carriers, processors, finishers, stevedores, mechanics,
artisans, laborers, attorneys, courts or others.
3.04 Notices to Secured Party.
Debtor shall give prompt written notice to Secured Party of:
(a) any substantial dispute that may arise between Debtor
and any governmental regulatory body or law enforcement authority
including tax liability;
(b) any Event of Default or any event which, upon a lapse of
time or notice or both, would become an Event of Default;
(c) all litigation which could adversely affect Debtor where
the amount claimed in any one suit or action is Twenty-Five Thousand
Dollars ($25,000) or more and all litigation where the amount claimed
in the aggregate is Fifty Thousand Dollars ($50,000) or more;
(d) any labor controversy resulting in or threatening to
result in a strike or work stoppage against Debtor;
(e) any proposal by any public authority to acquire the
assets or business or Debtor;
(f) the location of any Collateral any place other than
Debtor's place of business;
(g) any proposed or actual change of Debtor's name, identity
or corporate structure; or
(h) any other matter which has resulted or may result in a
material adverse change in Debtor's financial condition or
operations.
3.05 Merger, Sale or Consolidation.
Without Secured Party's prior written consent, Debtor shall not merge
into, consolidate with, be acquired by or acquire any other Person, or sell or
otherwise dispose of substantially all its assets or any of its assets except
in the ordinary course of its business, during the term of this Agreement or
so long as any of Debtor's Obligations remain unpaid; provided, however, that
Debtor may become an indirect, wholly-owned subsidiary of Guarantor through a
corporate restructuring whereby it is anticipated that Guarantor will create a
wholly-owned domestic subsidiary (the "Domestic Parent") which will in turn
own 100% of the issued and outstanding stock of Debtor (the "Guarantor
Restructuring") and so long as Debtor causes Domestic Parent and Guarantor
to execute such other documents as reasonably requested by Secured Party in
conjunction with the Guarantor Restructuring.
3.06 Operation of Debtor's Business.
Except with the prior consent of Secured Party, Debtor makes the
following covenants during the term of this Agreement or so long as any of
Debtor's obligations remain unpaid:
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(a) Dividends/Distributions.
Debtor shall not declare or pay cash or stock dividends upon
any of Debtor's stock or make any distributions of Debtor's property
or assets or make any loans, advances and/or extensions of credit to,
or investments in, any Persons, including without limitation, any of
Debtor's Affiliates, officers or employees, if, as a result of any
such event, Debtor would not be in compliance with any of the
financial covenants in Section 3.13 hereof;
(b) Capital Structure.
Other than in connection with the Guarantor Restructuring,
Debtor shall not redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Debtor's capital stock, or make any
material change in Debtor's capital structure or in any of Debtor's
business objectives, purposes and operations which might in any way
adversely affect the repayment of the Obligations. Guarantor owns
100% of the issued and outstanding stock of Debtor. After the
Guarantor Restructuring, if it occurs, Domestic Parent will own 100%
of the issued and outstanding stock of Debtor and Guarantor will own
100% of the issued and outstanding stock of Domestic Parent. All of
the outstanding shares of the capital of Debtor are validly issued,
fully paid and non-assessable, and have been issued in compliance
with all applicable federal and state laws, rules and regulations,
including, without limitation, all so-called "Blue-Sky" laws;
(c) Transactions With Affiliates.
Other than the Guarantor Restructuring, Debtor shall not
enter into, or be a party to any transaction with one of Debtor's
Affiliates, except in the ordinary course of business and pursuant to
the reasonable requirements of Debtor's business and upon fair and
reasonable terms which are fully disclosed to Debtor and are no less
favorable to Debtor than Debtor would obtain in a comparable arm's
length transaction with a Person not Debtor's Affiliate;
(d) Other Transactions.
Debtor shall not enter into any transaction which materially
and adversely affects its business, operations, assets, or condition
(financial or otherwise) or the Collateral or Debtor's ability to
repay all Obligations or permit or agree to any extension, compromise
or settlement or make any change or modification of any kind or
nature with respect to any Receivable, including any of the terms
relating thereto;
(e) Guaranties.
Debtor shall not directly or indirectly become liable with
respect to the obligations or liabilities of any Person, except to a
spouse, descendants, or any trust created for the benefit of a spouse
or descendant in connection with an obligation of a non-business
nature or as expressly permitted herein;
(f) Deposits/Withdrawals.
Debtor shall not, except with respect to transactions
otherwise permitted hereunder, make deposits to or withdrawals from
any of Debtor's deposit accounts for the benefit of any of its
Affiliates;
(g) Encumbrances.
Debtor shall not, except as otherwise expressly permitted
herein, encumber, pledge, mortgage, grant a security interest in,
assign, sell, lease or otherwise, dispose of or transfer,
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whether by sale, merger, consolidation, liquidation, dissolution, or
otherwise any of Debtor's assets;
(h) Indebtedness.
Debtor shall not incur, without consent of Secured Party,
Debt for borrowed money other than the Obligations, except in the
ordinary conduct of Debtor's business (e.g. trade payables to
suppliers of Inventory);
(i) Capital Expenditures.
Debtor shall not, in the aggregate make or incur obligations
for any capital expenditures in any fiscal year, including, without
limitation, capitalized lease obligations, in an amount that exceeds
the greater of (i) prior tax year depreciation, or (ii) $100,000.
(j) Contingent Sales.
Debtor shall not make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval,
consignment, or any other repurchase or return basis;
(k) Books and Records.
Debtor shall not remove its books and records concerning the
Collateral, or the Collateral, from the locations set forth in
Section 2.01 or keep any of such books and records or the Collateral
at any other office or location, unless Debtor gives Secured Party
written notice thereof at least thirty (30) days prior thereto and
the same is within the continental United States of America;
(l) Intentionally Deleted.
(m) Investments.
Debtor shall not, other than in the ordinary course of its
business, make any investment in the securities of any Person;
provided, however, notwithstanding the foregoing, Debtor may make
investments in certificates of deposits of a banking institution
insured by the Federal Deposit Insurance Corporation the ("FDIC"), in
the amounts not to exceed the maximum amount insured by the FDIC;
(n) Intentionally Deleted.
(o) Type of Business.
Debtor shall not make any material change in the type of
business it now conducts.
3.07 Inventory.
Secured Party may examine and inspect the Inventory upon reasonable
advance notice to Debtor. Debtor shall maintain a perpetual Inventory. Debtor
agrees to perform any and all steps reasonably requested by Secured Party to
protect Secured Party's rights in the Inventory such as leasing warehouses to
Secured Party or Secured Party's designee, placing and maintaining signs,
appointing custodians, maintaining Inventory records, placing notations on
Debtor's books of account to disclose Secured Party's security interest
therein, delivering to Secured Party warehouse receipts covering that portion
of the Inventory located in warehouses for which warehouse receipts are
issued, transferring Inventory to warehouses designated by Secured Party's
account and subject to Secured Party's instructions. Debtor will deliver to
Secured Party a negotiable document of title to any Inventory becoming subject
thereto
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and any letters of credit on which Debtor is named as beneficiary.
From time to time, Debtor shall, upon Secured Party's request, execute and
deliver confirmatory written instruments pledging to Secured Party the
Inventory described in any such listings or otherwise; provided, however, the
Secured Party's failure to execute and deliver such confirmatory instruments
shall not affect or limit Secured Party's security interest in other rights in
and to the Inventory. Until all Obligations have been fully satisfied, Secured
Party's security interest in the Collateral, whether now owned, or hereafter
acquired, and all proceeds and products thereof, shall continue in full force
and effect.
Debtor, immediately, upon Secured Party's request and not later than
the 30th day of each month, shall execute and deliver to Secured Party
schedules of Inventory specifying Debtor's cost of Inventory and such other
matters as Secured Party may request.
3.08 Inspection of Books and Records/Field Exams.
Debtor shall permit, upon advanced reasonable notice, representatives
of Secured Party to inspect Debtor's books and records during regular business
hours, and make copies thereof or extracts therefrom and to arrange for
verification of Receivables, under reasonable procedures established by
Secured Party, directly with the Receivable Debtors. Debtor specifically
agrees that Secured Party may conduct field examinations at Debtor's cost one
time in each fiscal year, the costs of which shall be consistent with Secured
Party's past practices.
3.09 Payment and Compliance with Agreements.
Debtor will cause all payments to be made as required by this
Agreement and Other Agreements. Debtor will promptly and fully perform and
discharge all of the agreements and indebtedness of Debtor under or in
connection with this Agreement and Other Agreements and will refrain from
doing any act or acts that would violate any covenant or Agreement thereunder.
3.10 Bank as Principal Depository.
During the term of this Agreement, Debtor will establish and maintain
with Secured Party accounts as its principal depository. Debtor will pay to
Secured Party any and all fees due Secured Party to the extent not otherwise
satisfied by demand deposits.
3.11 Machinery and Equipment
Debtor shall keep and maintain its machinery and equipment in good
operating condition and repair and shall make all necessary replacements
thereof so that the value, utility and operating efficiency thereof at all
times will be maintained and preserved. Debtor shall promptly inform Secured
Party of any material additions to or deletions from the machinery and
equipment. Debtor shall not permit any such items to become affixed to real
estate in such manner that such items of machinery and equipment will become a
fixture or any accession to other personal property. Debtor shall, upon
Secured Party's request, deliver to Secured Party all evidence of ownership of
the machinery and equipment (including, without limitation, bills of sale,
certificates of title and applications for title).
Debtor shall not sell, transfer, lease, grant a security interest in
or otherwise dispose of or encumber the machinery and equipment or any part
thereof to any Person other than Secured Party; provided however, that in any
fiscal year Debtor may sell or otherwise dispose of machinery and equipment
with an aggregate book value not to exceed $50,000. If any machinery and
equipment is sold, transferred or otherwise disposed of as permitted in this
Section, Debtor promptly shall notify Secured
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Party of such fact and, upon Secured Party's request, deliver all the cash
proceeds of such sale, transfer or disposition to Secured Party, which
proceeds shall be applied to the repayment of the Obligations; provided,
however, that with Secured Party's prior consent Debtor may use the proceeds
of such sale, transfer or disposition to finance the purchase or replacement
machinery and equipment. Debtor shall deliver to Secured Party written
evidence, satisfactory to Secured Party, of the use of the proceeds for such
purchase. All replacement machinery and equipment purchased by Debtor shall be
free and clear of all liens, claims, security interests and other
encumbrances, except for the security interests granted to Secured Party,
purchase money security interests consented to in writing by Secured Party,
and the liens permitted as described in Exhibit F.
3.12 Year 2000 Compliance.
Debtor has reviewed the areas within its business and operations
which could be adversely affected by, and has developed or is developing a
program to address on a timely basis, the "Year 2000 Problem" (that is, the
risk that computer applications used by Debtor may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date on or after December 31, 1999), and has made related appropriate
inquiry of material suppliers and vendors. Based on such review and program,
Debtor believes that the "Year 2000 Problem" will not materially adversely
affect Debtor.
3.13 Financial Covenants.
(a) Debtor shall maintain Tangible Net Worth of not less than
$800,000, which shall be measured on a quarter annual basis first beginning on
December 31, 1998; and
(b) At all times, Debtor shall maintain a ratio of Unsubordinated
Debt to Tangible Net Worth of not greater than 3.0:1; and
(c) Debtor shall maintain a Debt Service Coverage Ratio of not less
than 1.15:1, which shall be measured on a quarter annual basis first beginning
on December 31, 1998.
Section 4. LOANS AND TERMS OF PAYMENT
4.01 Amount of Loan.
Subject to the terms and conditions of this Agreement on the Closing
Date, provided (i) no Event of Default exists and (ii) all of the terms and
conditions of this Agreement have been satisfied, Secured Party shall lend to
Debtor as follows:
Revolving Loan.
Secured Party agrees to lend to Debtor from time to time
after the Closing Date and on or before the Maturity Date, such sums
for working capital or the issuance of letters of credit as the
Debtor may from time to time request, not exceeding $2,500,000. The
aggregate principal amount of borrowings at any one time outstanding
under the Revolving Loan shall be the lesser of (i) $2,500,000, and
(ii) the Borrowing Base, each as reduced by (A) the amount of all
advances Secured Party makes to Debtor under the Revolving Loan then
remaining unpaid, and
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(b) all letters of credit, other credits or indulgences Secured Party
grants to Debtor under the Revolving Loan from time to time, if any.
4.02 Interest
(a) Interest.
Except as set forth in Section 4.02(g), Debtor's Obligations
shall bear interest at the Prime Rate.
(b) Interest Computation.
Interest shall be computed on the basis of a year consisting
of 360 days and charged for actual number of days during the period
for which interest is being charged.
(c) Maximum Interest.
Notwithstanding any provision to the contrary herein
contained, Secured Party shall not collect a rate of interest on any
obligation or liability due and owing by Debtor to Secured Party in
excess of the maximum contract rate of interest permitted by
applicable law. Secured Party and Debtor have agreed that the
interest laws of the State of Illinois shall govern the relationship
between them. All interest found in excess of that rate of interest
allowed and collected by Secured Party shall be applied to the
principal balance of each Loan in such manner as to prevent the
payment and collection of interest in excess of the rate permitted by
applicable law.
(d) Payment of Principal and Interest.
Debtor shall pay interest on the unpaid principal amount of
the Loan, from time to time, from and including the date of any
advance thereunder to the day of repayment of such advance or until
the Maturity Date equal to the Prime Rate, all as more specifically
described in Section 4.03 below.
(e) Prepayment.
(i) Voluntary Prepayment. The Debtor may prepay
the Principal Balance of the Loan in whole or in part without
penalty or premiums.
(ii) Application of Prepayments. All prepayments of
the Principal Balance of the Loan shall be applied to the
Principal Balance of said Loan as directed by Debtor in the
inverse order of maturity thereof.
(f) Payments after Event of Default.
All payments received by Secured Party during the existence
of an Event of Default and after the acceleration of Debtor's
Obligations shall be applied to Debtor's Obligations in such manner
as Secured Party shall elect.
(g) Default Rate; Late Charge.
During the existence of an Event of Default, Debtor's
Obligations shall bear interest at the Default Rate. In addition, if
any installment of principal or interest to be made pursuant to
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this Loan Agreement is not made within ten (10) days of the due
date, Debtor shall pay a late charge equal to the greater of: (a)
Fifty Dollars ($50.00) per late payment; or (b) five percent (5%) of
such installment, which late charge shall be due and payable
immediately without demand.
(h) Method of Payment; Good Funds.
Payment on the Revolving Credit Note shall not be deemed to
have been received by Secured Party until Secured Party is in receipt
of funds available to Secured Party at or before 2:00 p.m. Illinois
time on a Business Day.
4.03 Revolving Credit Note.
The borrowing under Section 4.01(a) above shall be evidenced by a
Revolving Credit Note in the principal amount of $2,500,000 (herein, together
with any and all amendments, modifications, renewals, extensions, restatements
and substitutions thereof and therefor, collectively called the "Revolving
Credit Note"). The Revolving Credit Note shall be in the form set forth in
Exhibit D, shall be dated the Closing Date and shall mature on the Maturity
Date unless sooner due in accordance with the terms of this Agreement or the
Revolving Credit Note. At the time of the initial borrowing under the
Revolving Loan, and at each time an additional borrowing shall be requested
under said Revolving Loan, or a repayment made in whole or in part, thereon,
an appropriate notation thereof shall be entered by Secured Party in its books
and records, provided, however, that no borrowing under the Revolving Loan or
unpaid balance under the Revolving Credit Note shall exceed the Borrowing
Base. The Revolving Credit Note shall bear interest from the date all or any
portion thereof shall be disbursed or advanced until maturity at a fluctuating
interest rate equal to the Prime Rate on the outstanding principal adjusted
every Business Day as may be necessary to correspond with changes in the Prime
Rate, payable on the first day of each month (commencing November 1, 1998) on
the unpaid principal balance of the Revolving Loan from time to time for the
preceding month. All amounts outstanding borrowed under the Revolving Loan,
with accrued interest thereon, shall be due and payable on the Maturity Date.
Debtor shall advise Secured Party by 2:00 p.m. on any Business Day of
the amount and date of any requested borrowing under the Revolving Loan. Upon
the performance of all conditions precedent and provided no Event of Default,
as described herein shall exist, Secured Party will credit the account of the
Debtor with the specific amount of said borrowing. The amount outstanding
after each request for a borrowing under the Revolving Loan shall not exceed
the Borrowing Base, as reduced by (A) the amount of all advances Secured Party
makes to Debtor under the Revolving Loan then remaining unpaid, and (b) all
letters of credit, other credits or indulgences Secured Party grants to Debtor
under the Revolving Loan from time to time, if any. Debtor shall deliver to
Secured Party on a monthly basis or at the time of each requested advance, a
borrowing certificate in the form attached hereto as Exhibit E.
4.04 Intentionally Deleted.
4.05 Guaranty.
Debtor's Obligations relating to the Revolving Loan shall be
guaranteed by the Guaranty.
4.06 Statement of Account.
At least once each month during the term of this Agreement, Secured
Party shall render to Debtor a statement of account which statement shall be
presumed correct and accurate and shall
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constitute an account stated between Secured Party and Debtor unless
thereafter waived in writing by Secured Party in its sole discretion or unless
Debtor notifies Secured Party in writing to the contrary within thirty (30)
days of the date on which said statement was sent to Debtor, specifying the
errors or omissions therein, provided that Secured Party's failure to render
such statement shall not be considered a breach of this Agreement.
4.07 Terms of Repayment; Waivers.
Except as otherwise expressed provided for in this Agreement, Debtor
waives presentment and protest of any instrument and notice thereof, notice of
default and, to the extent permitted by applicable law, all other notices to
which Debtor might otherwise be entitled. Secured Party shall have the
continuing and exclusive right to apply or reverse and re-apply any and all
payments to any portion of the Obligations. To the extent that Debtor makes a
payment or payments to Secured Party or Secured Party receives any payment or
proceeds of the Collateral for Debtor's benefit, which payment(s) of proceeds
or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential set aside and/or required to be repaid to a trustee, debtor in
possession, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the obligations or part thereof intended to be
satisfied shall be revived and continue in full force and effect, as if such
payment or proceeds had not been received by Secured Party.
Section 5. SECURITY INTEREST
Debtor, in order to secure its Obligations, hereby grants to Secured
Party, and its successors and assigns, a continuing first and prior security
interest in the Collateral, whether now owned or hereafter acquired. The
security interests in the Collateral which the Debtor has granted to Secured
Party under this Agreement are first position, indefeasible security interests
in all the Collateral, except as expressly indicated otherwise on Exhibit F
hereto. Notwithstanding any termination of this Agreement, until Debtor pays
in full, all of the Obligations arising under the Loans, Secured Party shall
retain its security interests in the Collateral, and Debtor shall continue to
remit to Secured Party, collections of Receivables and proceeds of Collateral
as provided in this Agreement, and Secured Party shall retain all of its
rights and remedies under this Agreement.
Section 6. FINANCIAL INFORMATION
6.01 Financial Statements and Other Information.
Debtor will maintain a standard system of accounting and furnish to
Secured Party:
(a) Quarterly Statements.
As soon as available, and in any event within 45 days after
the close of each fiscal quarter of each fiscal year, a copy of (i)
the balance sheet of Debtor, as of the end of such quarter, (ii) the
statements of income, cash flow, and shareholder's equity for such
quarter and for the period from the beginning of the then current
year to the end of such quarter setting forth in each case in
comparative form with the corresponding figures as of and through the
corresponding period in the preceding fiscal year, all in reasonable
detail, containing such information as Secured Party may require and
compiled by the Debtor, and certified as complete and correct
(subject to year-end adjustments) by the chief financial officer of
Debtor and (iii) a
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certificate of Debtor executed by the chief financial officer
confirming the compliance by Debtor of the covenants set forth in
Section 3.06 and 3.13 hereof.
(b) Annual Statements of Debtor.
As soon as available and in any event within 90 days after
the close of each fiscal year, a copy of (i) the balance sheet of
Debtor as of the end of such year, and (ii) the statements of
earnings, cash flow and retained earnings of Debtor for such year
setting forth in each case in comparative form with the corresponding
figures of the previous year, all in reasonable detail, and in each
case prepared by Debtor, and accompanied by an opinion of Debtor's
independent certified public accounts ("Accountants") selected by
Debtor and satisfactory to Secured Party, together with a certificate
of the Accountants which shall state that (a) the audit by the
Accountants in connection with the preparation of such financial
statements has been conducted in accordance with generally accepted
auditing standards and that the Accountants believe that the audit
provides a reasonable basis for their opinion, (b) such financial
statements have been prepared in accordance with GAAP and that such
financial statements prepared are consistent with those prepared by
the Borrower in prior periods, (c) such financial statements fairly
present the financial position, results of operations and cash flows
of Borrower, (d) in making the examination of the books and records
of Borrower, it has obtained no knowledge of any violation of any
term or provision of this Agreement.
(c) Financial Statements of Guarantor.
(i) as soon as available and in any event within 90
days after the last day of each fiscal year, (A) the consolidated
balance sheet of Guarantor as of the end of each such fiscal year,
and (B) the consolidated statements of earnings, cash flow and
retained earnings of Guarantor for such year setting forth in each
case in comparative form with the corresponding figures of the
previous fiscal year, all in reasonable detail, and in each case
prepared by Guarantor, and accompanied by an opinion of Guarantor's
independent certified public accountants ("Guarantor's Accountants")
selected by Guarantor and reasonably satisfactory to Lender, together
with a certificate of the Accountants which shall state that (1) the
audit by the Guarantor's Accountants in connection with the
preparation of such financial statements has been conducted in
accordance with generally accepted auditing standards and that the
Accountants believe that the audit provides a reasonable basis for
their opinion; (2) such financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") and
that such financial statements prepared are consistent with those
prepared by Guarantor in prior periods; (3) such financial statements
fairly present the financial position, results of operations and cash
flows of Guarantor; and (4) in making the examination of the books
and records of Guarantor, it has obtained no knowledge of any
violation of any term or provision of this Guaranty; and
(ii) as soon as available and in any event within
45 days after the last day of each fiscal quarter occurring while the
Guaranteed Obligations are outstanding, (A) the consolidated balance
sheet of Guarantor, as of the end of such quarter, and (B) the
consolidated statements of income, cash flow and shareholder's equity
for such quarter and for the period from the beginning of the then
current year to the end of such quarter setting forth in each case
figures as of and through the corresponding period in the preceding
fiscal year in comparative form with the corresponding figures of the
previous fiscal quarter, all in reasonable detail, containing such
information as Lender may require, and compiled by the Guarantor, and
certified as complete and correct (subject to year-end adjustments)
by the chief financial officer of Guarantor.
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(d) Receivable and Payable Aging.
An aging schedule for Debtor's accounts Receivable and
accounts payable by the 30th day following each month of each year
based upon the account balances as of the end of the preceding month.
Section 7. COLLECTION OF RECEIVABLES BY DEBTOR
7.01 Collection.
Until Secured Party exercises its rights to collect the Receivables
under Section 8 hereof, Debtor will collect with diligence all Debtor's
Receivables, whether or not said Receivables are deemed Acceptable Receivables
hereunder.
7.02 Returned Merchandise.
Until Secured Party exercises its rights to collect the Receivables
under Section 8 hereof, Debtor may continue its present policies for returned
merchandise and adjustments, but shall promptly notify Secured Party of any
material credits, adjustments or disputes arising about the goods or services
represented by Acceptable Receivables. In any event, Debtor will immediately
pay Secured Party from its own funds (and not from the proceeds of Acceptable
Receivables), for application to Debtor's Obligations secured by this
Agreement, an amount equal to any credit or adjustment made to any Acceptable
Receivables; provided, however, that so long as no Event of Default has
occurred hereunder, such payment need not be made if Debtor shall have, after
making such credit or adjustment, sufficient Acceptable Receivables, to
maintain the aggregate outstanding balance of the Revolving Loan at an amount
not to exceed the Borrowing Base.
Section 8. DIRECT COLLECTION OF RECEIVABLES BY SECURED PARTY
Debtor's authority to collect receivables may be terminated by
Secured Party in the event of the occurrence of any of the events or
conditions set forth in Section 9.
Section 9. DEFAULT
9.01 Events of Default.
The following occurrences are Events of Default:
(a) a default by Debtor in the prompt payment of any
Obligations within five (5) days after the due date under this
Agreement or any Other Agreement;
(b) Debtor fails to perform or observe any agreement,
covenant or obligation arising under Article 3 of this Agreement;
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(c) failure of Debtor, within thirty (30) days after notice
and demand to promptly, fully and faithfully satisfy, perform,
discharge, observe any agreement, covenant or obligation arising
under this Agreement or any Other Agreement not specifically
described above, or Debtor otherwise fails to perform any Obligation
when due, unless such performance by its nature, requires, more than
thirty (30) days to complete, in which case, Debtor shall have begun
such performance within such thirty (30) days and constantly is
pursuing such performance with due diligence;
(d) any material statement or representation made for the
purpose of obtaining credit under this Agreement or Other Agreement
proves false in any material respect;
(d) Debtor or any guarantor of Debtor's Obligations to
Secured Party becomes insolvent, makes assignment for the benefit of
creditors, becomes unable to pay its debts as they mature, or ceases
business operations;
(e) commencement of any proceeding by or against Debtor or
Guarantor under any bankruptcy, reorganization, state receivership,
arrangement, readjustment of debts or moratorium law or statute which
is not dismissed within 30 days;
(f) issuance of any writ of attachment or execution,
garnishment, tax lien or other legal process against the Collateral
or any other property of Debtor which is not dismissed within 30
days;
(g) any assessment for taxes against Debtor, other than for
real property taxes and taxes being contested in good faith by
Debtor, by any federal, state or any local government body or
department or agency thereof which has not been discharged or paid
within 30 days; or
(h) if there is any material loss, theft or substantial
damage to or destruction, sale or encumbrance of any Collateral
(except as permitted under the terms of this Agreement) or if at any
time Secured Party loses any of its security interests under this
Agreement, or if said security interests are in any way diminished,
altered or modified in a manner which is or could be to the material
detriment of Secured Party; or
(i) if Debtor defaults in the payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) of any amount owing in respect of any Debt, or Debtor or
any guarantor of Debtor's Obligations defaults in the performance or
observance of any obligation or condition with respect to such Debt.
An Event of Default also shall exist if any other event occurs or
condition exists, if the effect of such event or condition is to
accelerate the maturity of any Debt Debtor or any guarantor of
Debtor's Obligations owes to any Person or to permit (or with the
giving of notice, lapse of time or both, would permit) the holder or
holders or any trustee or agent for such holders, to accelerate the
maturity of any such Debt, or if any such Debt otherwise becomes or
is declared to be due and payable prior to its stated maturity other
than as a result of a regularly schedule payment, or if any other
event of default occurs under any documents evidencing such Debt
and/or any law of any governmental authority concerning such Debt.
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9.02 Acceleration in Event of Default or Demand.
Upon the occurrence of any Event of Default, then all Obligations of
Debtor to Secured Party, shall, at the option of Secured Party and
notwithstanding any time allowed in any instrument evidencing an Obligation or
in any Other Agreement, immediately become due and payable without demand and
without notice to Debtor. Thereafter, Secured Party shall have no obligation
to make any further advances pursuant to this Agreement.
Section 10. REMEDIES UPON DEFAULT
10.01 Remedies.
If Debtor fails to pay its Obligations upon the occurrence of an
Event of Default or on the Maturity Date thereof, Secured Party may, at its
option and without further demand or notice to Debtor and without a prior
court hearing, do any one or more of the following:
(a) immediately take possession of the Collateral wherever
it may be found, together with all or any of Debtor's records
identifying the Collateral, and Debtor waives all claims for damages
due to or arising from any such taking;
(b) Secured Party shall have the right to require the Debtor
to assemble the Collateral and make it available to Secured Party at
a place designated by Secured Party;
(c) proceed in the foreclosure of Secured Party's security
interest and sale of the Collateral in any manner permitted by law,
or provided for herein or in any other security document;
(d) sell, lease or otherwise dispose of the Collateral in a
commercially reasonable manner at public or private sale, with or
without having the Collateral at the place of sale, and on terms and
in such manner as Secured Party may determine;
(e) retain the Collateral in full satisfaction of the
obligations secured by it;
(f) setoff the Obligations against the funds of Debtor on
deposit with Secured Party, on demand, or represented by any
obligations issued by Secured Party to Debtor;
(g) apply to any court of appropriate jurisdiction for the
appointment of a receiver to take possession of the Collateral, to
which appointment Debtor hereby expressly consists; or
(h) exercise any other rights or remedies of a secured
creditor under the Uniform Commercial Code.
10.02 Alternative Remedies/Waiver by Debtor.
Secured Party shall have the right to enforce one or more remedies
partially, successively, or concurrently, and any such action shall not stop
or prevent Secured Party from pursuing any further remedy that it may have
hereunder or by law. Secured Party shall have the right to proceed against any
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Collateral of any Debtor in any manner or order it so chooses to satisfy all
Obligations and Debtor waives any right it may have requiring the Secured
Party to proceed against Debtor, or any or all Debtor's Collateral. To the
fullest extent permitted by applicable law, Debtor covenants that it will not
at any time insist upon or plead or in any manner whatever claim or take any
benefit or advantage of any law requiring the marshalling of assets. Secured
Party is hereby granted a license or other right to use, without charge,
Debtor's labels, patents, copyrights, trade secrets, trade names, trade marks
or any property of a similar nature pertaining to the Collateral, and Debtor's
rights under all licenses and franchise Agreements shall inure to the benefit
of Secured Party.
10.03 Power of Attorney.
Upon an Event of Default, Debtor irrevocably designates, makes,
constitutes and appoints Secured Party (and all persons designated by Secured
Party) as Debtor's attorney-in-fact, with a power coupled with an interest,
without notice to Debtor and at such time or times thereafter as Secured Party
in its sole and absolute discretion, may determine, in Debtor's or Secured
Party's name do as follows:
(a) to demand payment of the Receivables and Collateral;
(b) to enforce payment of the Receivables and Collateral by
legal proceedings or otherwise;
(c) to exercise all of Debtor's rights and remedies with
respect to the collection of the Receivables, and Collateral;
(d) to settle, adjust, compromise, extend or renew the
Receivables and Collateral;
(e) to settle, adjust or compromise any legal proceedings
brought to collect the Receivables and Collateral;
(f) to sell or assign the Receivables and Collateral upon
such terms, for such amounts and at such time or times as Secured
Party deems advisable;
(g) to discharge and release the Receivables and Collateral;
(h) to take control, in any manner, of any time of payment
of proceeds referred to in Section 1.07 above;
(i) to prepare, file and sign Debtor's name on any proof of
claim in bankruptcy or similar document against any Receivables
Debtor;
(j) to prepare, file and sign Debtor's name on any notice of
lien, assignment or satisfaction of lien or similar document in
connection with the Receivables and Collateral;
(k) to do all acts and things necessary, in Secured Party's
sole discretion, to fulfill Debtor's obligations under this
Agreement;
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(l) to endorse the name of Debtor upon any of the items of
payment or proceeds referred to in Section 1.08 above and to deposit
the same to the account of Secured party to and on account of
Debtor's Obligations;
(m) to endorse the name of Debtor upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or
similar document or Agreement relating to the Receivables and
Collateral;
(n) to sign the name of Debtor to verifications of the
Receivables and Collateral and notices thereof to Receivables Debtor;
and
(o) to execute, file and deliver such documents, instruments
and agreements as Secured Party may deem necessary to perfect and/or
protect Secured Party's security interest and the collateral.
All costs, expenses and fees (including, but not limited to,
attorney's fees) incurred by Secured Party (or for which Secured Party becomes
obligated to pay) in connection with the foregoing shall be paid by Debtor to
Secured Party.
10.04 Deficiency.
If a sufficient sum is not realized from disposition of the
Collateral to pay all Obligations of Debtor to Secured Party, Debtor promises
and agrees to pay to Secured Party any deficiency, including any unpaid
balance of the Loan.
Section 11. TERM OF AGREEMENT
This Agreement shall commence as of the date first above written and
shall continue until the earlier of (i) the Maturity Date; or (ii) the
occurrence of an Event of Default. Upon termination of this Agreement, Secured
Party shall have no further obligations under this Agreement, including the
agreement to advance any further proceeds of the Loan. Notwithstanding
anything to the contrary herein contained, all provisions of this Agreement
for the benefit of Secured Party shall remain in effect until the Obligations
have been satisfied in full.
Section 12. CONDITIONS OF CLOSING
Secured Party's obligations to make the Loan shall be subject to the
satisfaction of all of the following conditions on or before the "Closing
Date", in a manner, form and substance satisfactory to Secured Party:
12.01 Delivery of Instruments.
The following shall have been delivered to Secured Party, each duly
authorized and executed:
(a) the Loan Instruments;
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(b) a copy of the executed lease between Debtor and John
Einarsen expiring not sooner than December 31, 2000 with a monthly
rental payment of not less than $7,730 per month;
(c) a landlord waiver and consent executed by John Einarsen
in favor of Secured Party with respect to the lease referenced in
subsection (b) above and the Debtor's premises located at 285
Industrial Drive, Wauconda, Illinois, in form satisfactory to Secured
Party;
(d) a certificate of incumbency for Debtor;
(e) a certificate of good standing for Debtor in Illinois;
(f) certified copies of the articles of incorporation and
by-laws, and all amendments thereto, of Debtor;
(g) certified copies of resolutions adopted by the board of
director of Debtor authorizing the execution and delivery of the Loan
Instruments to which it is a party and the consummation of the
transactions completed therein;
(h) a confirmation of business accounts;
(i) confirmation that the closing of the sale of Debtor to
Guarantor has taken place;
(j) a copy of the executed three year employment agreement
between Debtor and John Einarsen; and
(k) such other instruments, documents, certificates,
consents and waivers as Secured Party may request, including
specifically the items set forth on the closing checklist delivered
to Borrower.
12.02 Approvals and Permits.
Secured Party shall have received evidence satisfactory to Secured
Party to the issuance by appropriate federal, state, county, municipal or
local authorities having jurisdiction over the business of Debtor, of all
licenses, approvals or permits necessary in connection with the operation of
the business of Debtor, including such licenses, approvals and permits
relating to environmental protection, if any.
12.03 Opinion of Counsel.
Secured Party shall have received from counsel to Debtor, an opinion
in form and substance acceptable to Secured Party covering matters incident to
the transactions contemplated by this Agreement.
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12.04 Secured Party's Security Interest.
All filings of Uniform Commercial Code Financing Statements and all
other recordings and actions necessary to perfect and maintain the security
interests as first, valid and perfected liens in Collateral.
12.05 Proceedings and Documents.
All corporate and other proceedings in connection with the
transaction contemplated by this Agreement and other Loan Instruments as all
documents and interests incident to such transaction shall be satisfactory to
Secured Party, and Secured Party shall have received all such counterpart
originals or certified or other copies as Secured Party reasonably may
request.
12.06 Representations and Warranties.
On the Closing Date the representations and warranties of Debtor set
forth in this Agreement and other Loan Instruments shall be true and correct
when made and at and as of the time of Closing, except as affected by the
consummation of the transactions contemplated by this Agreement.
12.07 Performance; No Default.
Debtor shall have performed and complied with all agreements and
conditions contained in the Loan Instruments to be performed by or complied
with prior to or at the Closing.
12.08 Material Adverse Change.
No event shall be occurred which has a material adverse effect on the
business or the financial condition, property, operations, prospects or
profits of Debtor or upon the ability of Debtor to perform its obligations
under the Loan Instruments.
12.09 Reimbursement of Expenses.
On the Closing Date, Debtor shall have reimbursed Secured Party or
paid to the applicable party, all fees and expenses due and payable pursuant
to Section 13.11.
Section 13. MISCELLANEOUS.
13.01 Notices.
All notices and communications under this Agreement shall be in
writing and shall be (i) delivered in person, or (ii) mailed, postage prepaid,
either by registered or certified mail, return receipt requested, or by
overnight express carrier, addressed in each case as follows:
To Debtor: Telecom Corporation of Chicago
285 Industrial Drive
Wauconda, Illinois 60084
Attn: John Einarsen
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Copies to: Officeland, Inc.
312 Dolomite, Suite 212
Downsview, Ontario, Canada M3J2N2
Attn: Christopher Walker
and
Moskowitz Altman & Hughes, LLP
11 East 44th Street, Suite 504
New York, New York 10017-1121
Attn: Stanley Moskowitz
and
Michael Best & Friedrich
77 West Wacker Drive, Suite 4300
Chicago, Illinois 60601
Attn:
To Secured Party: American National Bank and Trust
Company of Chicago
499 Lake Cook Road
Deerfield, Illinois 60015
Attn: Joseph E Miltimore
Copy to: Much Shelist Freed Denenberg
Ament & Rubenstein, P.C.
200 North LaSalle Street, Suite 2100
Chicago, Illinois 60601
Attn: David T. Brown
or in such other manner, or to any address, as to either of the parties
hereto, as such party shall designate in a written notice to the other party
hereto. All notices sent pursuant to the terms an this Section 14.1 shall be
deemed received or (i) if sent by overnight, express carrier, on the next
Business Day immediately following the day sent, or (ii) if sent by registered
or certified mail, on the third Business Day following the day sent.
13.02 Intentionally Deleted.
13.03 Taxes and Fees.
Should any tax (other than taxes based upon the net income of Secured
Party), recording or filing fees become payable in respect of any of the Loan
Instruments, or any amendment, modification or supplement thereof, Debtor
agrees to pay the same to Secured Party on demand, together with any interest
or penalties thereon and agree to hold Secured Party harmless with respect
thereto.
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13.04 Severability.
In the event that any provision of this Agreement is deemed to be
invalid by reason of the operation of any law, or by reason of the
interpretation placed thereon by any Governmental Body or any court, as
applicable, this Agreement shall be construed as not containing such provision
and the invalidity of such provision shall not affect the validity or any
other provisions hereof, and any and all other provisions hereof which
otherwise are lawful and valid shall remain in full force and effect.
13.05 Waiver.
No delay on the part of Secured Party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, and no single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof, or be deemed to establish a custom or
course of dealing or performance between the parties hereto, or preclude the
exercise of any other right, power or privilege.
13.06 Modification of Loan Instruments.
No modification or waiver of any provision of any of the Loan
Instruments shall be effective unless the same shall be in writing, and then
such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No notice to or demand on Debtor as the case
may be in any case shall entitle Debtor to any other or further notice or
demand in the same, similar or other circumstances.
13.07 Captions.
The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
13.08 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto.
13.09 Remedies Cumulative.
All rights and remedies of Secured Party pursuant to this Agreement,
any other Loan Instruments or otherwise, shall be cumulative and
non-exclusive, and may be exercised singularly or concurrently.
13.10 Entire Agreement, Conflict.
This Agreement and the other Loan Instruments executed prior or
pursuant hereto constitute the entire agreement among the parties hereto with
respect to the transactions contemplated hereby or thereby and supersede any
prior agreements, whether written or oral, relating to the subject matter
hereof. In such event as a conflict between the terms and conditions of this
Agreement and any other Loan Instrument, the terms and conditions of this
Agreement shall supersede and govern in all respects.
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13.11 Fees and Expenses.
Upon demand by Secured Party therefor, Debtor shall reimburse Secured
Party for all out-of-pocket costs, fees and expenses incurred by Secured
Party, or for which Secured Party become obligated, in connection with the
negotiations preparation and conclusion of this Agreement and the Other
Agreements including, but not limited to, reasonable attorney's fees, costs
and expenses, search fees, costs and expenses, title insurance policy fees,
costs and expenses, filing and recording fees and all taxes payable in
connection with this Agreement or the Other Agreements.
13.12 Attorney Fees.
If at any time or times hereafter whether or not Debtor's Obligations
are outstanding at such time, Secured Party (a) employs counsel for advice or
other representation (i) with respect to the Collateral, this Agreement, the
Other Agreements or the administration of Debtor's Obligations, (ii) to
represent Secured Party in any litigation, arbitration, contest, dispute, suit
or proceeding or to commence, defend or intervene or to take any other action
in or with respect to any litigation, arbitration, contest, dispute, suit or
proceeding (whether instituted by Secured Party, Debtor or any other Person)
in any way or respect relating to the Collateral, this Agreement, the Other
Agreements, or Debtor's affairs, or (iii) to enforce any rights of Secured
Party against Debtor or any other Person which may be obligated to Secured
Party by virtue of this Agreement of the Other Agreements, including, without
limitation, any obligor; (b) takes any action with respect to the
administration of Debtor's Obligations or to protect collect, sell, liquidate
or otherwise dispose of the Collateral; and/or (c) attempts to or enforces any
of Secured Party's rights or remedies under this Agreement or the Other
Agreements, including without limitation, Secured Party's rights or remedies
with respect to the Collateral, the reasonable costs and expenses (including
but not limited to court costs, expert fees, paralegal fees, attorneys' fees
and disbursements, accountant's fees and expenses and court reporter fees and
expenses) incurred by Secured Party in any manner or way with respect to the
foregoing, shall be part of Debtor's Obligations, payable by Debtor to Secured
Party on demand.
13.13 Jurisdiction and Venue.
DEBTOR IRREVOCABLY AGREES THAT, SUBJECT TO SECURED PARTY'S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR
THE COLLATERAL SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY
OF CHICAGO, STATE OF ILLINOIS. DEBTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. DEBTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST DEBTOR BY SECURED PARTY IN ACCORDANCE
WITH THIS PARAGRAPH.
13.14 Waiver and Trial by Jury.
DEBTOR HEREBY IRREVOCABLY WAIVES ANY RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (ii) ARISING FROM
ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH
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OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENT, OR ANY SUCH AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT,
COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year specified at the beginning hereof.
DEBTOR:
TELECOM CORPORATION OF CHICAGO
By: /s/ Christopher Walker
-----------------------------------------
Its: Assistant Secretary
-----------------------------------------
Christopher Walker
Title: Assistant Secretary
Accepted this 10th day of December, 1998, at Secured Party's principal
place of business in the City of Chicago, State of Illinois.
SECURED PARTY:
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO
By: /s/ Joseph E. Mittmore
----------------------------------------
Its: Vice President
----------------------------------------
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Exhibit 10
CONTINUING GUARANTY
This Continuing Guaranty (the "Guaranty") is made as of
December 10, 1998 (the "Effective Date"), by Officeland, Inc., a corporation
organized under the laws of Ontario, Canada ("Guarantor") in favor of
American National Bank and Trust Company of Chicago ("Lender"). For
purposes of this Guaranty, all capitalized terms not specifically
defined will have the meanings ascribed to
them in the Loan Agreement (as defined herein).
R E C I T A L S
A. Guarantor is the parent and sole shareholder of Telecom Corporation
of Chicago, an Illinois corporation (the "Borrower") the Borrower under that
certain Loan and Security agreement with Lender dated the Effective Date (the
"Loan Agreement"). The Loan Agreement is by reference fully incorporated into
and constitutes a part of this Guaranty. All notes, certificates, schedules and
amendments to the Loan Agreement or otherwise delivered in connection
therewith, whether on the Effective Date or subsequently, shall be referred to
collectively as the "Loan Documents".
B. Guarantor has a substantial direct economic interest in Borrower.
C. Under the Loan Agreement, Lender has agreed to establish a
revolving credit facility disbursable to Borrower, in the form of a revolving
loan (the "Loan"), as defined in the Loan Agreement. The Loan is evidenced by a
separate promissory note dated the Effective Date, as identified with more
particularity in the Loan Agreement (the "Note").
D. Guarantor, in its capacity as parent and sole shareholder of
Borrower, has determined that it is in Borrower's best interests to enter into
the Loan Agreement. Lender, however, would not enter into the Loan Agreement,
unless Guarantor executed and delivered this Guaranty to Lender. Therefore, to
induce Lender to enter into the Loan Agreement, Guarantor desires to execute
and deliver this Guaranty.
C L A U S E S
1. Inducement and Guaranteed Obligations. To induce Lender to
enter into the Loan Agreement, Guarantor, for itself and its respective
successors, heirs (if applicable) and assigns, unconditionally, absolutely,
continually and irrevocably guaranties to Lender and its respective successors
and assigns, all liabilities, payments, duties and obligations (collectively
the "Loan Liabilities") of Borrower which arise from or are associated with the
Loan Documents, including but not limited to:
(i) the full and prompt payment, when due, whether at
stated maturity, upon acceleration or otherwise, and/or all times thereafter,
of any and all debts, liabilities, payment obligations and enforcement costs
concerning the Loan, whether (A) direct or indirect, (B) absolute or
contingent, (C) now or subsequently existing, (D) due or to become due, (E)
known or unknown to Guarantors as of the Effective Date or subsequently, and
(F) however evidenced or arising, whether contractually, under the Loan
Agreement, the Note, any other Loan Document or any other written instrument
previously, now or subsequently executed by Borrower, pursuant to any oral
agreement, at law, in equity or otherwise;
(ii) Borrower's full, complete and punctual
observance, performance and satisfaction of all their respective duties,
obligations and liabilities under the Loan Documents;
<PAGE>
(iii) the accuracy of all representations and
warranties which Borrower makes in any Loan Documents; and
(iv) all costs, fees (including but not limited to
reasonable attorneys' fees and court costs) and other expenses which Lender
incurs if at any time Lender employs legal counsel for advice or other
representation (A) in connection with any litigation suit or proceeding which
involves this Guaranty, any other Loan Document, or any Loan; (B) to commence,
defend, intervene or take any other action concerning any such litigation,
contest, dispute, suit or proceeding (whether instituted by Lender, Guarantor
or any other person or entity); (C) to enforce any rights of Lender against
Guarantor (or any other person or entity which may become obligated to Lender
by virtue of this Guaranty); and/or (D) in connection with other attempts to
enforce Lender's rights or remedies against Guarantor or Borrower, if such
rights or remedies are related to the Loan or this Guaranty. The costs
identified in subpart (iv) of the preceding sentence shall be referred to
collectively in this Guaranty as the "Enforcement Costs". The Enforcement Costs
will constitute additional indebtedness of Guarantor and will be due and
payable immediately to Lender upon Lender's incurring the same. For purposes of
this Guaranty, the Loan Liabilities and the Enforcement Costs sometimes shall
be referred to collectively as the "Guaranteed Obligations".
2. Guarantor Liable as Principal. Guarantor agrees that
Guarantor is directly and primarily liable, as principal, with Borrower for the
Guaranteed Obligations, and that this Guaranty is an absolute and unconditional
guaranty of payment and performance. This Guaranty shall continue in full force
and effect until all the Guaranteed Obligations are paid, performed and
discharged in full. If there is a default in the payment or performance of any
Guaranteed Obligations when due, whether at stated maturity, by acceleration or
otherwise, or any other "Guaranty Default" under this Guaranty occurs (as
defined in Section 9 below) occurs, Lender, in its sole discretion, may proceed
first directly against Guarantor without having: (i) to prosecute collection or
seek to enforce or resort to any remedies against Borrower or any other person
or entity liable to Lender on account of the Guaranteed Obligations; (ii) to
seek to enforce or resort to any remedies with respect to any security
interest, liens or encumbrances which Borrower or Guarantor have granted to
Lender; or (iii) to prosecute under, foreclose, or claim any right under any
other Loan Document. Lender, in its sole discretion, may bring suit against
Guarantor, whether or not Lender brings suit against Borrower.
3. Guarantor's Obligations Unconditional. Guarantor's
obligations under this Guaranty are unconditional and shall not be affected,
modified, rescinded, reduced or impaired upon the occurrence of any event,
including without limitation the following, whether or not with notice to or
the consent of Guarantor:
(i) the compromise, settlement, release or
termination of less than all of the obligations, covenants or agreements of
Borrower under any agreement or instrument which concerns the Loans, the Loan
Agreement, any other Loan Document or this Guaranty;
(ii) the failure to give notice to Guarantor of the
occurrence of a Guaranty Default or a breach under any agreement or instrument
between or among the parties, including but not limited to the Loan Agreement,
this Guaranty or the other Loan Documents;
(iii) Lender's waiver of the payment, performance or
observance by Guarantor or Borrower of any of their respective obligations,
covenants or agreements under the Loan Agreement, any other Loan Document or
any other instrument, document or agreement;
(iv) Lender's waiver of the payment, performance or
observance of any obligations, covenants or agreements of Guarantor under this
Guaranty (except to the specific extent of such waiver);
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(v) the extension of time for payment of any amounts
due and payable under the Loan Agreement, this Guaranty or any other Loan
Document, or the extension of time for performance of any other obligations,
covenants or agreements which concern the Loan Agreement, the Loan Documents or
this Guaranty, or the renewal of any of the foregoing;
(vi) the modification or amendment (whether material
or otherwise) of any obligation, covenant or agreement set forth in the Loan
Agreement, any renewal, any Loan Documents or this Guaranty;
(vii) the taking, suffering or omitting to take any
action under the Loan Agreement, any Loan Documents or this Guaranty;
(viii) any failure, omission, delay or laches on the
part of Lender to enforce, assert or exercise any right, power or remedy
conferred on Lender in this Guaranty, under the Loan Agreement, under any Loan
Documents or at law, in equity or otherwise;
(ix) the voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition with creditors or readjustment of, or other similar proceedings
affecting Borrower, Guarantor or any of their respective assets, or any
allegation or contest of the validity of this Guaranty, the Loan Agreement,
the Loans or any Loan Document in any such proceeding or otherwise;
(x) the release or discharge of Borrower from the
performance or observance of any obligation, covenant or agreement, whether
contained in the Loan Agreement, any Loan Documents or arising by operation of
law, in equity or otherwise;
(xi) to the extent permitted by law, the release or
discharge of Guarantor from the performance or observance of any obligation,
covenant or agreement contained in this Guaranty by operation of law, equity
or otherwise;
(xii) Borrower's default or failure fully to perform
any of its obligations under the Loan Agreement, any Loan or any Loan Document;
(xiii) the death, default, dissolution, liquidation,
withdrawal or release of Guarantor or the failure of Guarantor to perform fully
any of its obligations under this Guaranty;
(xiv) the invalidity, insufficiency,
nonenforceability or lack of genuineness of all or any part of the Loan
Agreement, this Guaranty, any Loan or any Loan Document; or
(xv) the invalidity, insufficiency, unenforceability,
lack of genuineness, loss of or change in priority or reduction in value of
any security interests, liens and/or encumbrances which are granted to Lender
to secure any Guaranteed Obligations, whether as of the Effective Date or
subsequently.
4. No Discharge. Guarantor agrees that it shall remain liable
under this Guaranty as a principal to the extent provided herein until all the
Guaranteed Obligations are indefeasibly performed or paid in full,
notwithstanding any fact, act, event or occurrence which might otherwise
operate as a legal or equitable discharge of a surety or guarantor. Guarantor
specifically agrees that the obligations, covenants and agreements of Guarantor
under this Guaranty shall not be affected or impaired by any act of Lender or
any other event or condition, except full performance and indefeasible
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payment of the Guaranteed Obligations. Guarantor agrees that, without full
performance and indefeasible payment of the Guaranteed Obligations as
aforesaid, the liability of Guarantor under this Guaranty shall not be
discharged by:
(i) the renewal or extension of time for the payment
or performance of any Guaranteed Obligations, whether executed with or without
the knowledge or consent of Guarantor;
(ii) any transfer, waiver, compromise, settlement,
modification, surrender or release of any Guaranteed Obligations;
(iii) the existence of any defense(s) to enforcement
of any Guaranteed Obligations under the Loan Agreement, this Guaranty, the
Loan or any other Loan Documents;
(iv) any failure, omission or delay (whether entire
or partial) by Lender to exercise any right, power or remedy or to enforce or
realize upon (or to make Guarantor or Borrower parties to the enforcement or
realization upon) any security for or suit or proceeding concerning any
Guaranteed Obligations;
(v) the existence of any set-off, claim, reduction or
diminution of any amount due, or any defense of any kind or nature, which
Guarantor may have against Borrower or which any parties (including Guarantor)
have against Lender, and Guarantor specifically waives all set-offs, claims and
counterclaims which it may have against Lender or Borrower;
(vi) Lender's acceptance or release of either any
other security for the payment and performance of any Guaranteed Obligations
or the obligations of Guarantor, whether or not Guarantor receives notice or
has knowledge of any such act;
(vii) Lender's application of payments received from
any source to the payment of any obligations other than the Guaranteed
Obligations, even though Lender might lawfully have elected to apply such
payments to any part or all of the Guaranteed Obligations;
(viii) the addition or release of any other
endorsers, guarantors, obligors and/or other individuals or entities liable
for the payment or performance of the Guaranteed Obligations, whether or not
Guarantor receives notice or has knowledge of any such addition or release; or
(ix) the merger, consolidation, combination or any
other recapitalization of Borrower or Guarantor with or into any other entity
(a "Combination Event"). If a Combination Event is permitted under the Loan
Documents, Guarantor shall provide Lender with written notice with any
proposed Combination Event at least thirty (30) days prior to the intended
effective date or closing date (whichever is sooner) of such Combination
Event. Guarantor agrees that if Borrower consummates a Combination Event, the
entity which survives such Combination Event shall be a "Borrower" within the
meaning of this Guaranty and the Loan Documents. Guarantor will execute such
documents as Lender deems necessary or appropriate to effectuate the
foregoing, as a specific condition precedent to consummating any such
Combination Event.
5. Subordination. All indebtedness and payments of any type
or nature which Borrower now or subsequently owes to Guarantor, are expressly
subordinated to the Guaranteed Obligations. All security interests, liens and
encumbrances which Guarantor now has and subsequently may have in Borrower's
assets are subordinated to all security interests, liens and encumbrances which
Lender now has and subsequently may have thereon. All indebtedness and
liabilities now and subsequently owing to Guarantor by any individual or entity
also liable to Lender, are expressly subordinated to all indebtedness or
liabilities owing by such individual or entity to Lender. Each of the
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aforesaid items which are subordinated under this Section will be referred to
collectively as the "Subordinated Items". Guarantor covenants and agrees that
following the occurrence of a Guaranty Default and continuing until all
Guaranteed Obligations are indefeasibly paid or performed in full, Guarantor
will not seek, accept or retain for Guarantor's own, or for Guarantor's
affiliate's account, any payment from Borrower or any other individual or
entity on account, of the Subordinated Items. Instead, any such payments which
Guarantor receives following a Guaranty Default on account of any Subordinated
Items shall be collected and received by Guarantor in trust solely for Lender's
benefit. Guarantor shall pay over to Lender all such Subordinated Items which
Guarantor collects, within twenty-four (24) hours of collecting the same.
Lender agrees, however, that Guarantor may continue to receive payments of
Subordinated Items from individuals or entities other than its Affiliates and
Borrower, in the ordinary course, without accountability to Lender, for so long
as: (i) Borrower has not committed any default under any Loan or Loan
Documents; (ii) no Guaranteed Obligations are due under this Guaranty; and
(iii) no Guaranty Default has occurred. Immediately upon the failure of any of
the matters identified in parts (i), (ii) or (iii) of the preceding sentence,
and without any notice or demand of any kind, all subordination provisions set
forth in this Section 6 shall become fully operative.
Notwithstanding the foregoing, provided that no Event of Default has
occurred or is continuing, Borrower shall be permitted to make and Guarantor
shall be permitted to retain regularly monthly payments of interest on the
Subordinated Debt (collectively the "Permitted Payments"). In the event that
Guarantor receives any payments which result in or cause an Event of Default,
Guarantor shall remit to Lender the entire amount of such payments.
6. Acceleration. If bankruptcy, insolvency, receivership or
other related proceedings are instituted by or against Guarantor or Borrower,
or if Guarantor or Borrower becomes insolvent, makes an assignment for the
benefit of creditors or attempts to effect a composition with creditors, or if
Borrower commits a default under any Loan or Loan Document, or if any other
Guaranty Default occurs, then notwithstanding any collateral (if any) that
Lender may possess from any party, at Lender's election upon written notice to
Guarantor, Lender may declare the Guaranteed Obligations owing to Lender
immediately due, payable and enforceable, against Guarantor to the extent
provided herein. Guarantor shall pay to Lender on demand at Lender's address as
listed below, all such Guaranteed Obligations as they become or are declared
due. In addition to the foregoing, Lender may exercise, among other remedies,
its right to setoff the Guaranteed Obligations against the funds of Guarantor
on deposit with Lender, on demand, or represented by any obligations issued by
Lender to Borrower.
7. Guarantor's Representations, Warranties and Covenants. To
induce Lender to accept this Guaranty, Guarantor represents, warrants and
covenants to Lender that:
(i) the statements contained in the Recitals to this
Guaranty are true and correct and form an integral part of this Guaranty;
(ii) the business address of Guarantor as set forth
in this Guaranty is accurate as of the Effective Date and Guarantor shall
provide at least thirty (30) days prior written notice to Lender of any
proposed change in its address until all the Guaranteed Obligations are
indefeasibly satisfied in full;
(iii) Guarantor's execution, delivery and performance
of and under this Guaranty will not violate any applicable law, statute, rule
or regulation, any order of any court or governmental agency, nor conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under, any indenture, agreement or other instrument to which
it is a party or by which it is bound, nor result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon
any property or assets of Guarantor, Guarantor is not required to obtain any
consent, approval or authorization from nor to file any declaration or
statement with, any governmental
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instrumentality or other agency in connection with or as a condition to the
execution, delivery or performance of this Guaranty or any other document
delivered in connection with this Guaranty;
(iv) Guarantor is now and at all subsequent times
shall remain solvent and generally able to pay its debts as such debts become
due, and Guarantor will not incur debts in the future beyond Guarantor's
ability to pay such debts as they mature;
(v) Guarantor is not contemplating either filing a
petition on its behalf under any state or federal bankruptcy or insolvency
laws nor liquidating all or any major portion of its property, nor has any
knowledge of any person contemplating filing any such petition against
Guarantor;
(vi) Guarantor has filed all federal, state and local
income and other tax returns (or Canadian equivalents thereof) it was required
to file prior to the Effective Date, and has paid or made adequate provision
for the payment of all federal, state and local taxes, charges and assessments
(or Canadian equivalents thereof) against Guarantor;
(vii) there is no action, suit or proceeding at law
or in equity or before any governmental instrumentality, agency or arbitration
board now pending or, to Guarantor's best knowledge, threatened, against or
affecting Guarantor;
(viii) Guarantor has reviewed independently all
documents, instruments and other agreements relating to the transaction
identified in this Guaranty and the other Loan Documents, and Guarantor has
made an independent determination as to the validity and enforceability of
such matters, with the advice of Guarantor's own legal counsel, and therefore
in executing and delivering this Guaranty to Lender, Guarantor is not relying
upon Lender as to the validity and/or enforceability of any interest of any
kind or nature;
(ix) Guarantor acknowledges and agrees that in
executing this Guaranty it has relied and will continue to rely solely upon
Guarantor's own investigation of Borrower and upon sources other than Lender
for all information and facts relating to the ability of Borrower to pay and
perform the Guaranteed Obligations, and Guarantor has not previously nor will
subsequently rely on Lender for any such information or facts and this
Guaranty constitutes the legal, binding obligation of Guarantor, enforceable
in accordance with its terms;
(x) Guarantor's representations, warranties and
covenants set forth in this Section 8 shall survive and continue to be true,
complete and correct until all of Guarantor's liabilities and all the
Guaranteed Obligations are indefeasibly satisfied in full;
(xi) at Guarantor's sole expense, Guarantor shall
furnish Lender promptly from time to time with such information regarding
Guarantor's assets and financial condition, as Lender reasonably may request,
including, without limiting the preceding, Guarantor shall deliver to Lender:
(A) as soon as available and in any event within 90 days
after the last day of each fiscal year occurring while the Guaranteed
Obligations are outstanding, (1) the consolidated balance sheet of Guarantor as
of the end of each such fiscal year, and (2) the consolidated statements of
earnings, cash flow and retained earnings of Guarantor for such year setting
forth in each case in comparative form with the corresponding figures of the
previous fiscal year, all in reasonable detail, and in each case prepared by
Guarantor, and accompanied by an opinion of Guarantor's independent certified
public accountants ("Accountants") selected by Guarantor and reasonably
satisfactory to Lender, together with a certificate of the Accountants which
shall state that (a) the audit by the Accountants in connection with the
preparation of such financial statements has been conducted in accordance with
generally accepted auditing standards and that the Accountants believe that the
audit provides a reasonable basis for their
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opinion; (b) such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and that such financial
statements prepared are consistent with those prepared by Guarantor in prior
periods; (c) such financial statements fairly present the financial position,
results of operations and cash flows of Guarantor; and (d) in making the
examination of the books and records of Guarantor, it has obtained no knowledge
of any violation of any term or provision of this Guaranty; and
(B) as soon as available and in any event within 45 days after the
last day of each fiscal quarter occurring while the Guaranteed Obligations are
outstanding, (1) the consolidated balance sheet of Guarantor, as of the end of
such quarter; (2) the consolidated statements of income, cash flow and
shareholder's equity for such quarter and for the period from the beginning of
the then current year to the end of such quarter setting forth in each case
figures as of and through the corresponding period in the preceding fiscal year
in comparative form with the corresponding figures of the previous fiscal year,
all in reasonable detail, containing such information as Lender may require,
and compiled by the Guarantor, and certified as complete and correct (subject
to year-end adjustments) by the chief financial officer of Guarantor; and (3) a
certificate of Guarantor executed by the chief financial officer of Guarantor
confirming the compliance by Guarantor with the covenant set forth in Section
7(iv) below.
(xii) Guarantor will provide prompt written notice to
Lender of any proceedings instituted against Guarantor in any federal or state
court or before any commission or other regulatory body, whether federal,
state or local, within three (3) days of Guarantor's receipt of notice of the
same and/or promptly advise Lender of any material adverse change in
Guarantor's condition, financial or otherwise, or the occurrence of any
Guaranty Default;
(xiii) Guarantor shall pay when due all of
Guarantor's indebtedness to third parties, except if such Guarantor, in good
faith, diligently contests such amounts being due, pursuant to appropriate
proceedings, and maintains adequate reserves for such indebtedness in
accordance with generally accepted accounting principles;
(xiv) Guarantor shall maintain a ratio of Debt to
Tangible Net Worth of not greater than 3.0:1, which shall be measured on a
quarter annual basis first beginning on December 31, 1998.
For purposes of this Guaranty "Debt" shall mean, without duplication,
each of the following (on a consolidated basis), whether primary, secondary,
direct, indirect, absolute, contingent, fixed or otherwise, previously,
currently or subsequently owing, due or payable, however evidence, created,
incurred, acquired or owing, and however arising, whether by agreement (written
or oral), at law, in equity or otherwise: (a) all indebtedness of Guarantor for
borrowed money or for the deferred purchase price of property or services
(other than trade payables on terms of 30 days or less incurred in the ordinary
course of business of Guarantor; (b) all indebtedness of Guarantor evidenced by
a note, bond, debenture, or similar instrument; (c) the principal component of
all capitalized lease obligations of Guarantor; (d) the face amount of all
letters of credit issued for the account of Guarantor and, without duplication,
all unreimbursed amount drawn under such letters of credit; (e) all
indebtedness of any other person secured by any lien on any property Guarantor
owns, whether or not such indebtedness has been assumed; and (f) all payment
obligations of Guarantor under any interest rate protection agreement
(including without limitation any interest rate swaps, caps, floors, collars
and similar agreements) and currency swaps and similar agreements.
For purposes of this Guaranty, "Tangible Net Worth" shall mean as of
any time, the difference between; (a) Guarantor's assets as they would normally
be shown on Guarantor's balance sheet (on a consolidated basis), plus
subordinated Debt, but excluding therefrom all values attributable to goodwill,
patents, copyrights, trademarks, licenses, prepaid expenses, general
intangibles and receivables due
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Guarantor from its affiliates (other than those receivables which result from
transactions based upon fair and reasonable terms which are no less favorable
to Guarantor than those Guarantor would obtain in a comparable arms' length
transaction with a person not Guarantor's affiliate), and (b) Guarantor's
combined total liabilities and deferred charges as they would normally be shown
on the balance sheet (on a consolidated basis), including as liabilities all
guaranties which Guarantor has executed concerning the indebtedness of any of
its affiliates, if any.
(xv) Without Lender's prior written consent,
Guarantor shall not sell or otherwise dispose of substantially all its assets,
or merge into, consolidate with, or be acquired by any other person, unless as
a result of such merger, consolidation or acquisition, Guarantor is the
continuing or surviving entity;
(xvi) Guarantor shall not furnish Lender with any
certificate or other document that is materially misleading or that omits to
state a material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
8. Guaranty Default. The occurrence of any of the following
constitutes a "Guaranty Default" under this Guaranty:
(i) Guarantor or Borrower fails to pay any Guaranteed
Obligations when the same are due and payable or declared due and payable, by
acceleration or otherwise;
(ii) Guarantor's' or Borrower's assets are seized,
attached, subjected to a writ or distress warrant, are levied upon or come
within the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors, and the same is not terminated or dismissed within
thirty (30) days thereafter;
(iii) Guarantor or Borrower files (A) petition under
any section or chapter of the United States Bankruptcy Code or any similar
federal law or regulation for relief from creditors, (B) makes an assignment
for the benefit of creditors, or (C) files any case or proceeding for relief
from creditors;
(iv) any petition under any section or chapter of the
United States Bankruptcy Code or any similar federal or state law or
regulation is filed against Guarantor or Borrower or any case or proceeding is
filed against Borrower for its dissolution or liquidation and the same is not
dismissed or stayed within thirty (30) days after it is entered or filed;
(v) Guarantor or Borrower applies for the appointment
of a receiver, trustee or custodian for any of their respective assets;
(vi) any person or entity applies for the appointment
of a receiver, trustee, custodian or conservator for Guarantor's or Borrower's
assets and the same is not dismissed within thirty (30) days after the
application therefor;
(vii) Borrower or Guarantor are in default in the
payment of any obligations or liabilities owed to any person or entity and
such default is declared, or any "Event of Default" as defined in the Loan
Agreement occurs which is not cured within the time, if any, specified
therefore in the Loan Agreement governing the same, or any other default under
any Loan Document occurs;
(viii) Guarantor or Borrower admits their inability
to pay any of their respective debts as they mature, or makes an assignment
for the benefit of one or more of their creditors; or
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(ix) any representation, covenant or warranty set
forth in this Guaranty, the Loan Agreement, any other Loan Document or in any
other report, certificate, financial statement or other instrument furnished
in connection with any of the preceding instruments is false or misleading in
any material respect and/or any material adverse change in the financial
condition of Guarantor from such Guarantor's financial condition as such
exists on the Effective Date occurs, and in the sole discretion and
determination of Lender, could render Guarantor unable to satisfy any
Guaranteed Obligations.
9. Actions and Claims Waived. Guarantor waives notice of and
any and all rights to assert any claim, counterclaim, off-set, or defense based
on, the occurrence of any of the following:
(i) Lender's acceptance of and reliance upon this
Guaranty;
(ii) presentment, demand, notices of default or
dishonor, non-payment, partial payment and protest, and all other notices or
formalities to which Guarantor may be entitled;
(iii) Borrower previously, now or subsequently
granting security interests, liens or encumbrances to Lender;
(iv) that any sums are due under any Loan Document,
this Guaranty or any instrument evidencing the same;
(v) the filing of any proceedings to collect from
any maker, endorser or other guarantor of any Guaranteed Obligations;
(vi) to the extent permitted by law, the exchange,
sale, surrender or other handling of any security or collateral which secures
payment of any Guaranteed Obligations;
(vii) if Lender previously, now or subsequently (A)
loans monies or extends credit to or for the benefit of Borrower, whether
pursuant to any Loan Documents or any amendments or modifications of any Loan
Documents, (B) obtains, substitutes for, releases or modifies any security
interests, liens or encumbrances concerning any Guaranteed Obligations, (C)
obtains, releases, waives or modifies any other party's guaranty of any
Guaranteed Obligations or any security interest, lien or encumbrance in any
other party's assets which secure such other party's guaranty of any
Guaranteed Obligations, (D) consents to the transfer of any collateral
concerning any Guaranteed Obligations, (E) bids and purchases at a sale of
collateral concerning any Guaranteed Obligations, (F) executes all or elects
any of Lender's rights and remedies available by law, at equity or by
agreement, even if such exercise affects, reduces, releases, modifies or
eliminates Guarantor's rights of subrogation against any individual or entity,
or Guarantor's rights to proceed against Borrower for reimbursement, (G)
obtains, substitutes for, releases, waives or modifies any Loan Documents, (H)
grants to Borrower (or any other party liable for any Guaranteed Obligations)
any indulgences or extensions, or (I) accepts from Borrower or any other party
any partial payment of any Guaranteed Obligations or any collateral to secure
such payment or Lender settles, subordinates, compromises, discharges or
releases the same;
(viii) any failure of Lender to furnish Guarantor any
information or facts relating to the ability of Borrower to pay and/or perform
under any Loan Documents;
(ix) the validity and/or enforceability of this
Guaranty, whether such claims, counterclaims, off-sets or defenses arise
directly or indirectly from any other agreements, instruments or documents
executed and delivered by, or for the benefit of Borrower or Guarantor to
Lender, including but not limited to the Loan Documents; and
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(x) any other claim or counterclaim which would or
could entitle Guarantor to any reduction or diminution of any Guaranteed
Obligations, which Guarantor now or at any subsequent time may have against
any other person liable to Lender in any manner, or which Guarantor or
Borrower now or at any subsequent time may have against Lender, whether any of
the same arise at law, in equity, pursuant to statute, under the Loan
Agreement or any other Loan Document, or otherwise, and Guarantor expressly
waives any notice requirement which any law, rule, regulation or statute may
require to effectuate Guarantor's other waivers set forth in Section 10 of
this Guaranty.
Lender may at any time do any of the foregoing in such manner
and upon such terms as Lender, in its sole discretion, deems advisable, without
impairing, affecting, reducing or releasing Guarantor from the Guaranteed
Obligations. Guarantor irrevocably consents to each of the foregoing actions by
Lender.
10. Borrower's Financial Condition. GUARANTOR ASSUMES SOLE
RESPONSIBILITY FOR KEEPING INFORMED OF BORROWER'S FINANCIAL CONDITION, AND ANY
ENDORSERS OR OTHER GUARANTORS OF THE OBLIGATIONS AND ALL OTHER CIRCUMSTANCES
BEARING UPON RISK OF NONPAYMENT OF ANY MATERIAL OBLIGATION. GUARANTOR AGREES
LENDER HAS NO DUTY TO ADVISE GUARANTOR OF INFORMATION KNOWN TO LENDER REGARDING
ANY SUCH CIRCUMSTANCES. If Lender in its sole discretion, at any time provides
any such information to Guarantor, Lender shall have no obligation: (i) to
disclose any information which, pursuant to accepted or reasonable commercial
practices, Lender wished to maintain confidential; or (ii) to make any other or
future disclosures of such or other information.
11. Marshalling Assets. Lender has no obligation to marshal
assets in favor of Guarantor or against or in payment of any Guaranteed
Obligations.
12. Payment. Lender may apply payments it receives under this
Guaranty to the Guaranteed Obligations in any manner, and in its sole
discretion, including applying them to sums owed for interest, charges,
impositions, Enforcement Costs or costs incurred in connection with collecting
the same.
13. Disallowed Payments. If Borrower or Guarantor make a
payment to Lender or if Lender receives any proceeds of collateral, all or any
part of which subsequently are invalidated, declared fraudulent or preferential
or required to be repaid to Borrower, Guarantor, Borrower's estate, Guarantor's
or Borrower's trustee or receiver or any other party, under any bankruptcy,
insolvency or other law (state or federal) then the Guaranteed Obligations
immediately shall be reinstated to include the amount of such repayment. In
addition, all terms and provisions of this Guaranty shall continue to be
effective or be reinstated, as the case may be.
14. Insider Guarantor. If bankruptcy or reorganization
proceedings are at any time instituted by or against Borrower or by or against
any guarantor of any Guaranteed Obligations, and as to such party subject to
such proceedings (the "Insolvent Party"), Guarantor: (i) is an "insider" as
defined in any applicable bankruptcy law; and (ii) is an "Insider-guarantor"
under ss.547(b) of the U.S. Bankruptcy Code, as amended, then (iii) Guarantor
as such "insider- guarantor" waives any right that Guarantor may have under law
to and agrees not to seek recourse (by subrogation or otherwise) against such
Insolvent Party, if the Insolvent Party makes payment to Lender. Without
limiting the foregoing, Guarantor waives remedies which Guarantor now or
subsequently has against Lender, any endorser or any other guarantor or any
part of the Guaranteed Obligations and waive any benefit of or right to
participate in any security or collateral given to secure payment of the
Guaranteed Obligations.
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15. Proofs of Claim. If a proceeding for the bankruptcy or
for the reorganization of Guarantor or Borrower under the United State
Bankruptcy Code or any other applicable law is pending, or if a receiver or
trustee is appointed for the property of Guarantor or Borrower, or if any other
similar judicial proceedings relative to Guarantor or Borrower are filed,
Lender shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount owing and
unpaid under this Guaranty and, in case of any judicial proceedings, to file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of Lender allowed in such proceedings
relative to Guarantor, its creditors or property, and to collect and receive
any moneys or other property payable or deliverable on any such claims, and to
distribute the same after the deduction of Lender's charges and expenses. Any
receiver, assignee or trustee in bankruptcy or reorganization is authorized to
make such payments to Lender and to pay to Lender any amount due to it for
compensation and expenses, including reasonable counsel fees, which Lender
incurs until the date of such distribution.
16. Binding on Successors. This Guaranty shall be binding
upon Guarantor and upon its successors, heirs, assigns and legal
representatives, and shall inure to the benefit of Lender's successors and
assigns. All references to Borrower or Guarantor shall include their
successors, assigns and legal representatives, as applicable. Borrower's
successors and assigns include, without limitation, a receiver, trustee or
debtor in possession of or for Borrower.
17. Cumulative Remedies and Severability. All rights and
remedies of Lender identified in this Guaranty, or available at law, in equity
or otherwise, are cumulative and not alternative. Each provision of this
Guaranty is severable. Any term or provision of this Guaranty declared invalid
under applicable law shall be deemed omitted, but shall not invalidate the
remaining terms and provisions of this Guaranty, and this Guaranty shall be
construed as if it never contained such invalid, illegal or unenforceable
provision. Guarantor irrevocably waives any defense, counterclaim, claim or
set-off based upon an election of remedies by Lender whether arising under the
statutes, rules, regulations or case law of any state, governmental authority
or country, or available at law, in equity or otherwise.
18. Waiver of Guaranty Provisions. Lender's failure or delay
to require strict performance by Guarantor with any provision of this Guaranty
shall not waive, affect or diminish any subsequent right of Lender to demand
Guarantor's strict compliance with the same. Lender's suspension or waiver of
any Guaranty Default shall not suspend, waive or affect any other Guaranty
Default whether the same is prior or subsequent to such waived Guaranty
Default. Lender's delay or omission to exercise any right or power accruing to
it upon any default, omission or failure of performance by Guarantor under this
Guaranty will not impair or constitute a waiver of any such right or power, but
Lender may exercise any such right or power from time-to-time and as often as
it deems expedient. To entitle Lender to exercise any remedy reserved to it in
this Guaranty, it is not necessary for Lender to give any notice, other than
such notice as is expressly required under this Guaranty. If Guarantor breaches
any provision of this Guaranty and Lender waives such breach, such waiver shall
be limited to the particular breach in question and shall not constitute a
waiver of any other breach. No waiver, amendment, release or modification of
this Guaranty shall be established by conduct, custom or course of dealing, but
solely by an instrument in writing duly executed by Lender specifying such
waiver, amendment, release or modification.
19. Continuation of Obligations. Guarantor's obligations
under this Guaranty arise absolutely and unconditionally when this Guaranty is
delivered to Lender. This Guaranty shall continue in full force and effect
until the Guaranteed Obligations are fully and indefeasibly paid, performed and
discharged, and Lender provides Guarantor with written notice thereof.
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20. Jurisdiction. Guarantor submits to personal jurisdiction
in the State of Illinois for the enforcement of this Guaranty and waives any
and all personal rights to object to such jurisdiction. If litigation is
commenced at any time when Guarantor is not permanently domiciled in Illinois,
Guarantor agrees that service of process may be made and personal jurisdiction
over Guarantor obtained, by service of a copy of the summons, complaint and
other pleadings required to commence such litigation upon Guarantor at the
address and by the methods indicated in Section 23 below. In the alternative,
Guarantor may designate in writing on attached and incorporated Exhibit "A", an
agent for service of process in Illinois (the "Process Agent"). Guarantor
agrees that the appointment of a Process Agent is made for the mutual benefit
of Guarantor and Borrower. Guarantor therefore may not revoke such appointment
without Lender's prior, written consent. Guarantor agrees that any such service
of process upon such Process Agent will constitute valid personal service upon
Guarantor whether or not Guarantor is then physically present, residing within,
or doing business in Illinois, and that any such service of process shall be of
the same force and validity as if made upon Guarantor when physically present,
residing within, or doing business in Illinois. Guarantor waives all claims of
error by reason of any such service. The aforesaid methods of service are in
addition to, and not to the exclusion of, any methods of process service
available at law or in equity. Guarantor consents to the exclusive jurisdiction
of either the Circuit Court of Cook County, Illinois, or the United States
District Court for the Northern District of Illinois, Eastern Division, in any
action, suit or proceeding which Lender or Guarantor may at any time wish to
file in connection with this Guaranty or any related matter. Guarantor waives
any objection which it may have to the laying of the venue of any such action,
suit or proceeding in any such Court, including but not limited to forum
nonconviens.
21. JURY TRIAL WAIVER. GUARANTOR FOR ITSSELF AND FOR ALL WHO
MAY CLAIM THROUGH OR UNDER GUARANTOR, SPECIFICALLY WAIVES ANY AND ALL RIGHTS TO
A JURY TRIAL UPON LITIGATION OF ANY ISSUE, DISPUTE OR MATTER WHATSOEVER WHICH
IN ANY MANNER IS RELATED OR INCIDENT TO THIS GUARANTY OR THE TRANSACTION FROM
WHICH IT ARISES, INCLUDING THE ENFORCEMENT OF THIS GUARANTY, IRRESPECTIVE OF
THE PARTY BRINGING SUCH SUIT.
22. Negotiated Terms. Guarantor has read this Guaranty and
understands its contents. This Guaranty is enforceable against Guarantor in
accordance with its terms. The parties further agree that it is both their
intention and desire that wherever possible each provision of this Guaranty
shall be given a judicial construction and interpretation so as to be effective
and valid under Illinois and federal law. Further, it is acknowledged that this
Guaranty has resulted from specific negotiations between Lender and Guarantor
and is their mutual product. Therefore, the parties agree that under no
circumstances shall the terms of this Guaranty be interpreted by a court or
other trier of fact more strongly against either Lender or Guarantor.
23. Notices. All notices concerning this Guaranty shall be
given in writing, as follows: (i) by actual delivery of the notice into the
hands of the party entitled to receive it in which case the notice shall be
deemed given when delivered; (ii) by mailing such notice by registered or
certified mail, return receipt requested, in which case the notice shall be
deemed to be given four (4) days following the date of its mailing; (iii) by
Federal Express or any other overnight carrier, in which case the notice shall
be deemed to be given on the date next succeeding the date of its transmission;
or (iv) by Facsimile, in which case the notice shall be deemed given as of the
date it is sent. All notices which concern this Guaranty shall be addressed as
follows:
If to Guarantor: If to Lender:
Officeland, Inc. American National Bank and Trust
312 Dolomite, Suite 212 Company of Chicago
12
<PAGE>
Downsview, Ontario 499 Lake Cook Road
Canada M3J2N2 Deerfield, Illinois 60015
Attn: Christopher Walker Attn: Mr. Joseph E. Miltimore
Tel: (416) 487-8100 Tel: (847) 559-6407
Fax No.: (416) 487-8173 Fax No.: (847) 559-6409
with a copy to: with a copy to:
Moskowitz Altman & Hughes, LLP David T. Brown, Esq.
11 East 44th Street, Suite 504 Much Shelist Freed Denenberg
New York, New York, 10017-3608 Ament & Rubenstein, P.C.
Attn: Stanley Moskowitz 200 North LaSalle Street, Suite 2100
Tel: (212)953-1121 Chicago, IL 60601-1095
Fax No.: (212) 697-2992 Tel: (312) 621-1754
Fax No.: (312) 621-1750
24. Power of Attorney. Guarantor appoints Lender as
Guarantor's agent and attorney-in-fact to effectuate the provisions of this
Guaranty, and to take any action or to execute any agreement, instrument or
document which Lender deems necessary or advisable to accomplish the purposes
of this Guaranty. The foregoing power of attorney is irrevocable and coupled
with an interest. All monies paid or incurred in connection with the power of
attorney granted under this Section shall constitute part of the "Guaranteed
Obligations" payable by Guarantor to Lender on demand.
25. Legal Counsel. Guarantor acknowledges that it was
represented by legal counsel of its choice in the negotiation and preparation
of this Guaranty. Guarantor acknowledges that its representatives have read
this Guaranty, fully understand the terms, provisions and legal consequences of
this Guaranty, and enter into this Guaranty as its voluntary act, free from
duress, fraud or undue influence of any kind.
26. Complete Understanding. This Guaranty constitutes the
complete understanding among the parties. No alteration or modification of any
of this Guaranty's provisions shall be valid unless made in writing and signed
by both the parties.
27. Applicable Law. The laws of the State of Illinois (other
than those which pertain to conflicts of law) shall govern the interpretation
of this Guaranty, irrespective of the fact that one or more of the parties now
is or may become a resident of a different jurisdiction.
28. Descriptive Headings, Plurals Included. All section
headings, titles and subtitles are inserted in this Guaranty for convenience of
reference only, and are to be ignored in any construction of its provisions.
All references to the singular include the plural where the context requires.
29. Counterparts. This Guaranty may be executed in any number
of counterparts and each of such counterparts for all purposes shall constitute
part of one original.
30. Prior Agreements Superseded. The Loan Documents
constitute the entire understanding of the parties with respect to the subject
matter hereof and any prior agreements, whether written or oral, with respect
thereto are amended, restated and merged into and superseded by the Loan
Agreement. This Guaranty supersedes any prior understandings, written
agreements, or oral arrangements between the parties respecting the subject
matter which this Guaranty addresses.
31. Assignment in Event of Payment by Guarantor. In the event
that Guarantor shall at any time fully satisfy and pay to the Lender all of the
Guarantied Obligations, then Lender shall
13
<PAGE>
assign to Guarantor, any and all of its right, title and interest to the
Lender's rights under the Loan Agreement, and, Lender shall take whatever
actions as may be reasonably necessary, in cooperation with Guarantor, to
execute whatever documents and make whatever public filings to effectuate such
assignment to enable Guarantor to exercise all rights of subrogation Guarantor
may have against Borrower with respect to the Loan Agreement.
The parties have executed this Guaranty as of the Effective Date.
LENDER: GUARANTOR:
American National Bank and Trust Officeland, Inc.
Company of Chicago
By: /s/ Joseph E. [illegible] By: /s/ Christopher Walker
------------------------------ --------------------------------
Its: Vice President Its: Assistant Secretary
------------------------------ --------------------------------
<PAGE>
EXHIBIT A
Guarantor irrevocably appoints the following to serve as its
Process Agent under the terms of Section 20 of the Guaranty:
Marvy A. Budd
-------------------------------
TELECOM Corporation of Chicago
-------------------------------
285 Industrial Drive
-------------------------------
Wavconda, Illinois 60084
-------------------------------
14
<PAGE>
Exhibit 11
REVOLVING CREDIT NOTE
$2,500,000 Chicago, Illinois
December 10, 1998
FOR VALUE RECEIVED, Telecom Corporation of Chicago, an Illinois
corporation (collectively, "Borrower") promises to pay to the order of
American National Bank and Trust Company of Chicago ("Lender"), the principal
sum of Two Million Five Hundred Thousand Dollars ($2,500,000), at the office
of Lender located at 120 South LaSalle Street, Chicago, Illinois 60603 or at
such other place as the holder of this Note may appoint, plus interest thereon
as set forth below.
This Note is delivered by Borrower to Lender pursuant to and in
accordance with the applicable provisions of that certain Loan and Security
Agreement also dated December 10, 1998 by and among Borrower and Lender (the
"Loan Agreement"). This Note is the "Note" evidencing the "Revolving Loan"
referenced in the Loan Agreement. All capitalized terms not otherwise defined
in this Note have the meanings ascribed to them in the Loan Agreement, the
applicable provisions of which are by reference incorporated in and constitute
a part of this Note.
Borrower's Obligations under this Note shall bear interest from and
after the Effective Date at the annual rate set forth in Article 4 of the Loan
Agreement.
All principal and interest payable on the unpaid principal balance
due under this Note from time to time shall be paid in the manner set forth in
Article 4 of the Loan Agreement.
All interest payments will be: (i) computed on the basis of a year
consisting of 360 days; and (ii) charged for the actual number of days during
the period for which interest is being charged.
If any Obligations become past due, then, beginning automatically on
the day immediately following the due date thereof, such Obligations shall
bear interest at the Default Rate. Borrower shall pay all Default Rate
interest to Lender immediately upon demand. In addition, if a payment of
principal or interest to be made pursuant to this Note becomes past due for a
period in excess of ten (10) days, Borrower shall pay on demand to Lender a
late charge as set forth in Section 4.02(g) of the Loan Agreement.
The occurrence of an Event of Default under the Loan Agreement will
constitute a default under this Note. At the election of the holder of this
Note, upon the occurrence of an Event of Default, the principal balance
outstanding under this Note, and all accrued and unpaid interest thereon,
shall be immediately due and payable in full. Failure to exercise the
preceding acceleration option shall not constitute a waiver of the right to
exercise the same in the event of any subsequent Event of Default, and such
failure shall not establish a custom or course of dealing or performance
between Borrower and Lender.
Borrower may prepay this Note in whole or in part subject to the
provisions of Section 4.02 of the Loan Agreement.
Borrower shall pay all amounts due under this Note in accordance with
the instructions therefor set forth in the Loan Agreement. Payment shall not
be deemed to have been received by Lender until Lender is in receipt of good
funds as provided in Section 4.02 of the Loan Agreement.
<PAGE>
The proceeds of the loan evidenced by this Note shall be used solely
for the purposes specified in Section 4(1)(c) of the Illinois Interest Act,
815 ILCS 205, et. seq., as amended, and the principal sum advanced is for a
business loan which comes within the purview of such Section. Borrower agrees
that the obligation evidenced by this Note is an exempted transaction under
the Truth In Lending Act, 15 U.S.C., Section 1601 et. seq.
If any suit or action is instituted or attorneys are employed to
collect this Note or any part thereof, Borrower shall pay all costs of
collection including reasonable attorneys' fees and court costs.
Borrower waives presentment for payment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agree that this Note, or any payment hereunder, may be extended from time to
time before, at or after maturity, without in any way affecting the liability
of Borrower under or any guarantor of this Note.
All funds disbursed to or for the benefit of any Borrower will be
deemed to have been disbursed in Chicago, Illinois. This Note shall be
governed and construed in accordance with the laws and decisions of the State
of Illinois (other than those which pertain to conflicts of law). This Note
may not be changed or amended orally, but only by an instrument in writing
signed by the party against whom enforcement of the change or amendment is
sought.
This Note shall be binding upon Borrower, its respective successors
and assigns, and shall inure to the benefit of the successors and assigns of
Lender.
Lender shall not for any purpose constitute a partner, joint venturer
or agent of Borrower or in the conduct of Borrower's business.
If any provision of this Note is ruled invalid by reason of the
operation of any law, or by reason of the interpretation placed thereof by any
court or any governmental authority, this Note shall be construed as not
containing such provision and the invalidity of such provision shall not
affect the validity of any other provisions of this Note, and any and all
other provisions of this Note which otherwise are lawful and valid shall
remain in full force and effect.
Borrower has executed this Note as of the day, month and year first
written above.
Telecom Corporation of Chicago,
an Illinois corporation
By: /s/ Christopher Walker
-----------------------------
Its: Assistant Secretary
----------------------------
Christopher Walker
Title: Assistant Secretary
