SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 1999.
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition from________________ to________________
Commission file number 0-16158
TreeSource Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Oregon 93-0832150
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
10260 S.W. Greenburg Road, Suite 900, Portland, Oregon 97223
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (503) 246-3440
--------------------
Indicate by check mark whether the Registrant (1) has filed reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of Registrant's Common Stock, no par
value, at November 30, 1999 was 11,162,874
<PAGE>
TREESOURCE INDUSTRIES, INC.
---------------------------
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION 19
Item 1. Legal Proceedings 19
Item 3. Defaults Upon Senior Securities 19
Item 6. Exhibits and Reports on Form 8-K 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in Thousands, Except Per-Share Amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS
OCTOBER 31, ENDED
OCTOBER 31,
------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 59,313 $ 51,240 $ 126,601 $ 98,901
COST OF SALES 55,974 47,859 112,991 92,034
------------ ------------ ------------ -------------
GROSS PROFIT 3,339 3,381 13,610 6,867
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,624 2,628 5,866 5,392
REORGANIZATION CHARGES 877 -- 877 --
------------ ------------ ------------ -------------
OPERATING INCOME (LOSS) (162) 753 6,867 1,475
OTHER INCOME (EXPENSE)
Interest expense (718) (1,158) (1,832) (2,318)
Miscellaneous 255 81 686 (100)
------------ ------------ ------------ -------------
(463) (1,077) (1,146) (2,418)
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE INCOME TAXES (625) (324) 5,721 (943)
PROVISIONS FOR INCOME TAXES (BENEFIT) 100 -- 100 --
------------ ------------ ------------ -------------
NET INCOME (LOSS) (725) (324) 5,621 (943)
PREFERRED DIVIDENDS -- 574 -- 1,148
------------ ------------ ------------ -------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS $ (725) $ (898) $ 5,621 $ (2,091)
============ ============ ============ =============
NET INCOME (LOSS) PER COMMON SHARE
- BASIC ($0.06) ($0.08) $0.50 ($0.19)
======= ======= ===== =======
- DILUTED ($0.06) ($0.08) $0.50 ($0.19)
======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(in Thousands)
(Unaudited)
OCTOBER 31, APRIL 30,
1999 1999
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 2,971 $ 2,131
Accounts receivable, net 11,249 10,210
Inventories 16,734 13,716
Prepaid expenses 5,160 1,320
Income tax refund receivable 70 70
Deferred tax asset 750 750
Assets held for sale 7,749 7,749
Timber, timberlands and timber-related assets 2,279 2,190
----------- -----------
Total current assets 46,962 38,136
NOTES AND RECEIVABLE 9 27
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 1,527 1,527
Buildings and improvements 8,395 8,287
Machinery and equipment 47,250 47,462
----------- -----------
57,172 57,276
Less reserve for impairment 941 941
Less accumulated depreciation 42,646 41,116
----------- -----------
13,585 15,219
Construction in progress 374 324
----------- -----------
13,959 15,543
OTHER ASSETS 1,225 1,281
----------- -----------
$ 62,155 $ 54,987
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
<TABLE>
TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(in Thousands, Except Share Information)
(Unaudited)
OCTOBER 31, APRIL 30,
1999 1999
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 7,003 $ 10,830
Accrued expenses 5,688 7,744
Timber contracts payable -- 428
Current borrowings 190 43,474
---------- ----------
Total current liabilities 12,881 62,476
LONG-TERM DEBT, less current maturities -- 327
LIABILITIES SUBJECT TO COMPROMISE 51,469 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, 10,000,000 shares authorized
Series A, 270,079 shares outstanding 20,688 20,688
Series B, 6,111 shares outstanding 333 333
Common Stock, no par value, 40,000,000 shares authorized,
11,162,874 issued and outstanding 28,761 28,761
Additional paid-in capital 15 15
Retained deficit (51,992) (57,613)
---------- ----------
(2,195) (7,816)
---------- ----------
$ 62,155 $ 54,987
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
<TABLE>
TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in Thousands)
(Unaudited)
SIX MONTHS ENDED OCTOBER 31,
-------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,621 $ (943)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization 2,197 2,156
Deferred income tax -- --
Impairment loss -- --
Accounts receivable (1,039) 1,982
Inventories (3,018) 695
Prepaid expenses (3,840) (429)
Timber, timberlands and timber-related assets - current (177) 1,708
Payables and accruals 1,529 (688)
Income taxes -- (119)
-------------- --------------
Cash from operating activities 1,273 4,362
-------------- --------------
CASH FROM INVESTING ACTIVITIES:
Notes and receivables 18 --
Net reductions of timber and timberlands -- --
Acquisition of property, plant and equipment (569) (1,153)
Net book value of retirements 7 260
Net book value of disposed idle assets -- 177
Other investing activities -- 58
-------------- --------------
Cash from investing activities (544) (658)
-------------- --------------
CASH FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 106 --
Principal payments on long-term debt -- (901)
Other assets 5 (87)
Dividends paid on Preferred Stock -- (1,148)
Issuance of common stock -- 9
-------------- --------------
Cash from financing activities 111 (2,127)
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 840 1,577
CASH BALANCE AT BEGINNING OF PERIOD 2,131 2,157
-------------- --------------
CASH BALANCE AT END OF PERIOD $ 2,971 $ 3,734
============== ==============
CASH PAID DURING THE PERIOD FOR:
Interest $ 10 $ 2,056
Income taxes $ 100 $ (2)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PREPARATION
On September 27, 1999, TreeSource Industries, Inc. and certain of its
wholly-owned subsidiaries ("the Company" or "TreeSource"), filed for voluntary
reorganization under chapter 11 of the U.S. Bankruptcy Code (the "Code"). The
Company continues to operate its business as a debtor-in-possession. As a
debtor-in-possession under the Code, the Company is authorized to operate its
business subject to the terms of a cash collateral order, but may not engage in
transactions outside of the ordinary course of business without Court approval.
On October 28, 1999 the Company filed a Plan of Reorganization (the
"Plan") in U.S. Bankruptcy Court that, if confirmed, would result in the
cancellation of the Company's current Common and Preferred Stock. Any value
these equities might have would be eliminated if the proposed Plan is confirmed
by the Court. The senior secured lenders, that have a secured interest in
substantially all assets of the Company, would convert a portion of their debt
into equity. Unsecured [trade] creditors would receive up to 90% of their claim
based on the Company's estimate of its unsecured liabilities.
In the opinion of management, the consolidated financial statements of
TreeSource Industries, Inc. and subsidiaries presented herein, assuming
continued operations under chapter 11, include all adjustments, which are solely
of a normal recurring nature or related to the bankruptcy, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented. Certain reclassifications may have been made to
the prior period results and balances to conform to the current period
classifications. Most obligations outstanding at the time of the chapter 11
filing have been reclassified as non-current liabilities under the caption
"liabilities subject to compromise". No adjustments have been made to reflect
any settlement of obligations resulting from the reorganization proceedings.
The financial statements should be read with reference to "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in this report, and the "Notes to Consolidated Financial Statements"
set forth in the Company's Annual Report on Form 10-K for the year ended April
30, 1999, filed with the Securities and Exchange Commission. The results of
operations for the current interim periods are not necessarily indicative of the
results to be expected for the current year.
7
<PAGE>
Due to the filing for protection under chapter 11 of the Code, there
exists substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustment related to the
carrying value of assets or liabilities should the Company be unable to continue
as a going concern.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined using the average cost and first-in, first-out (FIFO) methods. A
summary of inventory by principal product classification follows (in thousands):
October 31, 1999 April 30, 1999
--------------- ---------------
Logs $ 7,277 $ 6,649
Lumber 8,453 6,001
Supplies and Other 1,004 1,066
--------------- ---------------
$ 16,734 $ 13,716
=============== ===============
NOTE 3 - STOCKHOLDERS' EQUITY
Stockholders' equity at October 31, 1999 consists of the following:
Series A Preferred Stock, $100 per share liquidation preference;
500,000 shares authorized; 270,079 shares issued and outstanding, limited voting
rights; cumulative dividends payable quarterly in advance at the prime rate,
with a minimum rate of 6% and a maximum rate of 9%; convertible into Common
Stock at $7.50 per share after April 30, 1999; redeemable at original issue
price plus any accrued dividends at the option of the Board of Directors, in the
form of cash or in exchange for senior unsecured debt with a 12% coupon. Subject
to certain conditions, the holders of the Series A Preferred Stock have the
right to obtain voting control of the Company's Board of Directors in the event
the Company misses three consecutive quarterly dividend payments, four quarterly
dividend payments within twenty-four months or a total of eight quarterly
dividend payments. As of October 31, 1999 the Company was in arrears on three
consecutive quarterly dividend payments totaling approximately $1,586,000. In
addition, because the Company filed for protection under chapter 11 of the U.S.
Bankruptcy Code, the Company did not pay the quarterly dividend due November 30,
1999. This was the fourth consecutive dividend skipped by the Company.
8
<PAGE>
Series B Preferred Stock, $100 per share liquidation preference;
500,000 shares authorized; 6,111 shares issued and outstanding; limited voting
rights; convertible into 212,693 shares of Common Stock; dividends payable only
if paid on the Company's Common Stock; redeemable at original issue price plus
accrued dividends at the option of the Board of Directors after all Series A
Preferred Stock has been redeemed.
Series C Junior Participating Preferred Stock, $100 per share
liquidation preference; 400,000 shares authorized; no shares issued or
outstanding; each share has 100 votes, voting together with Common Stock;
dividends payable only if paid on the Company's Common Stock at 100 times the
Common Stock dividend rate. This class of Preferred Stock was authorized in
connection with the Shareholder Rights Plan adopted by the Company on March 4,
1998.
Common Stock, no par value; 40,000,000 shares authorized; 11,162,874
shares issued and outstanding. Before giving effect to any shares that might be
issued pursuant to the management incentive Stock Option Plan or conversion of
any Series A Preferred Stock, the total number of common shares would increase
to 11,373,589 shares if the shares of Series B Preferred Stock remaining
outstanding at October 31, 1999 were converted to Common Stock.
NOTE 4 - NET INCOME (LOSS) PER SHARE
The calculations of net income (loss) per share for the three and six
month periods ended October 31, 1999 and 1998 are summarized below (in
thousands, except per-share data):
<TABLE>
Three Months Ended October Six Months Ended October 31,
31,
-------------------------- ----------------------------
1999 1988 1999 1988
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common shareholders $ (725) $ (898) $ 5,621 $ (2,091)
=========== =========== =========== ===========
Weighted average shares outstanding
- Basic 11,163 11,163 11,163 11,163
Additional shares assumed from:
- Conversion of Series B Preferred Stock -- -- 212 --
- Exercise of stock options -- -- -- --
----------- ----------- ----------- -----------
Average number of shares and equivalents outstanding
- Diluted 11,163 11,163 11,375 11,163
=========== =========== =========== ===========
Net income (loss) per common share
- Basic $ (0.06) $ (0.08) $ 0.50 $ (0.19)
=========== =========== =========== ===========
- Diluted $ (0.06) $ (0.08) $ 0.49 $ (0.19)
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
NOTE 5 - LIABILITIES SUBJECT TO COMPROMISE
Under the Bankruptcy Code, a claim is treated as secured only to the
extent of such creditor's collateral, and the balance of the claim is treated as
unsecured. Generally, unsecured and under-secured debt does not accrue interest
after the filing, while a fully-secured claim continues to accrue interest.
Accordingly, interest expense totaling approximately $407,000 was not accrued
during the quarter ended October 31, 1999 as management believes these debts are
under-secured. Amounts included under the caption "current borrowings" at
October 31, 1999 represent draws on a line of credit that was established to
provide additional liquidity during the reorganization process and the current
portion of any long-term debt. The amounts are not subject to compromise.
Amounts included under the caption "liabilities subject to compromise"
represent claims that are unsecured or where, in the opinion of management, the
value of the corresponding collateral is estimated to be less than the amount of
the debt. Included under this caption at October 31, 1999 are the following (in
thousands):
October 31,
1999
-----------
Trade, interest and
other miscellaneous claims $ 7,752
Secured notes 261
Unsecured notes 1,007
Senior secured debt 42,449
-----------
$ 51,469
===========
Unsecured and under-secured claims may be liquidated and discharged at
less than their face value. It is impossible at this time to predict the actual
amount of recovery that each creditor may realize, since the valuation of the
Company's assets and its claims may be subject to adjustment as part of the
bankruptcy proceedings.
As a result of the chapter 11 proceedings, TreeSource Industries, Inc.
and its subsidiaries are in default on substantially all of their debt
agreements. Acceleration of this debt is stayed subject to the chapter 11
proceedings. Such debt cannot be paid or restructured until the conclusion of
the chapter 11 proceedings, unless ordered by the Court.
10
<PAGE>
NOTE 6 - BORROWINGS
Long-term borrowings and the Line of Credit consist of the following
(in thousands):
<TABLE>
October 31, April 30,
1999 1999
------------ ------------
<S> <C> <C>
Senior secured debt, bearing interest at 10%; principal
payable in quarterly installments of $1,000,000
beginning March 15, 1999, and a final payment in
December 2004; secured by substantially all assets of
the Company. $ 42,449 $ 42,449
Secured notes, interest at 9% and 10%; payable on
various dates; secured by various assets. 261 359
Unsecured senior subordinated notes, net of discount
of $264 and $278 at October 31, 1999 and April 30, 1999,
respectively; 8% coupon, effective interest rate
of 13.3%; semi-annual interest payments
due each June 30 and December 31; principal due in
full June 30, 2005. 1,007 993
------------ ------------
43,717 43,801
Less debt subject to compromise (43,717) -
Less current maturities - (43,474)
------------ ------------
$ - $ 327
============ ============
</TABLE>
As discussed in Note 5, TreeSource Industries, Inc. and its
subsidiaries are in default on substantially all of their debt agreements as a
result of the chapter 11 filing except for with respect to the $16 million
debtor-in-possession working capital revolver. Acceleration of these debts is
stayed subject to the chapter 11 proceedings. Such debt cannot be paid or
restructured until the conclusion of the chapter 11 proceedings, unless ordered
by the Court. All of the Company's borrowings, with the exception of any
borrowings against the debtor-in-possession, have been reclassified to
"liabilities subject to compromise".
The Company obtained a debtor-in-possession secured revolving line of
credit (the "Line of Credit") in October that matures upon the earliest of April
5, 2001 or the effective date of a final order of reorganization. The Line of
Credit bears interest at a floating rate (8.25% as of October 31, 1999).
Borrowings under the line fluctuate daily based on cash needs and are subject to
customary covenants and collateral reserves. The Line of Credit allows the
Company to borrow from time to time up to $16 million, including up to $5
million of letters of credit. As of October 31, 1999 there were $190,000 in
borrowings on the Line of Credit and $525,000 in letters of credit outstanding.
11
<PAGE>
NOTE 7 - PROVISION FOR INCOME TAXES
The income tax provision is based on the estimated effective annual tax
rate for each fiscal year. The provision includes anticipated current income
taxes payable, the tax effect of anticipated differences between the financial
reporting and tax basis of assets and liabilities, and the expected utilization
of net operating loss (NOL) carryforwards. The federal and state income tax
provision consists of the following (in thousands):
Six Months Ended October 31,
-------------------------------
1999 1998
------------ ------------
Income (loss) before income taxes $ (625) $ (943)
=========== ===========
Provision for income taxes (benefit):
Federal $ 100 $ --
State -- --
------------ ------------
$ 100 $ --
=========== ===========
Current $ 100 $ --
Deferred -- --
------------ ------------
$ 100 $ --
=========== ===========
The Company's remaining adjusted NOL at April 30, 1999 was
approximately $26 million for federal income tax and $24 million for state
income tax purposes. These carry-forwards expire in 2007 and 2012, respectively.
As discussed in Note 1, the Company has filed for voluntary reorganization under
chapter 11 of the Code, which could impact the availability of the NOLs to be
used to offset future income. The Company expects to utilize approximately $8
million of the available NOLs prior to emerging from bankruptcy. Due to
potential significant limitations of the NOLs associated with the bankruptcy
proceedings and potential reorganization plans, the Company has fully reserved
for its available NOLs at October 31, 1999. During the current quarter, the
Company has utilized its existing NOL to offset 90% of its current taxable
income. The Company's tax expense relates to current year taxable income not
available for offset by NOLs. Management periodically reviews the above factors
and may change the amount of valuation allowance as facts and circumstances
dictate.
12
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation primarily arising in the
normal course of its business. The Company's liability, if any, under such
pending litigation could have a material impact upon the Company's consolidated
financial condition or results of operations. See "Legal Proceedings".
The Company is subject to various federal, state and local regulations
regarding waste disposal and pollution control. Various governmental agencies
have enacted, or are considering, regulations regarding a number of
environmental issues that may require material expenditures in the future. These
include regulations regarding log yard management, disposal of log yard waste,
kiln process waste water, and air emissions from hog fuel fired boilers. The
potential expenditures required for the Company to comply with any such
regulations could have a material adverse impact on its consolidated financial
condition and results of operations.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
On a quarter-to-quarter basis, the Company's financial results have and
will vary widely, due to seasonal fluctuations and market factors affecting the
demand for logs, lumber, and other wood products. Therefore, past results for
any given year or quarter are not necessarily indicative of future results.
The average price of the industry benchmark green fir 2x4 standard and
better lumber declined 17%, from $449 per unit, in the quarter ended July 31,
1999, to $374 per unit in the quarter ended October 31, 1999. The average price
of the industry benchmark #2 fir saw log increased slightly from $627 to $631
per unit during the same periods. The decline in lumber prices, with no
corresponding decrease in log costs, caused industry margins and TreeSource
profits to decline in the quarter ended October 31, 1999 as compared to the
quarter ended July 31, 1999. The Company's efforts to increase asset utilization
and decrease costs by increasing the number of shifts operated at selected
facilities is proving successful with lumber shipments up 11.4% in the quarter
ended October 31, 1999 as compared to the same period in 1998.
On September 27, 1999, the Company filed for voluntary reorganization
under chapter 11 of the U.S. Bankruptcy Code. The costs associated with the
reorganization totaled $877,000 during the quarter ended October 31, 1999.
Interest expense for the quarter was approximately $407,000 lower than it
otherwise would have been due to the filing for reorganization. During the
reorganization period, the Company is allowed relief from payment of interest
charges on all pre-petition debt but is required to accrue interest expense on
claims which are, in the opinion of management, fully secured. No interest
expense has been recorded since September 27, 1999 on all pre-petition debt as
management believes the claims of all pre-petition debt holders are
under-secured. (See Legal Proceedings.) The Company filed for reorganization in
response to a protracted period of weak markets combined with the Company's high
level of debt and preferred stock dividend obligations. The cash generated by
operations was not sufficient to enable the Company to pay its commitments and
continue operating. The proposed plan, if confirmed, would result in the
cancellation of the Company's current classes of common and preferred stock.
Proceeds from the sale of assets will be used to pay down the secured debt and a
significant portion of the debt would be converted to equity.
On October 28, 1999, the Company filed a Plan of Reorganization (the
"Plan") in U.S. Bankruptcy Court that, if confirmed, would result in the
cancellation of the Company's current Common and Preferred Stock. Any value
these equities might have would be eliminated if the proposed Plan is confirmed
by the Court. The senior secured lenders, that have a secured interest in
substantially all assets of the
14
<PAGE>
Company, would convert a portion of their debt into equity. Unsecured [trade]
creditors would receive up to 90% of their claim based on the Company's estimate
of its unsecured liabilities.
In November, the Company auctioned the equipment at the Philomath and
Sedro-Woolley mill sites. The assets had been previously written down and are
included in the classification of "Assets held for sale" on the balance sheet.
Proceeds from the sale of assets will be used to pay down the Company's secured
debt. The Company has three properties and three other facilities currently held
for sale of which one, Burke, is operating.
The following table sets forth the percentages that certain expenses
bear to net sales, and the period-to-period percentage change for each item:
<TABLE>
INCOME AND EXPENSE ITEMS AS PERCENTAGE
A PERCENT OF NET SALES INCREASE (DECREASE)
------------------------------------------ ------------------------------
Three Months Six Months
Three Months Ended Six Months Ended Ended Ended
October 31, October 31, 10/31/99 10/31/99
-------------------- ---------------------
to to
1999 1998 1999 1998 10/31/98 10/31/98
--------- ---------- ---------- ---------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 15.8 % 28.0 %
Cost of sales 94.3 93.4 89.2 93.1 17.0 22.8
------- -------- -------- -------- -------------- -----------
Gross Profit 5.6 6.6 10.8 6.9 (1.2) 98.2
Selling, general and
Administrative expense 4.4 5.1 4.6 5.5 (0.2) 8.8
Reorganization charges 1.5 0.0 0.7 0.0 NM NM
------- -------- -------- -------- -------------- -----------
Operating income (loss) (0.3) 1.5 5.4 1.5 (121.5) 365.6
Interest expense (1.2) (2.3) (1.4) (2.3) (38.0) (21.0)
Miscellaneous 0.4 0.2 0.5 (0.1) 214.8 (786.0)
------- -------- -------- -------- -------------- -----------
Income (loss) before income taxes (1.1) (0.6) 4.5 (1.0) 92.9 (706.7)
Provision for income taxes (benefit) 0.2 0.0 0.1 0.0 NM NM
-------------- -----------
------- -------- -------- --------
Net income (loss) (1.2) % (0.6) % 4.4 % (1.0) % 123.8 % (696.1) %
======= ======== ======== ========
NM - Not Meaningful
Note - percentages may not add due to rounding.
</TABLE>
Comparison of Three Months Ended October 31, 1999 and 1998
- ----------------------------------------------------------
Net sales for the three months ended October 31, 1999 increased $8.1
million (16%), as compared to the three months ended October 31, 1998. This
increase was principally caused by an 11% increase in the weighted average net
sales price and a 4% increase in lumber sales volume. Although the number of
sawmills operated by the Company in the three months ended October 31, 1999 has
decreased from the prior year, the Company's lumber shipments increased over the
same period due to increases in productivity and the number of shifts operated
at three facilities.
15
<PAGE>
Gross profit for the quarter ended October 31, 1999 was 5.6% of net
sales, compared to 6.6% of net sales for the quarter ended October 31, 1998.
Unit manufacturing costs in the three months ended October 31, 1999 increased
3.5% as compared to the three months ended October 31, 1998, primarily due to
higher maintenance and repair costs at two facilities and a decrease in
production volume at Pacific Hardwoods. The increase in repair and maintenance
costs at selected facilities has resulted from the Company's efforts to decrease
downtime and increase productivity at facilities that have deteriorated.
Selling, general and administrative expenses for the quarter ended
October 31, 1999 were almost unchanged from the quarter ended October 31, 1998.
While a number of cost savings measures have been taken such as corporate staff
reductions, reduction in office lease space, and the closure of certain
facilities, the Company incurred approximately $225,000 in costs related to
obtaining the debtor-in possession revolving working line of credit.
Reorganization charges in the quarter ended October 31, 1999 are
comprised primarily of fees for professional services related to the bankruptcy.
As of October 31, 1999, the Company had available approximately $20.6
million and $18.6 million in net operating losses ("NOLs") for federal and state
income tax purposes. Due to the bankruptcy, substantial doubt exists regarding
the Company's ability to fully utilize these NOLs. As a result, the Company
fully reserved for the NOLs generated during both the quarters ended October 31,
1998 and 1999. The tax provision recorded for the quarter ended October 31, 1999
relates to expenses that cannot be offset by the NOLs. The Company periodically
reviews the above factors and may change the amount of valuation allowance as
facts and circumstances dictate.
Comparison of Six Months Ended October 31, 1999 and 1998
- --------------------------------------------------------
Net sales for the six months ended October 31, 1999 increased $27.7
million (28%), as compared to the six months ended October 31, 1998. This
increase was principally caused by a 16% increase in the weighted average net
sales price and 10% increase in lumber sales volume. Although the number of
sawmills operated by the Company in the six months ended October 31, 1999
decreased as compared to the same period in the prior year, due to the closure
of Pacific Softwoods, Philomath, and Sedro-Woolley, the Company's lumber
shipments increased over the same period resulting from increases in
productivity and the number of shifts operated at three facilities.
Gross profit for the six months ended October 31, 1999 was 10.8% of net
sales, compared to 6.9% of net sales for the six months ended October 31, 1998.
Unit manufacturing costs in the six months ended October 31, 1999 decreased by
4% from costs in the six months ended October 31, 1998, primarily due to an
increase in the hours of operation at several facilities and increases in
productivity.
16
<PAGE>
Selling, general and administrative expenses for the six months ended
October 31, 1999 increased by $474,000 as compared to the six months ended
October 31, 1998. While a number of cost savings measures have been taken such
as corporate staff reductions, reduction in office lease space, and the closure
of certain facilities, these expenses increase primarily because the Company
incurred approximately $225,000 in costs related to obtaining the
debtor-in-possession revolving working line of credit and additional costs
related to increased bonus expense due to the comparative increase in income
between the two periods.
Reorganization charges in the six months ended October 31, 1999 are
comprised primarily of professional services related to the bankruptcy.
As of October 31, 1999, the Company had available approximately $20.6
million and $18.6 million in net operating losses for federal and state income
tax purposes. Due to the bankruptcy, substantial doubt exists regarding the
Company's ability to fully utilize these NOLs. As a result, the Company fully
reserved for the net operating losses generated during the six months ended
October 31 for both 1998 and 1999. The tax provision recorded for the quarter
ended October 31, 1999 relates to expenses that cannot be offset by the NOLs.
The Company periodically reviews the above factors and may change the amount of
valuation allowance as facts and circumstances dictate.
Liquidity and Capital Resources
- -------------------------------
The Company is currently operating as a debtor-in-possession under a
cash collateral order approved by the Court, pursuant to a number of conditions.
The cash collateral order allows the Company to use funds from operations and
the revolving working line of credit for normal operating purposes. The cash
collateral order also grants a security interest in substantially all the assets
of the Company to the pre-petition senior secured lenders and post-petition
secured debtor-in-possession lenders.
Cash and cash equivalents increased by approximately $0.8 million
during the six months ended October 31, 1999 to $3.0 million. During the same
period, prepaid expenses increased $3.8 million primarily due to log purchase
deposits. Approximately $1.3 million of cash was provided by operations
including the increase in prepaid expenses and $3.0 million increase in
inventories. To conserve cash prior to filing for reorganization, the Company
has not paid interest or principal on its senior secured debt and subordinated
debentures, or dividends on its Series A Preferred Stock since March 1999.
The Company historically has not had a line of credit or working
capital financing available to it, and, therefore, has relied on cash provided
by its operations to fund its working capital needs. In early October, in
connection with filing for voluntary reorganization, the Company obtained a $16
million debtor-in-possession revolving working line of credit to provide for day
to day liquidity and seasonal log
17
<PAGE>
inventory increases. As of October 31, 1999 there was a $190,000 loan balance
on this line of credit.
For fiscal year 2000, through October 31, 1999, the Company spent $0.6
million for capital improvements to its facilities. The Company had no material
commitments for capital spending at October 31, 1999.
The Company does not invest in market risk sensitive instruments.
Year 2000 Compliance
- --------------------
The "Year 2000" issue exists because many computer systems and
applications currently use two-digit fields to designate a year. This practice
can lead to incorrect results when computer software performs arithmetic
operations, comparisons, or data field sorting involving years later than 1999.
The Company has conducted a review of its computer and other systems to
identify those areas that could be affected by the "Year 2000" issue, and is
implementing a plan to resolve the issues identified. The initial phase of the
plan, which has been completed, consisted of testing existing systems to
determine which had "Year 2000" issues.
The second phase of the Company's "Year 2000" plan, which consists of
the replacement or upgrading of hardware and software that has "Year 2000"
issues, is nearing completion. The remaining tasks for completing the second
phase consist of replacing and upgrading the computer systems at two mills and
some ancillary software upgrades at other locations.
The Company presently believes the "Year 2000" issue will not have a
material adverse effect on the Company's financial condition or results of
operations.
Factors Affecting Forward-Looking Statements
- ---------------------------------------------
The statements contained in this report that are not statements of
historical fact may include forward-looking statements (as defined in Section
27A of the Securities Act of 1933, as amended) that involve a number of risks
and uncertainties. Moreover, from time to time the Company may issue other
forward-looking statements. The following factors are among the factors that
could cause actual results to differ materially from the forward-looking
statements and should be considered in evaluating any forward-looking
statements: the outcome of the Company's filing for voluntary reorganization;
the approval of the Company's plan of reorganization; adverse operating
conditions; fluctuations in quarterly results; availability of logs;
technological change; manufacturing risks; federal and state regulations; and
the additional factors listed from time to time in the Company's SEC reports,
including, but not limited to, the Company's annual report on Form 10-K for the
year ended April 30, 1999.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its Trask River Lumber subsidiary were named defendants
in a claim for wages and penalties filed in U.S. District Court for the District
of Oregon on February 17, 1999 (Allen, Blount, et al., v. WTD Industries, Inc.,
Trask River Lumber and Bruce L. Engel). The case is currently pending waiting
class certification. Earlier settlement negotiations were unsuccessful.
The Company and its Central Point Lumber subsidiary were named
defendants in a claim for damages filed in Circuit Court of the State of Oregon
for Jackson County on August 27, 1999. The plaintiff alleges retaliatory
wrongful discharge and loss of wages as a result of filing a worker's
compensation claim. (Donald D. Leiter II vs. TreeSource Industries, Inc. and
Central Point Lumber).
Item 3. Defaults Upon Senior Securities
Due to the Company's inability to meet certain of its financial
covenants and its filing for reorganization, the Company is not in compliance
with its obligations under its senior secured debt agreement and ceased making
interest and principal payments on its senior secured debt in March 1999. On
September 27, 1999 the Company filed for voluntary reorganization under chapter
11 of the U.S. Bankruptcy Code in the U.S. District Court of the Western
District of Washington: In re TreeSource Industries, Inc., et al (Case 99-10932
and 99-10937 through 99-10961). As of November 30, 1999, the Company had not
paid four consecutive quarterly dividend payments due to holders of its Series A
Preferred Stock, totaling approximately $2,161,000, and is in arrears on payment
of approximately $3,163,000 in interest and $3,000,000 in principal on its
senior secured debt. Additionally, the Company is in arrears on payment of
approximately $179,000 in interest on its 8% unsecured senior notes as of
November 30, 1999. During the reorganization period, the Company is allowed
relief from payment of interest charges on all pre-petition debt but is required
to accrue interest expense on claims which are, in the opinion of management,
fully-secured. No interest expense has been recorded since September 27, 1999 on
all pre-petition debt as management believes the claims of all pre-petition debt
holders are under-secured.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Index to Exhibits is located on page 22.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October
31, 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TreeSource Industries, Inc.
----------------------------------
(Registrant)
/s/ Jess R. Drake
----------------------------------
Jess R. Drake
President
/s/ Robert W. Lockwood
----------------------------------
Robert W. Lockwood
Vice President - Finance
December 7, 1999
21
<PAGE>
TreeSource Industries, Inc.
Index to Exhibits
<TABLE>
Sequential
Number
System
Page
Number
<S> <C> <C>
3.1 Fourth Restated Articles of Incorporation of Registrant
adopted effective November 27, 1992, as amended(1)
3.2 Second Restated Bylaws of the Registrant adopted effective
November 27, 1992(2)
4.1 Debtor-in-Possession Credit Agreement dated as of October 5, 1999,
Between Registrant and General Electric Capital Corporation.
27 Financial Data Schedule(3)
</TABLE>
(1) Incorporated by reference to the exhibit of like number to the
Registrant's quarterly report on Form 10-Q for the quarter ended
October 31, 1998.
(2) Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April
30, 1993.
(3) This schedule has been submitted in electronic form prescribed by
EDGAR.
22
DEBTOR IN POSSESSION CREDIT AGREEMENT
Dated as of October 5, 1999
among
TREESOURCE INDUSTRIES, INC.,
TREESOURCE, INC.,
BURKE LUMBER CO.,
CENTRAL POINT LUMBER CO.,
GLIDE LUMBER PRODUCTS CO.,
MORTON FOREST PRODUCTS CO.,
NORTH POWDER LUMBER CO.,
PACIFIC HARDWOODS-SOUTH BEND CO.,
SPANAWAY LUMBER CO.,
TRASK RIVER LUMBER CO.,
TUMWATER LUMBER CO., and
WESTERN TIMBER CO.
each as Debtor and Debtor in Possession,
as Borrowers,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
as Credit Parties,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
----
<S> <C>
1. AMOUNT AND TERMS OF CREDIT..............................................................2
1.1 Revolving Credit Facility......................................................2
1.2 Letters of Credit..............................................................3
1.3 Prepayment.....................................................................3
1.4 Use of Proceeds................................................................4
1.5 Interest and Applicable Margins................................................4
1.6 Eligible Accounts..............................................................6
1.7 Eligible Inventory.............................................................8
1.8 Cash Management System.........................................................9
1.9 Fees...........................................................................9
1.10 Receipt of Payments............................................................9
1.11 Application and Allocation of Payments........................................10
1.12 Loan Account and Accounting...................................................10
1.13 Indemnity.....................................................................11
1.14 Access........................................................................12
1.15 Taxes.........................................................................12
1.16 Capital Adequacy; Increased Costs; Illegality.................................13
1.17 Single Loan...................................................................13
1.18 Priority of Obligations and Lender's Liens....................................13
2. CONDITIONS PRECEDENT...................................................................14
2.1 Conditions to the Initial Loans...............................................14
2.2 Further Conditions to Each Loan...............................................15
3. REPRESENTATIONS AND WARRANTIES.........................................................16
3.1 Corporate Existence; Compliance with Law......................................16
3.2 Executive Offices; Collateral Locations; FEIN.................................16
3.3 Corporate Power, Authorization, Enforceable Obligations.......................16
3.4 Financial Statements and Projections..........................................17
3.5 Material Adverse Effect.......................................................17
3.6 Ownership of Property; Liens..................................................18
3.7 Labor Matters.................................................................18
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.....19
3.9 Government Regulation.........................................................19
3.10 Margin Regulations............................................................19
3.11 Taxes.........................................................................19
3.12 ERISA.........................................................................20
3.13 No Litigation.................................................................20
3.14 Brokers.......................................................................21
3.15 Intellectual Property.........................................................21
3.16 Full Disclosure...............................................................21
3.17 Environmental Matters.........................................................21
3.18 Insurance.....................................................................22
3.19 Deposit and Disbursement Accounts.............................................22
i
<PAGE>
3.20 Government Contracts..........................................................22
3.21 Customer and Trade Relations..................................................22
3.22 Agreements and Other Documents................................................22
3.23 Year 2000 Representations.....................................................22
4. FINANCIAL STATEMENTS AND INFORMATION...................................................22
4.1 Reports and Notices...........................................................22
4.2 Communication with Accountants................................................23
5. AFFIRMATIVE COVENANTS..................................................................23
5.1 Maintenance of Existence and Conduct of Business..............................23
5.2 Payment of Obligations........................................................23
5.3 Books and Records.............................................................24
5.4 Insurance; Damage to or Destruction of Collateral; Condemnation...............24
5.5 Compliance with Laws..........................................................25
5.6 Supplemental Disclosure.......................................................25
5.7 Intellectual Property.........................................................25
5.8 Environmental Matters.........................................................25
5.9 Leased Locations..............................................................26
5.10 Further Assurances............................................................26
5.11 Year 2000 Problems............................................................26
6. NEGATIVE COVENANTS.....................................................................26
6.1 Mergers, Subsidiaries, Etc....................................................26
6.2 Investments; Loans and Advances...............................................26
6.3 Indebtedness..................................................................27
6.4 Employee Loans and Affiliate Transactions.....................................27
6.5 Capital Structure and Business................................................28
6.6 Guaranteed Indebtedness.......................................................28
6.7 Liens.........................................................................28
6.8 Sale of Stock and Assets......................................................28
6.9 ERISA.........................................................................28
6.10 Financial Covenants...........................................................29
6.11 Hazardous Materials...........................................................29
6.12 Sale-Leasebacks...............................................................29
6.13 Cancellation of Indebtedness..................................................29
6.14 Restricted Payments...........................................................29
6.15 Change of Corporate Name or Location; Change of Fiscal Year...................29
6.16 No Impairment of Intercompany Transfers.......................................29
6.17 No Speculative Transactions...................................................29
6.18 Leases........................................................................30
6.19 Prepetition Indebtedness......................................................30
6.20 Reclamation Claims............................................................30
6.21 Credit Parties Other Than Borrowers...........................................30
7. TERM...................................................................................30
7.1 Termination...................................................................30
7.2 Survival of Obligations Upon Termination of Financing Arrangements............30
ii
<PAGE>
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES.................................................31
8.1 Events of Default.............................................................31
8.2 Remedies......................................................................33
9. PARTICIPATIONS.........................................................................33
10. SUCCESSORS AND ASSIGNS.................................................................34
11. MISCELLANEOUS..........................................................................35
11.1 Complete Agreement; Modification of Agreement.................................35
11.2 Amendments and Waivers........................................................35
11.3 Fees and Expenses.............................................................35
11.4 No Waiver.....................................................................36
11.5 Remedies......................................................................36
11.6 Severability..................................................................37
11.7 Conflict of Terms.............................................................37
11.8 Confidentiality...............................................................37
11.9 GOVERNING LAW.................................................................37
11.10 Notices.......................................................................38
11.11 Section Titles................................................................38
11.12 Counterparts..................................................................38
11.13 WAIVER OF JURY TRIAL..........................................................38
11.14 Press Releases................................................................38
11.15 Parties Including Trustees; Bankruptcy Court Proceedings......................39
11.16 Advice of Counsel.............................................................39
11.17 No Strict Construction........................................................39
11.18 Additional Waivers by Borrowers...............................................39
11.19 Oregon State Laws.............................................................41
11.20 STATUTE OF FRAUDS.............................................................42
</TABLE>
iii
<PAGE>
INDEX OF APPENDICES
Annex A (Recitals) - Definitions
Annex B (Section 1.2) - Letters of Credit
-----------
Annex C (Section 1.8) - Cash Management System
-----------
Annex D (Section 2.1(a)) - Schedule of Documents
--------------
Annex E (Section 4.1(a)) - Financial Statements and Projections - Reporting
--------------
Annex F (Section 4.1(b)) - Collateral Reports
--------------
Annex G (Section 6.10) - Financial Covenants
------------
Annex H (Section 11.10) - Notice Addresses
-------------
Exhibit 1.1(a) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(b) - Form of Revolving Note
Exhibit 1.1(c) - Form of Notice of Authorized Representative
Exhibit 1.5(e) - Form of Notice of Conversion/Continuation
Exhibit 4.1(b) - Form of Borrowing Base Certificate
Schedule 1.1 - Lender Representative
Disclosure Schedule (3.2) - Executive Offices; Collateral Locations; FEIN
Disclosure Schedule (3.4(a)) - Financial Statements
Disclosure Schedule (3.4(b)) - Projections
Disclosure Schedule (3.8) - Ventures and Affiliates; Stock
Disclosure Schedule (3.11) - Tax Matters
Disclosure Schedule (3.12) - ERISA Plans
Disclosure Schedule (3.15) - Intellectual Property
Disclosure Schedule (3.17) - Hazardous Materials
Disclosure Schedule (3.18) - Insurance
Disclosure Schedule (3.19) - Deposit and Disbursement Accounts
Disclosure Schedule (3.20) - Government Contracts
Disclosure Schedule (3.22) - Material Agreements
Disclosure Schedule (5.1) - Trade Names
Disclosure Schedule (6.3) - Indebtedness
Disclosure Schedule (6.4(a)) - Transactions with Affiliates
Disclosure Schedule (6.7) - Existing Liens
iv
<PAGE>
THIS DEBTOR IN POSSESSION CREDIT AGREEMENT ("Agreement") is
entered into as of October 5, 1999, by and among TREESOURCE INDUSTRIES, INC, an
Oregon corporation ("TreeSource"), TREESOURCE, INC., an Oregon corporation
("TI"), BURKE LUMBER CO., an Oregon corporation ("Burke"), CENTRAL POINT LUMBER
CO., an Oregon corporation ("Central"), GLIDE LUMBER PRODUCTS CO., an Oregon
corporation ("Glide"), MORTON FOREST PRODUCTS CO., a Washington corporation
("Morton"), NORTH POWDER LUMBER CO., an Oregon corporation ("North Powder"),
PACIFIC HARDWOODS-SOUTH BEND CO., a Washington corporation ("Pacific Hard"),
SPANAWAY LUMBER CO., a Washington corporation ("Spanaway"), TRASK RIVER LUMBER
CO., an Oregon corporation ("Trask"), TUMWATER LUMBER CO., a Washington
corporation ("Tumwater"), and WESTERN TIMBER CO., an Oregon corporation
("Western") (TreeSource, TI, Burke, Central, Glide, Morton, North Powder,
Pacific Hard, Spanaway, Trask, Tumwater and Western, each as Debtor and Debtor
in Possession, are collectively referred to herein as "Borrowers" and
individually as a "Borrower"); the other Credit Parties signatory hereto; and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual
capacity, "GE Capital"), as Lender.
RECITALS
A. On September 27, 1999 (the "Petition Date"), Borrowers and
the other Credit Parties commenced Chapter 11 Case Nos. 99-10932, and 99-10937
through 99-10961, respectively (each a "Chapter 11 Case and collectively, the
"Chapter 11 Case"), by filing voluntary petitions for reorganization under
chapter 11 of title 11 of the United States Code, 11 U.S.C. Sections 101 et seq.
(the "Bankruptcy Code"), with the United States Bankruptcy Court for the Western
District of Washington (the "Bankruptcy Court"). Each Borrower continues to
operate its business and manage its properties as a debtor and debtor in
possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code.
B. Borrowers have requested that Lender provide a senior
secured superpriority revolving credit facility of up to $16,000,000 (subject to
a $2,000,000 excess availability requirement) to fund their respective working
capital requirements and to issue letters of credit and guarantee their
respective letter of credit obligations during the pendency of the Chapter 11
Cases.
C. Lender is willing to make such postpetition loans and other
extensions of credit to Borrowers upon the terms and conditions set forth in
this Agreement.
D. Capitalized terms used in this Agreement shall have the
meanings ascribed to them in Annex A and, for purposes of this Agreement and the
other Loan Documents, the rules of construction set forth in Annex A shall
govern. All exhibits, schedules, annexes and other attachments (collectively,
"Appendices") hereto, or expressly identified to this Agreement, are
incorporated herein by reference and, taken together with this Agreement, shall
constitute but a single agreement. These Recitals shall be construed as part of
the Agreement.
1
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.2 Revolving Credit Facility
(a) Subject to the terms and conditions hereof, Lender agrees
to make available to Borrowers from time to time until the Commitment
Termination Date advances (each, a "Revolving Credit Advance"). The aggregate
amount of Revolving Credit Advances outstanding shall not exceed at any time the
lesser of (i) the Revolving Loan Commitment and (ii) the Borrowing Base, in each
case less the Letter of Credit Obligations (net of any cash held by Lender in
the Cash Collateral Account) outstanding at such time ("Borrowing
Availability"). Until the Commitment Termination Date, Borrowers may from time
to time borrow, repay and reborrow under this Section 1.1(a). Each Revolving
Credit Advance shall be made on notice by Borrower Representative on behalf of
the applicable Borrower to the representative of Lender identified in Schedule
1.1 at the address specified therein. Any such notice must be given no later
than (A) 10:30 a.m. (Los Angeles time) on the Business Day of the proposed
Revolving Credit Advance, in the case of an Index Rate Loan, or (B) 10:30 a.m
(Los Angeles time) on the date that is three Business Days prior to the proposed
Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice (a
"Notice of Revolving Credit Advance") shall, except as provided in Section
1.1(c), be given in writing (by telecopy or overnight courier) substantially in
the form of Exhibit 1.1(a), and shall include the information required in such
Exhibit and such other information as may be required by Lender. If any Borrower
desires to have the Revolving Credit Advances bear interest by reference to a
LIBOR Rate, Borrower Representative must comply with Section 1.5(e).
(b) Borrowers shall execute and deliver to Lender a note to
evidence the Revolving Loan Commitment. The note shall be dated the Closing Date
and substantially in the form of Exhibit 1.1(b) (the "Revolving Note"). The
Revolving Note shall represent the joint and several obligation of Borrowers to
pay the amount of the Revolving Loan Commitment or, if less, the aggregate
unpaid principal amount of all Revolving Credit Advances to Borrowers together
with interest thereon as prescribed in Section 1.5. The entire unpaid balance of
the Revolving Loan and all other non contingent Obligations shall be immediately
due and payable in full in immediately available funds on the Commitment
Termination Date.
(c) Reliance on Notices; Appointment of Borrower
Representative. Lender shall be entitled to rely upon, and shall be fully
protected in relying upon, any Notice of Revolving Credit Advance, Notice of
Conversion/Continuation, Notice of Authorized Representative or similar notice
believed by Lender to be genuine. Lender may assume that each Person executing
and delivering any such notice was duly authorized, unless the responsible
individual acting thereon for Lender has actual knowledge to the contrary. Each
Borrower hereby appoints TreeSource as its representative and agent on its
behalf (in such capacity, "Borrower Representative") for the purposes of issuing
Notices of Revolving Credit Advances and Notices of Conversion/Continuation,
giving instructions with respect to the disbursement of the proceeds of the
Revolving Loan, selecting interest rate options, requesting the incurrence of
Letter of Credit Obligations, giving and receiving all other notices and
consents
2
<PAGE>
hereunder or under any of the other Loan Documents and taking all other actions
(including in respect of compliance with covenants) on behalf of any Borrower or
Borrowers under the Loan Documents. Borrower Representative hereby accepts such
appointment. Lender shall be entitled to rely exclusively on the authority of
each Person designated in the most current Notice of Authorized Representative
received by Lender, and Lender shall have not duty or obligation to verify the
authenticity of any Person purporting to be an Authorized Representative giving
any telephonic notice permitted below. Lender may regard any notice or other
communication pursuant to any Loan Document from Borrower Representative as a
notice or communication from all Borrowers, and may give any notice or
communication required or permitted to be given to any Borrower or Borrowers
hereunder to Borrower Representative on behalf of such Borrower or Borrowers.
Each Borrower agrees that each notice, election, representation and warranty,
covenant, agreement and undertaking made on its behalf by Borrower
Representative shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the
same extent as if the same had been made directly by such Borrower. In addition,
as an accommodation to Borrowers, Lender may permit telephonic requests setting
forth the information in a Notice of Revolving Credit Advance or Notice of
Conversion/Continuation (in each case immediately confirmed in writing) from
Borrower Representative. Unless Borrower Representative specifically directs
Lender in writing not to accept or act upon telephonic communications, Lender
shall have no liability to Borrowers for any loss or damage suffered by any
Borrower as a result of Lender's honoring of any requests communicated to it
telephonically and purporting to have been sent to Lender by Borrower
Representative, and Lender shall have no duty to verify the origin of any such
communication or the identity or authority of the Person sending it.
1.3 Letters of Credit. Subject to and in accordance with the terms and
conditions contained herein and in Annex B, Borrower Representative, on behalf
of the applicable Borrower, shall have the right to request, and Lender agrees
to incur, Letter of Credit Obligations in respect of each Borrower.
1.4 Prepayment.
(a) Voluntary Prepayment. Borrowers may at any time on at
least five days' prior written notice by Borrower Representative to Lender,
voluntarily prepay all of the Revolving Loan and terminate the Revolving Loan
Commitment; provided, that upon such termination, the Revolving Loan and all
other Obligations shall be immediately due and payable in full and Borrowers
shall make arrangements, in accordance with the terms and conditions of Annex B,
for the satisfaction of any outstanding Letter of Credit Obligations. Any such
voluntary prepayment and termination of the Revolving Loan Commitment must be
accompanied by payment of Lender's out-of-pocket expenses and any LIBOR funding
breakage costs in accordance with Section 1.13(b). Upon any such prepayment and
reduction or termination of the Revolving Loan Commitment, each Borrower's right
to request Revolving Credit Advances, or request that Letter of Credit
Obligations be incurred on its behalf, shall simultaneously be terminated.
(b) Mandatory Prepayments.
(i) If at any time the outstanding balance of the
Revolving Loan (net of any cash held by Lender in the Cash Collateral Account at
such time) exceeds the lesser of (A) the Revolving Loan Commitment and (B) the
Borrowing Base, then Borrowers shall immediately repay the aggregate outstanding
Revolving Credit Advances to the extent required to eliminate such excess. If
any such excess remains after repayment in full of the aggregate outstanding
Revolving Credit
3
<PAGE>
Advances, Borrowers shall provide cash collateral for the Letter of Credit
Obligations in the manner set forth in Annex B to the extent required to
eliminate such excess.
(ii) Immediately upon receipt by any Borrower of
proceeds of any asset disposition (excluding proceeds of asset dispositions
permitted by Section 6.8(a)) or any sale of Stock of any Subsidiary of any
Borrower (in each case excluding proceeds from the Mill Sales), Borrowers shall
prepay the Revolving Loan in an amount equal to all such proceeds, net of (A)
commissions and other reasonable and customary transaction costs, fees and
expenses properly attributable to such transaction and payable by Borrowers in
connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes,
(C) amounts payable to holders of senior Liens (to the extent such Liens
constitute Permitted Encumbrances hereunder), if any, and (D) an appropriate
reserve for income taxes in accordance with GAAP in connection therewith. Any
such prepayment shall be applied in accordance with Section 1.3(c).
(c) Application of Certain Mandatory Prepayments. Any
prepayments made by any Borrower pursuant to Section 1.3(b)(ii) or from
insurance or condemnation proceeds in accordance with Sections 5.4(c) or 5.4(d)
shall be applied as follows: first, to Fees and reimbursable expenses of Lender
then due and payable pursuant to any of the Loan Documents; second, to interest
then due and payable on Revolving Credit Advances; third, to the principal
balance of Revolving Credit Advances outstanding to Borrowers until the same
shall have been paid in full; and last, if an Event of Default has occurred and
is continuing at the time of such prepayment, to any Letter of Credit
Obligations incurred on behalf of Borrowers to provide cash collateral therefor
in the manner set forth in Annex B until all such Letter of Credit Obligations
have been fully cash collateralized in the manner set forth in Annex B. The
Revolving Loan Commitment shall not be permanently reduced by the amount of any
such prepayments.
(d) No Consent to Prohibited Transactions. Nothing in this
Section 1.3 shall be construed to constitute Lender's consent to any transaction
that is not permitted by other provisions of this Agreement or the other Loan
Documents.
1.5 Use of Proceeds. Borrowers shall utilize the proceeds of the
Revolving Loan solely for the payment of the costs and expenses of the
transactions contemplated by this Agreement and for the financing of Borrowers'
ordinary working capital and other corporate purposes permitted by the terms of
this Agreement, the other Loan Documents, the Bankruptcy Code and the Bankruptcy
Court; provided, that no portion of the Revolving Loan shall be used, directly
or indirectly: (a) to finance or make any Restricted Payment, (b) to pay any
fees or similar amounts payable to any Person who has proposed or may propose to
purchase interests in any Borrower (including so-called "topping fees," "exit
fees," and similar amounts), or (c) to make any distribution under a plan of
reorganization in any Chapter 11 Case.
1.6 Interest and Applicable Margins.
(a) Borrowers shall pay interest to Lender, in arrears on each
applicable Interest Payment Date, at the Index Rate plus the Applicable Revolver
Index Margin or, at the election of Borrower Representative, the applicable
LIBOR Rate plus the Applicable Revolver LIBOR Margin, based on the aggregate
Revolving Credit Advances outstanding from time to time.
(b) If any payment of any of the Obligations becomes due and
payable on a day
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other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
(c) All computations of Fees calculated on a per annum basis
and interest shall be made by Lender on the basis of a 360-day year, in each
case for the actual number of days occurring in the period for which such Fees
or interest are payable. The Index Rate shall be determined each day based upon
the Index Rate as in effect each day. Each determination by Lender of an
interest rate hereunder shall be final, binding and conclusive on Borrowers
(absent manifest error).
(d) So long as an Event of Default shall have occurred and be
continuing under Sections 8.1(a), or so long as any other Event of Default shall
have occurred and be continuing, and at the election of Lender confirmed by
written notice from Lender to Borrower Representative, the interest rates
applicable to the Revolving Loan and the Letter of Credit Fees shall be
increased by two percentage points (2%) per annum above the rates of interest or
the rate of such Fees otherwise applicable hereunder (the "Default Rate"), and
all outstanding Obligations shall bear interest at the Default Rate applicable
to such Obligations. Interest and Letter of Credit Fees at the Default Rate
shall accrue from the initial date of such Event of Default until that Event of
Default is cured or waived and shall be payable upon demand.
(e) Subject to the conditions precedent set forth in Section
2.2, Borrower Representative shall have the option to (i) request that any
Revolving Credit Advance be made as a LIBOR Loan, (ii) convert at any time all
or any part of outstanding Revolving Loan from Index Rate Loans to LIBOR Loans,
(iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR
breakage costs in accordance with Section 1.13(b) if such conversion is made
prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue
all or any portion of any Revolving Loan as a LIBOR Loan upon the expiration of
the applicable LIBOR Period and the succeeding LIBOR Period of that continued
Loan shall commence on the last day of the LIBOR Period of the Loan to be
continued. Any Revolving Loan to be made or continued as, or converted into, a
LIBOR Loan must be in a minimum amount of $2,000,000 and integral multiples of
$500,000 in excess of such amount. Any such election must be made by 10:30 a.m
(Los Angeles time) on the third Business Day prior to (A) the date of any
proposed Revolving Credit Advance that is to bear interest at the LIBOR Rate,
(B) the end of each LIBOR Period with respect to any LIBOR Loans to be continued
as such, or (C) the date on which Borrower Representative wishes to convert any
Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower
Representative in such election. If no election is received with respect to a
LIBOR Loan by 10:30 a.m. (Los Angeles time) on the third Business Day prior to
the end of the LIBOR Period with respect thereto (or if an Event of Default
shall have occurred and be continuing or if the additional conditions precedent
set forth in Section 2.2 shall not have been satisfied), that LIBOR Loan shall
be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower
Representative must make such election by notice to Lender in writing, by
telecopy or overnight courier. In the case of any conversion or continuation,
such election must be made pursuant to a written notice (a "Notice of
Conversion/Continuation") in the form of Exhibit 1.5(e).
(f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, that if at any time thereafter
the rate of interest payable
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hereunder is less than the Maximum Lawful Rate, Borrowers shall continue to pay
interest hereunder at the Maximum Lawful Rate until such time as the total
interest received by Lender is equal to the total interest that would have been
received had the interest rate payable hereunder been (but for the operation of
this paragraph) the interest rate payable since the Closing Date as otherwise
provided in this Agreement. Thereafter, interest hereunder shall be paid at the
rate(s) of interest and in the manner provided in Sections 1.5(a) through (e),
unless and until the rate of interest again exceeds the Maximum Lawful Rate, and
at that time this paragraph shall again apply. In no event shall the total
interest received by Lender pursuant to the terms hereof exceed the amount that
Lender could lawfully have received had the interest due hereunder been
calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum
Lawful Rate is calculated pursuant to this paragraph, such interest shall be
calculated at a daily rate equal to the Maximum Lawful Rate divided by the
number of days in the year in which such calculation is made. If,
notwithstanding the provisions of this Section 1.5(f), a court of competent
jurisdiction shall finally determine that Lender has received interest hereunder
in excess of the Maximum Lawful Rate, Lender shall, to the extent permitted by
applicable law, promptly apply such excess in the order specified in Section
1.11 and thereafter shall refund any excess to Borrowers or as a court of
competent jurisdiction may otherwise order.
1.7 Eligible Accounts. Based on the most recent Borrowing Base
Certificate delivered by Borrower Representative to Lender and on any other
information available to Lender, Lender shall in its reasonable credit judgment
determine which Accounts of Borrowers shall be "Eligible Accounts" for purposes
of this Agreement. In determining whether a particular Account of any Borrower
constitutes an Eligible Account, Lender shall not include any such Account to
which any of the exclusionary criteria set forth below applies. Lender reserves
the right, at any time and from time to time after the Closing Date in its
reasonable credit judgment, to adjust any such criteria, to establish new
criteria, to adjust advance rates, to establish Reserves, and to modify Reserves
with respect to Eligible Accounts. Eligible Accounts shall not include any
Account of Burke, and shall not include any Account of any other Borrower:
(a) that does not arise from the sale of goods or the
performance of services by such Borrower in the ordinary course of its business;
(b) (i) upon which such Borrower's right to receive payment is
not absolute or is contingent upon the fulfillment of any condition whatsoever
or (ii) as to which such Borrower is not able to bring suit or otherwise enforce
its remedies against the Account Debtor through judicial process or (iii) if the
Account represents a progress billing consisting of an invoice for goods sold or
services rendered pursuant to a contract under which the Account Debtor's
obligation to pay that invoice is subject to such Borrower's completion of
further performance under such contract or is subject to the equitable lien of a
surety bond issuer;
(c) to the extent that any defense, counterclaim, setoff or
dispute is asserted as to such Account;
(d) that is not a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;
(e) with respect to which an invoice, acceptable to Lender in
form and substance, has not been sent to the applicable Account Debtor;
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(f) that (i) is not owned by such Borrower or (ii) is subject
to any right, claim, security interest or other interest of any other Person,
other than Liens in favor of Lender and Prepetition Lenders;
(g) that arises from a sale to any director, officer, other
employee or Affiliate of any Credit Party, or to any entity that has any common
officer or director with any Credit Party;
(h) that is the obligation of an Account Debtor that is the
United States government or a political subdivision thereof, or any state or
municipality or department, agency or instrumentality thereof unless Lender, in
its sole discretion, has agreed to the contrary in writing and such Borrower, if
necessary or desirable, has complied with the Federal Assignment of Claims Act
of 1940 or any applicable state statute or municipal ordinance of similar
purpose and effect with respect to such obligation;
(i) that is the obligation of an Account Debtor located in a
foreign country other than Canada (excluding the provinces of Quebec,
Newfoundland, Nova Scotia and Prince Edward Island and the Northwest
Territories) unless payment thereof is assured by a letter of credit, assigned
and delivered to Lender and satisfactory to Lender as to form, amount and
issuer;
(j) to the extent such Borrower or any Subsidiary thereof is
liable for goods sold or services rendered by the applicable Account Debtor to
such Borrower or any Subsidiary thereof but only to the extent of the potential
offset;
(k) that arises with respect to goods that are delivered on a
bill-and-hold or cash-on-delivery basis or placed on consignment, guaranteed
sale or other terms by reason of which the payment by the Account Debtor is or
may be conditional;
(l) that is in default; provided, that without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(i) such Account is not paid within the earlier of 50
days following its due date or 60 days following its original invoice
date;
(ii) if the Account Debtor obligated upon such
Account suspends business, makes a general assignment for the benefit
of creditors or fails to pay its debts generally as they come due; or
(iii) a petition is filed by or against any Account
Debtor obligated upon such Account under any bankruptcy law or any
other federal, state or foreign (including any provincial)
receivership, insolvency relief or other law or laws for the relief of
debtors;
(m) that is an obligation of an Account Debtor with respect to
which fifty percent (50%) or more of the Dollar amount of all Accounts owing by
such Account Debtor are ineligible under the other criteria set forth in this
Section 1.6;
(n) as to which Lender's Lien thereon is not a first priority
perfected Lien;
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(o) as to which any of the representations or warranties
pertaining to Accounts in the Loan Documents is untrue;
(p) to the extent such Account is evidenced by a judgment,
Instrument or Chattel Paper;
(q) to the extent such Account exceeds any credit limit
established by Lender, in its reasonable credit judgment, following prior notice
of such limit by Lender to Borrower Representative;
(r) to the extent that such Account, together with all other
Accounts owing by such Account Debtor and its Affiliates as of any date of
determination, exceeds 15% of all Eligible Accounts;
(s) that is payable in any currency other than Dollars; or
(t) that is otherwise unacceptable to Lender in its reasonable
credit judgment.
1.8 Eligible Inventory. Based on the most recent Borrowing Base
Certificate delivered by Borrower Representative to Lender and on any other
information available to Lender, Lender shall in its reasonable credit judgment
determine which Inventory of Borrowers shall be "Eligible Inventory" for
purposes of this Agreement. In determining whether any particular Inventory of
any Borrower constitutes Eligible Inventory, Lender shall not include any such
Inventory to which any of the exclusionary criteria set forth below applies.
Lender reserves the right, at any time and from time to time after the Closing
Date in its reasonable credit judgment, to adjust any such criteria, to
establish new criteria, to adjust advance rates, to establish Reserves, and to
modify Reserves (including the Lumberman's Lien Reserve) with respect to
Eligible Inventory. Eligible Inventory shall not include any Inventory of Burke,
and shall not include any Inventory of any other Borrower that:
(a) is not owned by such Borrower free and clear of all Liens
and rights of any other Person (including the rights of a purchaser that has
made progress payments and the rights of a surety that has issued a bond to
assure such Borrower's performance with respect to such Inventory), except (i)
the Liens in favor of Lender and Prepetition Lenders, (ii) statutory Liens in
favor of landlords (subject to Reserves established by Lender with respect to
such Liens), and (iii) Lumberman's Liens (subject to Reserves established by
Lender with respect to such Liens);
(b) (i) is not located on premises owned or leased by such
Borrower and referenced in Disclosure Schedule (3.2), (ii) is located at a
public warehouse, unless (A) the warehouseman has executed a bailee letter in
form and substance acceptable to Lender and (B) Lender has determined the amount
of, and is maintaining, a Reserve against the Borrowing Base with respect to the
Inventory located at such public warehouse, (iii) is located at one of such
Borrower's owned or leased locations, unless either (A) the mortgagee or
landlord, as applicable, has executed a mortgagee's waiver or a landlord's
waiver, as the case may be, in form and substance acceptable to Lender or (B)
Lender has determined the amount of, and is maintaining, a Reserve against the
Borrowing Base with respect to the Inventory located at such owned or leased
location, or (iv) is located at any site if the aggregate book value of
Inventory at any such location is less than $100,000;
(c) is placed on consignment or is in transit;
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(d) is covered by a negotiable document of title, unless such
document has been delivered to Lender with all necessary endorsements, free and
clear of all Liens except those in favor of Lender;
(e) in Lender's reasonable determination is excess, obsolete,
unsalable, shopworn, seconds, damaged or unfit for sale;
(f) consists of display items or packing or shipping
materials, manufacturing supplies, replacement parts or, unless otherwise agreed
to by Lender, work-in-process Inventory;
(g) consists of goods that have been returned by the buyer;
(h) is not of a type held for sale in the ordinary course of
such Borrower's business;
(i) is not subject to a first priority perfected Lien in favor
of Lender, except for Inventory subject to Lumberman's Liens;
(j) does not comply with any of the representations or
warranties pertaining to Inventory set forth in the Loan Documents;
(k) consists of any costs associated with "freight-in"
charges;
(l) consists of Hazardous Materials or goods that can be
transported or sold only with licenses that are not readily available;
(m) is not covered by casualty insurance acceptable to Lender;
or
(n) is otherwise unacceptable to Lender in its reasonable
credit judgment.
1.9 Cash Management System. On or prior to the Closing Date, Borrowers
will establish and will maintain until the Termination Date, the cash management
system described in Annex C (the "Cash Management System").
1.10 Fees
(a) Borrowers shall pay to Lender on the Closing Date, a
Closing Fee in the amount of $110,000, against which shall be credited the prior
payment by TreeSource of the $55,000 commitment fee for the Revolving Credit
Commitment.
(b) As additional compensation for Lender's Revolving Loan
Commitment, Borrowers shall pay to Lender, in arrears, on the first Business Day
of each month prior to the Commitment Termination Date and on the Commitment
Termination Date, a Fee for Borrowers' non-use of available funds in an amount
equal to (i) one-fifth of one percent (0.20%) per annum (calculated on the basis
of a 360 day year for actual days elapsed) multiplied by (ii) (A) the Revolving
Loan Commitment minus (B) the average for the period of the daily closing
balances of the Revolving Loan outstanding during the period for which such Fee
is due.
(c) Borrowers shall pay to Lender the Letter of Credit Fee as
provided in Annex B.
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1.11 Receipt of Payments. Borrowers shall make each payment under this
Agreement not later than 11:00 a.m. (Los Angeles time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing interest and Fees and determining Borrowing Availability or Net
Borrowing Availability as of any date, all payments shall be deemed received on
the Business Day of receipt of immediately available funds therefor in the
Collection Account prior to 11:00 a.m. (Los Angeles time). Payments received
after 11:00 a.m. (Los Angeles time) on any Business Day or on a day that is not
a Business Day shall be deemed to have been received on the following Business
Day.
1.12 Application and Allocation of Payments.
(a) So long as no Event of Default shall have occurred and be
continuing: (i) payments consisting of proceeds of Accounts received in the
ordinary course of business shall be applied to the Revolving Loan; (ii)
payments matching specific scheduled payments then due shall be applied to those
scheduled payments; and (iii) mandatory prepayments shall be applied as set
forth in Section 1.3(c). As to each other payment, and as to all payments made
when an Event of Default shall have occurred and be continuing or following the
Commitment Termination Date, each Borrower hereby irrevocably waives the right
to direct the application of any and all payments received from or on behalf of
such Borrower and agrees that Lender shall have the continuing exclusive right
to apply any and all such payments against the Obligations of Borrowers as
Lender may deem advisable notwithstanding that any previous entry by Lender in
the Loan Account or any other books and records of a similar item was entered in
a manner inconsistent with the application Lender elects during such
continuation of an Event of Default. In the absence of a specific determination
by Lender with respect thereto, payments shall be applied to amounts then due
and payable in the following order: (A) to Fees and Lender's expenses
reimbursable hereunder; (B) to interest on the Revolving Loan; (C) to principal
payments on the Revolving Loan and to provide cash collateral for Letter of
Credit Obligations in the manner described in Annex B; and (D) to all other
Obligations to the extent reimbursable under Section 11.3.
(b) Lender is authorized to, and at its sole election may,
charge to the Revolving Loan balance on behalf of Borrowers and cause to be paid
all Fees, expenses, Charges, costs (including insurance premiums in accordance
with Section 5.4(a)) and interest and principal, other than principal of the
Revolving Loan, owing by Borrowers under this Agreement or any of the other Loan
Documents if and to the extent Borrowers fail to pay promptly any such amounts
as and when due, even if such charges would cause the Revolving Loan after
giving effect to such charges to exceed Borrowing Availability. At Lender's
option and to the extent permitted by law, any charges so made shall constitute
part of the Revolving Loan hereunder.
1.13 Loan Account and Accounting. Lender shall maintain a loan account
(the "Loan Account") on its books to record: (a) all Revolving Credit Advances;
(b) all payments made by Borrowers; and (c) all other debits and credits as
provided in this Agreement with respect to the Revolving Loan or any other
Obligations. All entries in the Loan Account shall be made in accordance with
Lender's customary accounting practices as in effect from time to time. The
balance in the Loan Account, as recorded on Lender's most recent printout or
other written statement, shall, absent manifest error, be presumptive evidence
of the amounts due and owing to Lender by Borrowers; provided, that any failure
to so record or any error in so recording shall not limit or otherwise affect
any Borrower's joint and several obligation to pay the Obligations. Lender shall
render to Borrower Representative a
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monthly accounting of transactions with respect to the Revolving Loan setting
forth the balance of the Loan Account as to each Borrower for the immediately
preceding month. Unless Borrower Representative notifies Lender in writing of
any objection to any such accounting (specifically describing the basis for such
objection), within 60 days after the date thereof, each and every such
accounting shall be deemed final, binding and conclusive on Borrowers (absent
manifest error) in all respects as to all matters reflected therein. Only those
items expressly objected to in such notice shall be deemed to be disputed by
Borrowers.
1.14 Indemnity.
(a) Each Credit Party shall jointly and severally indemnify
and hold harmless each of Lender and its Affiliates, and each such Person's
respective officers, directors, employees, attorneys, agents and representatives
(each, an "Indemnified Person"), from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses (including
attorneys' fees and disbursements and other costs of investigation or defense,
including those incurred upon any appeal) that may be instituted or asserted
against or incurred by any such Indemnified Person as the result of credit
having been extended, suspended or terminated under this Agreement and the other
Loan Documents and the administration of such credit, and in connection with or
arising out of the transactions contemplated hereunder and thereunder and any
actions or failures to act in connection therewith, including any and all
Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
Loan Documents (collectively, "Indemnified Liabilities"); provided, that no
Credit Party shall be liable for any indemnification to an Indemnified Person to
the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from such Indemnified Person's gross negligence or
willful misconduct, as finally determined by a court of competent jurisdiction.
NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY
LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON
OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN
DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
(b) To induce Lender to provide the LIBOR Rate option on the
terms provided herein, if: (i) any LIBOR Loans are repaid in whole or in part
prior to the last day of any applicable LIBOR Period (whether such repayment is
made pursuant to any provision of this Agreement or any other Loan Document or
occurs as a result of acceleration, by operation of law or otherwise); (ii) any
Borrower shall default in payment when due of the principal amount of or
interest on any LIBOR Loan; (iii) any Borrower shall default in making any
borrowing of, conversion into or continuation of LIBOR Loans after Borrower
Representative has given notice requesting the same in accordance herewith; or
(iv) any Borrower shall fail to make any prepayment of a LIBOR Loan after
Borrower Representative has given a notice thereof in accordance herewith, then
Borrowers shall jointly and severally indemnify and hold harmless Lender from
and against all losses, costs and expenses resulting from or arising from any of
the foregoing. Such indemnification shall include any loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate deposits from which such funds were obtained. For the
purpose of calculating amounts payable to Lender under this subsection, Lender
shall be deemed to have actually funded the relevant LIBOR Loan through the
purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to
the
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amount of that LIBOR Loan and having a maturity comparable to the relevant
LIBOR Period; provided, that Lender may fund each of its LIBOR Loans in any
manner it sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this subsection. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. As promptly as practicable under the
circumstances, Lender shall provide Borrower Representative with its written
calculation of all amounts payable pursuant to this Section 1.13(b), and such
calculation shall be binding on the parties hereto unless Borrower
Representative shall object in writing within 30 days of receipt thereof,
specifying the basis for such objection in detail.
1.15 Access.
(a) Each Credit Party shall, during normal business hours,
from time to time upon one Business Day's prior notice as frequently as Lender
determines to be appropriate: (i) provide Lender and any of its officers,
employees and agents access to its properties, facilities, advisors and
employees (including officers) of each Credit Party and to the Collateral; (ii)
permit Lender and any of its officers, employees and agents to inspect, audit
and make extracts from such Borrower's books and records; and (iii) permit
Lender and its officers, employees and agents to inspect, review, evaluate and
make test verifications and counts of the Accounts, Inventory and other
Collateral of any Borrower. If a Default or Event of Default shall have occurred
and be continuing or if access is necessary to preserve or protect the
Collateral as determined by Lender in its reasonable credit judgment, each such
Credit Party shall provide such access at all times and without advance notice.
Furthermore, so long as any Event of Default shall have occurred and be
continuing, Borrowers shall cooperate with Lender to provide access to
Borrowers' suppliers and customers. Each Borrower shall make available to Lender
and its counsel, as quickly as is reasonably possible under the circumstances,
originals or copies of all books and records that Lender may reasonably request.
Each Borrower shall deliver any document or instrument necessary for Lender, as
it may from time to time request, to obtain records from any service bureau or
other Person that maintains records for such Borrower, and shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by such Borrower.
(b) Borrowers shall pay Lender a Fee of $575 per day per
individual (plus all reasonable out-of-pocket costs and expenses) in connection
with Lender's field examinations permitted under Section 1.14(a). Such Fees and
expenses shall be charged against the Revolving Loan in connection with each
field audit conducted after the Closing Date; provided, that so long as no Event
of Default shall have occurred and be continuing, Lender shall not be entitled
to be reimbursed for more than four field examinations in any calendar year.
1.16 Taxes.
(a) Any and all payments by each Borrower hereunder or under
the Revolving Note shall be made, in accordance with this Section 1.15, free and
clear of and without deduction for any and all present or future Taxes. If any
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under the Revolving Note, (i) the sum payable shall be
increased as much as shall be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 1.15) Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make such
deductions, and (iii) such Borrower shall pay the full amount deducted to the
relevant taxing
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or other authority in accordance with applicable law. Within 30 days after the
date of any payment of Taxes, Borrower Representative shall furnish to Lender
the original or a certified copy of a receipt evidencing payment thereof.
(b) Each Borrower shall jointly and severally indemnify and,
within 30 days of demand therefor, pay Lender for the full amount of Taxes
(including any Taxes imposed by any jurisdiction on amounts payable under this
Section 1.15) and any liability (including penalties, interest and expenses)
paid by Lender in its reasonable credit judgment and arising in connection with
the Revolving Loan.
1.17 Capital Adequacy; Increased Costs; Illegality.
(a) If Lender shall have determined that the adoption after
the date hereof of any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy, reserve requirements
or similar requirements or compliance by Lender with any request or directive
regarding capital adequacy, reserve requirements or similar requirements
(whether or not having the force of law) from any central bank or other
Governmental Authority increases or would have the effect of increasing the
amount of capital, reserves or other funds required to be maintained by Lender
and thereby reducing the rate of return on Lender's capital as a consequence of
its obligations hereunder, then Borrowers shall from time to time upon demand by
Lender pay to Lender additional amounts sufficient to compensate Lender for such
reduction. A certificate as to the amount of that reduction and showing the
basis of the computation thereof submitted by Lender to Borrower Representative
shall be final, binding and conclusive on Borrowers (absent manifest error) for
all purposes.
(b) If, due to either (i) the introduction of or any change in
any law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case,
adopted after the Closing Date, there shall be any increase in the cost to
Lender of agreeing to make or making, funding or maintaining the Revolving Loan,
then Borrowers shall, from time to time upon demand by Lender, pay to Lender
additional amounts sufficient to compensate Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to Borrower
Representative by Lender, shall be final, binding and conclusive on Borrowers
(absent manifest error) for all purposes. Lender agrees that, as promptly as
practicable after it becomes aware of any circumstances referred to above that
would result in any such increased cost, Lender shall, to the extent not
inconsistent with Lender's internal policies of general application, use
reasonable commercial efforts to minimize costs and expenses incurred by it and
payable to it by Borrowers pursuant to this Section 1.16(b).
(c) Notwithstanding anything to the contrary contained herein,
if the introduction of or any change in any law or regulation (or any change in
the interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for Lender to agree to
make or to make or to continue to fund or maintain any LIBOR Loan, then, unless
Lender is able to make or to continue to fund or to maintain such LIBOR Loan at
another branch or office of Lender without, in Lender's opinion, adversely
affecting it or its LIBOR Loans or the income obtained therefrom, on notice
thereof and demand therefor by Lender to Borrower Representative, (i) the
obligation of Lender to agree to make or to make or to continue to fund or
maintain LIBOR Loans shall terminate, and (ii) each Borrower shall forthwith
prepay in full all outstanding LIBOR
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Loans owing by such Borrower to Lender, together with interest accrued thereon,
unless Borrower Representative on behalf of such Borrower, within five Business
Days after the delivery of such notice and demand, converts all such LIBOR Loans
into Index Rate Loans.
1.18 Single Loan. The Revolving Loan and all of the other Obligations
of each Borrower arising under this Agreement and the other Loan Documents shall
constitute one general obligation of such Borrower secured, until the
Termination Date, by all of the Collateral.
1.19 Priority of Obligations and Lender's Liens .
(a) The priority of Lender's Liens on the Collateral shall be
set forth in the Interim Order and the Final Order.
(b) Subject to the Carve-Out, the Obligations shall have the
highest administrative priority under Section 364(c) of the Bankruptcy Code over
all other costs and expenses of the kinds specified in, or ordered pursuant to,
Sections 105, 326, 330, 331, 503(b), 506(c), 507(a), 507(b), 726 or any other
provision of the Bankruptcy Code and shall at all times be senior to the rights
of each Borrower, each Borrower's estate, and any successor trustee or estate
representative in any Chapter 11 Case or any subsequent proceeding or case under
the Bankruptcy Code.
(c) Lender's Liens on the Collateral and the administrative
priority under Section 364(c) of the Bankruptcy Code afforded the Obligations
shall, following the occurrence and during the continuation of an Event of
Default, be subject to (i) the unpaid professional fees and expenses incurred in
the Chapter 11 Cases by Borrowers and the members of any statutory committee
appointed pursuant to Section 1102 of the Bankruptcy Code, in each case as and
when allowed on a final basis pursuant to Section 330 of the Bankruptcy Code,
(ii) fees payable to the United States Trustee pursuant to 28 U.S.C. Section
1930(a)(6), and (iii) fees and expenses of a subsequent Chapter 7 trustee, in an
aggregate amount with respect to the preceding clauses (i)-(iii) of no more than
$1,000,000 (the "Carve-Out"); provided, that the Carve-Out shall (A) only be
applicable in the event, and to the extent, that there are no unencumbered
assets of Debtor's estate that may be used to satisfy such fees and expenses,
and (B) shall not be paid from amounts on deposit in the Cash Collateral
Account.
(d) Subject to clause (iii) of Section 8.2(b), Lender consents
to each Borrower's use of the Cash Collateral of Lender pursuant to this
Agreement and the other Loan Documents.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans . Lender shall not be obligated to
make any Revolving Credit Advance or incur any Letter of Credit Obligations on
the Closing Date, or to take, fulfill, or perform any other action hereunder,
until the following conditions have been satisfied, in Lender's sole discretion,
or waived in writing by Lender:
(a) Credit Agreement; Loan Documents. This Agreement or
counterparts hereof shall have been duly executed by and delivered to Borrowers,
each other Credit Party and Lender, and Lender shall have received such
documents, instruments, agreements and legal opinions as Lender shall reasonably
request in connection with the transactions contemplated by this Agreement and
the
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other Loan Documents, including all those listed in the Schedule of Documents,
each in form and substance satisfactory to Lender.
(b) Subordination of Prepetition Lender Obligations. Lender
shall have received a fully executed original of a subordination agreement
satisfactory to Lender confirming that all of the Prepetition Lender Obligations
and all Liens securing such obligations, including replacement Liens (other than
such Liens on Collateral subject to the Mill Sales) will be subordinated in a
manner acceptable to Lender in its sole discretion.
(c) Approvals. Lender shall have received (i) satisfactory
evidence that the Borrowers have obtained all required consents and approvals of
all Persons, including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents or (ii)
an officer's certificate in form and substance satisfactory to Lender affirming
that no such consents or approvals are required.
(d) Opening Availability. The Eligible Accounts and Eligible
Inventory of Borrowers supporting the initial Revolving Credit Advance and the
initial Letter of Credit Obligations incurred and the amount of the Reserves to
be established on the Closing Date shall be sufficient in value, as determined
by Lender, to provide Borrowers, collectively, with Net Borrowing Availability,
after giving effect to the initial Revolving Credit Advance and the incurrence
of any initial Letter of Credit Obligations (on a pro forma basis, with trade
payables being paid currently, and expenses and liabilities being paid in the
ordinary course of business and without acceleration of sales) of at least
$4,000,000.
(e) Payment of Fees. Borrowers shall have paid the Fees
required to be paid on the Closing Date in the respective amounts specified in
Section 1.9 and shall have reimbursed Lender for all fees, costs and expenses of
closing presented as of the Closing Date.
(f) Indebtedness. The terms and conditions of all Indebtedness
of each Borrower shall be acceptable to Lender in its sole discretion.
(g) Due Diligence. Lender shall have completed its business
and legal due diligence, including with respect to each Borrower's insurance
policies, with results satisfactory to Lender.
2.2 Further Conditions to Each Loan . Lender shall not be obligated to
fund any Revolving Credit Advance, convert or continue any portion of the
Revolving Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if, as
of the date thereof:
(a) any representation or warranty by any Borrower contained
herein or in any other Loan Document shall be untrue or incorrect as of such
date, except to the extent that such representation or warranty expressly
relates to an earlier date and except for changes therein expressly permitted or
expressly contemplated by this Agreement;
(b) (i) the Bankruptcy Court shall not have entered the
Interim Order following the expiration of the notice period required under
Bankruptcy Rule 4001, (ii) the Bankruptcy Court shall not have entered the Final
Order following the later of (A) the expiration of the notice period required
under Bankruptcy Rule 4001 and (B) the expiration of the Interim Order, or (iii)
the Interim Order or
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the Final Order, as the case may be, shall have been vacated, reversed, modified
or amended without Lender's consent, or an appeal of any such order shall have
been timely filed and a stay of such order pending appeal shall not be presently
effective;
(c) except as occasioned by the commencement of the Chapter 11
Cases and the actions, proceedings, and investigations related thereto, any
event or circumstance having a Material Adverse Effect shall have occurred since
the date hereof;
(d) any Default or Event of Default shall have occurred and be
continuing or would result after giving effect to any Revolving Credit Advance
(or the incurrence of any Letter of Credit Obligation); provided, that Borrowers
may request that any portion of the Revolving Loan be converted or continued as
a LIBOR Loan on any date that any Default (but not Event of Default) has
occurred and is continuing;
(e) after giving effect to any Revolving Credit Advance (or
the incurrence of any Letter of Credit Obligation), the outstanding principal
amount of the aggregate Revolving Loan would exceed (i) the lesser of the
Borrowing Base and the Revolving Loan Commitment, or (ii) the amount then
authorized by the Interim Order or the Final Order, as applicable; or
(f) the Cash Use Order shall have been terminated for any
reason.
The request and acceptance by any Borrower of the proceeds of any Revolving
Credit Advance, the incurrence of any Letter of Credit Obligations or the
conversion or continuation of any portion of the Revolving Loan into, or as, a
LIBOR Loan, as the case may be, shall be deemed to constitute, as of the date of
such request, acceptance or incurrence, (i) a representation and warranty by
Borrowers that the conditions in this Section 2.2 have been satisfied and (ii) a
reaffirmation by Borrowers of the granting and continuance of Lender's Liens
pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lender to make Revolving Credit Advances and to incur Letter
of Credit Obligations, Borrowers jointly and severally, make the following
representations and warranties to Lender, each and all of which shall survive
the execution and delivery of this Agreement.
3.1 Corporate Existence; Compliance with Law. Each Borrower: (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation; (b) is duly qualified to conduct business
and is in good standing in each other jurisdiction where its ownership or lease
of property or the conduct of its business requires such qualification; (c)
subject to compliance with any applicable provisions of the Bankruptcy Code, has
the requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease and to conduct its business as now, heretofore and
proposed to be conducted; (d) subject to specific representations regarding
Environmental Laws, has all licenses, permits, consents or approvals from or by,
and has made all filings with, and has given all notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (e) is in compliance with its charter and bylaws; and (f)
subject to specific representations set forth herein regarding ERISA,
Environmental Laws, tax and other laws, is in compliance with all applicable
provisions of law, except where the failure to comply, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
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3.2 Executive Offices; Collateral Locations; FEIN . As of the Closing
Date, the current location of each Borrower's chief executive office and the
warehouses and premises within which any Collateral is stored or located are set
forth in Disclosure Schedule (3.2) and none of such locations has changed within
the 12 months preceding the Closing Date. In addition, Disclosure Schedule (3.2)
lists the federal employer identification number of each Borrower.
3.3 Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by each Borrower of the Loan Documents to
which it is a party and the creation of all Liens provided for therein: (a) are
within such Borrower's corporate power; (b) have been duly authorized by all
necessary or proper corporate and shareholder action; (c) have been, or by the
Closing Date will be, duly authorized by the Bankruptcy Court; (d) do not
contravene any provision of such Borrower's charter or bylaws; (e) do not
violate any law or regulation, or any order or decree of any court or
Governmental Authority; (f) do not conflict with or result in the breach or
termination of, constitute a default under or accelerate or permit the
acceleration of any performance required by, any indenture, mortgage, deed of
trust, lease, agreement or other instrument to which such Borrower is a party or
by which such Borrower or any of its property is bound; (g) do not result in the
creation or imposition of any Lien upon any of the property of such Borrower
other than those in favor of Lender pursuant to the Loan Documents; and (h) do
not require the consent or approval of any Governmental Authority or any other
Person, except for the Bankruptcy Court and those referred to in Section 2.1(c),
all of which will have been duly obtained, made or complied with prior to the
Closing Date. On or prior to the Closing Date, each of the Loan Documents shall
have been duly executed and delivered by each Borrower that is a party thereto
and, subject to the entry of the Interim Order and the Final Order, as
applicable, each such Loan Document shall then constitute a legal, valid and
binding obligation of such Borrower enforceable against it in accordance with
its terms.
3.4 Financial Statements and Projections. Except for the Projections,
all Financial Statements concerning TreeSource and its Subsidiaries that are
referenced below have been prepared in accordance with GAAP consistently applied
throughout the periods covered (except as disclosed therein and except, with
respect to unaudited Financial Statements, for the absence of footnotes and
normal year-end audit adjustments) and present fairly in all material respects
the financial position of the Persons covered thereby as at the dates thereof
and the results of their operations and cash flows for the periods then ended.
(a) The following Financial Statements attached hereto as
Disclosure Schedule (3.4(a)) have been delivered on the Closing Date:
(i) The audited consolidated balance sheets at April
30, 1999, and the related statements of income and cash flows of
TreeSource and its Subsidiaries for the Fiscal Years then ended,
certified by Moss Adams LLP.
(ii) The unaudited balance sheet(s) at July 31, 1999,
and the related statement(s) of income and cash flows of TreeSource and
its Subsidiaries for the first Fiscal Quarter then ended.
(b) Projections. The Projections delivered on the Closing Date
and attached hereto as Disclosure Schedule (3.4(b)) have been prepared by
Borrowers in light of the past operations of their businesses and reflect
projections for the five year period beginning on April 30, 1999, on a
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month-by-month basis for the first 2 year period and on a year-by-year basis
thereafter. The Projections are based upon estimates and assumptions stated
therein, all of which Borrowers believe to be reasonable and fair in light of
current conditions and current facts known to Borrowers and, as of the Closing
Date, reflect Borrowers' good faith and reasonable estimates of the future
financial performance of Borrowers and of the other information projected
therein for the period set forth therein.
3.5 Material Adverse Effect. Between April 30, 1999, and the Closing
Date: (a) no Borrower has incurred any obligations, contingent or non contingent
liabilities, liabilities for Charges, long-term leases or unusual forward or
long-term commitments that are not reflected in the Financial Statements and
that, alone or in the aggregate, could reasonably be expected to have a Material
Adverse Effect; (b) no contract, lease or other agreement or instrument has been
entered into by any Borrower or has become binding upon any Borrower's assets
and no law or regulation applicable to any Borrower has been adopted that has
had or could reasonably be expected to have a Material Adverse Effect; and (c)
except for defaults occasioned by the commencement of the Chapter 11 Cases or
occurring prior to the Petition Date, no Borrower is in default and to the best
of Borrowers' knowledge no third party is in default under any material
contract, lease or other agreement or instrument to which such Borrower is party
that alone or in the aggregate could reasonably be expected to have a Material
Adverse Effect. Between April 30, 1999, and the Closing Date, except as
occasioned by the commencement of the Chapter 11 Cases and the actions,
proceedings, and investigations related thereto, no event has occurred that,
alone or together with other events, could reasonably be expected to have a
Material Adverse Effect.
3.6 Ownership of Property; Liens. As of the Closing Date, the real
estate ("Real Estate") listed in Schedule A to each Borrower's Voluntary
Petition filed in its Chapter 11 Case constitutes all of the real property
owned, leased, subleased, or used by such Borrower. Each Borrower owns good and
marketable fee simple title to all of its owned Real Estate, and valid and
marketable leasehold interests in all of its leased Real Estate, and copies of
all such leases or a summary of terms thereof satisfactory to Lender have been
made available to Lender. Each Borrower also has good title to, or valid
leasehold interests in, all of its personal property and assets. As of the
Closing Date, none of the properties and assets of any Borrower are subject to
any Liens other than Permitted Encumbrances, and there are no facts,
circumstances or conditions known to any Borrower that may result in any Liens
(including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Each Borrower has received all deeds, assignments, waivers,
consents, nondisturbance and attornment or similar agreements, bills of sale and
other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Borrower's right, title and
interest in and to all such Real Estate and other properties and assets.
Schedule G to each Borrower's Voluntary Petition filed in its Chapter 11 Case
also describes any purchase options, rights of first refusal or other similar
contractual rights pertaining to any Real Estate of such Borrower. As of the
Closing Date, no portion of any Borrower's Real Estate has suffered any material
damage by fire or other casualty loss that has not heretofore been repaired and
restored in all material respects to its original condition or otherwise
remedied. As of the Closing Date, all material permits required to have been
issued or appropriate to enable the Real Estate to be lawfully occupied and used
for all of the purposes for which it is currently occupied and used have been
lawfully issued and are in full force and effect.
3.7 Labor Matters. As of the Closing Date: (a) no strikes or other
material labor disputes against any Borrower are pending or, to any Borrower's
knowledge, threatened; (b) hours worked by
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and payment made to employees of each Borrower comply with the Fair Labor
Standards Act and each other federal, state, local or foreign law applicable to
such matters; (c) all payments due from any Borrower for employee health and
welfare insurance have been paid or accrued as a liability on the books of such
Borrower; (d) except as set forth in Schedule G to each Borrower's Voluntary
Petition filed in its Chapter 11 Case, such Borrower is not a party to or bound
by any collective bargaining agreement, management agreement, consulting
agreement, employment agreement, bonus plan or agreement or stock option,
restricted stock, stock appreciation right or any similar plan, agreement or
arrangement (and true and complete copies of any agreements described in such
Schedule have been made available to Lender); (e) there is no organizing
activity involving any Borrower pending or, to any Borrower's knowledge,
threatened by any labor union or group of employees; (f) there are no
representation proceedings pending or, to any Borrower's knowledge, threatened
with the National Labor Relations Board, and no labor organization or group of
employees of any Borrower has made a pending demand for recognition; and (g)
except as set forth in the Statement of Financial Affairs attached to each
Borrower's Voluntary Petition filed in its Chapter 11 Case, there are no
complaints or charges against such Borrower pending or, to the knowledge of any
Borrower, threatened to be filed with any Governmental Authority or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by such Borrower of any individual.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Borrower has
any Subsidiaries, is engaged in any joint venture or partnership with any other
Person, or is an Affiliate of any other Person. All of the issued and
outstanding Stock of each Borrower is owned by each of the Stockholders and in
the amounts set forth in Disclosure Schedule (3.8). There are no outstanding
rights to purchase, options, warrants or similar rights or agreements pursuant
to which any Borrower may be required to issue, sell, repurchase or redeem any
of its Stock or other equity securities or any Stock or other equity securities
of its Subsidiaries. All outstanding Indebtedness of each Borrower as of the
Closing Date is described in the Schedules to such Borrower's Voluntary Petition
filed in its Chapter 11 Case. None of the Credit Parties other than Borrowers,
Midway, Pacific Soft, Philomath and Sedro has any assets (except stock of their
Subsidiaries) or any Indebtedness or Guaranteed Indebtedness (except the
Obligations and the Prepetition Lender Obligations).
3.9 Government Regulation. No Borrower is an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940. No Borrower is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, or any other federal or state
statute that restricts or limits its ability to incur Indebtedness or to perform
its obligations hereunder. The making of the Revolving Loan by Lender to
Borrowers, the incurrence of the Letter of Credit Obligations on behalf of
Borrowers, the application of the proceeds thereof and repayment thereof will
not violate any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
3.10 Margin Regulations. No Borrower is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin security" as
such terms are defined in Regulation U of the Federal Reserve Board as now and
from time to time hereafter in effect (such securities being referred to herein
as "Margin Stock"). No Borrower owns any Margin Stock, and none of the proceeds
of the Revolving Loan or other extensions of credit under this Agreement will be
used, directly or indirectly, for the purpose of purchasing or carrying any
Margin Stock, for the purpose of reducing or retiring any
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Indebtedness that was originally incurred to purchase or carry any Margin Stock
or for any other purpose that might cause any portion of the Revolving Loan or
other extensions of credit under this Agreement to be considered a "purpose
credit" within the meaning of Regulations T, U or X of the Federal Reserve
Board. No Borrower will take or permit to be taken any action that might cause
any Loan Document to violate any regulation of the Federal Reserve Board.
3.11 Taxes. All tax returns, reports and statements, including
information returns, required by any Governmental Authority to be filed by any
Borrower have been filed with the appropriate Governmental Authority and all
Charges have been paid prior to the date on which any fine, penalty, interest or
late charge may be added thereto for nonpayment thereof (or any such fine,
penalty, interest, late charge or loss has been paid), excluding Charges or
other amounts being contested in accordance with Section 5.2(b). Proper and
accurate amounts have been withheld by each Borrower from its respective
employees for all periods in full and complete compliance with all applicable
federal, state, local and foreign laws and such withholdings have been timely
paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets
forth as of the Closing Date those taxable years for which any Borrower's tax
returns are currently being audited by the IRS or any other applicable
Governmental Authority, and any assessments or threatened assessments in
connection with such audit, or otherwise currently outstanding. No Borrower or
its predecessors are liable for any Charges: (a) under any agreement (including
any tax sharing agreements) or (b) to each Borrower's knowledge, as a
transferee. As of the Closing Date, no Borrower has agreed or been requested to
make any adjustment under IRC Section 481(a), by reason of a change in
accounting method or otherwise, that would have a Material Adverse Effect.
3.12 ERISA.
(a) Disclosure Schedule (3.12) lists all Plans and separately
identifies all Pension Plans, including all Title IV Plans, Multiemployer Plans,
ESOPs and Welfare Plans, including all Retiree Welfare Plans. Copies of all such
listed Plans, together with a copy of the latest IRS/DOL 5500-series form for
each such Plan, have been delivered to Lender. Except with respect to
Multiemployer Plans, each Qualified Plan has been determined by the IRS to
qualify under Section 401 of the IRC, and the trusts created thereunder have
been determined to be exempt from tax under the provisions of Section 501 of the
IRC, and nothing has occurred that would cause the loss of such qualification or
tax-exempt status. Each Plan is in compliance with the applicable provisions of
ERISA and the IRC, including the timely filing of all reports required under the
IRC or ERISA. Neither any Borrower nor any ERISA Affiliate has failed to make
any contribution or pay any amount due as required by either Section 412 of the
IRC or Section 302 of ERISA or the terms of any such Plan. Neither any Borrower
nor any ERISA Affiliate has engaged in a "prohibited transaction," as defined in
Section 4975 of the IRC, in connection with any Plan, that would subject any
Borrower to a material tax on prohibited transactions imposed by Section 4975 of
the IRC.
(b) Except as set forth in Disclosure Schedule (3.12): (i) no
Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Borrower, threatened claims (other than claims for benefits
in the normal course), sanctions, actions or lawsuits, asserted or instituted
against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no
Borrower or ERISA Affiliate has incurred or reasonably expects to incur any
liability as a result of a complete or partial withdrawal from a Multiemployer
Plan; (v) within the last five years no Title IV Plan of any Borrower or any
ERISA Affiliate (determined at any time within the last five years) has been
terminated, whether or not in a "standard termination" as that term is used in
Section 4041(b)(1) of ERISA, nor has any Title IV Plan of any Borrower or any
ERISA Affiliate (determined at any time
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within the last five years) with Unfunded Pension Liabilities been transferred
outside of the "controlled group" (within the meaning of Section 4001(a)(14) of
ERISA) of any Borrower or ERISA Affiliate (determined at such time); (vi) except
in the case of any ESOP, Stock of all Borrowers and their ERISA Affiliates makes
up, in the aggregate, no more than 10% of the assets of any Plan, measured on
the basis of fair market value as of the latest valuation date of any Plan; and
(vii) no liability under any Title IV Plan has been satisfied with the purchase
of a contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation or an equivalent rating by another nationally recognized
rating agency.
3.13 No Litigation. No action, claim, lawsuit, demand, investigation or
proceeding is now pending or, to the knowledge of any Borrower, threatened
against any Borrower before any Governmental Authority or before any arbitrator
or panel of arbitrators (collectively, "Litigation") that (a) challenges any
Borrower's right or power to enter into or perform any of its obligations under
the Loan Documents to which it is a party, or the validity or enforceability of
any Loan Document or any action taken thereunder, or (b) except for "Allen et
al. v. TreeSource Industries, Inc. and Trask River Lumber Co.," Case No. CV
99-249-RE, has a reasonable risk of being determined adversely to any Borrower
and that, if so determined, could have a Material Adverse Effect. Except as set
forth in the Statement of Financial Affairs attached to each Borrower's
Voluntary Petition filed in its Chapter 11 Case, as of the Closing Date there is
no Litigation pending or threatened that seeks damages in excess of $100,000 or
injunctive relief against, or alleges criminal misconduct by, any Borrower.
3.14 Brokers. No broker or finder acting on behalf of any Person
brought about the obtaining, making or closing of the Revolving Loan and no
Credit Party has any obligation to any Person in respect of any finder's or
brokerage fees in connection therewith.
3.15 Intellectual Property. As of the Closing Date, each Borrower owns
or has rights to use all Intellectual Property necessary to continue to conduct
its business as now or heretofore conducted by it or proposed to be conducted by
it, and each Patent, Trademark, Copyright and License is listed, together with
application or registration numbers, as applicable, in Disclosure Schedule
(3.15). Each Borrower conducts its business and affairs without infringement of
or interference with any Intellectual Property of any other Person. No Borrower
is aware of any infringement or claim of infringement by others of any
Intellectual Property Collateral.
3.16 Full Disclosure. No information contained in this Agreement, any
of the other Loan Documents, any Projections, Financial Statements or Collateral
Reports or other reports from time to time delivered hereunder or any written
statement furnished by or on behalf of any Borrower to Lender pursuant to the
terms of this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Liens granted to Lender pursuant
to the Collateral Documents will at all times be fully perfected first priority
Liens in and to the Collateral described therein, subject, as to priority, only
to Permitted Encumbrances with respect to the Collateral other than Accounts
(which Accounts will be subject only to the Liens of the Prepetition Lenders).
3.17 Environmental Matters.
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(a) Except as set forth in Disclosure Schedule (3.17), as of
the Closing Date: (i) the Real Estate is free of contamination from any
Hazardous Material except for such contamination that would not adversely impact
the value or marketability of such Real Estate and that would not result in
Environmental Liabilities that could reasonably be expected to result in a
Material Adverse Effect; (ii) Borrowers are and have been in compliance with all
Environmental Laws, except for such noncompliance that would not result in
Environmental Liabilities that could reasonably be expected to result in a
Material Adverse Effect; (iii) no Borrower is involved in operations or knows of
any facts, circumstances or conditions, including any Releases of Hazardous
Materials, that are likely to result in any Environmental Liabilities of such
Borrower that could reasonably be expected to result in a Material Adverse
Effect; (iv) there is no Litigation arising under or related to any
Environmental Laws, Environmental Permits or Hazardous Material that could
reasonably be expected to result in a Material Adverse Effect; (v) no notice has
been received by any Borrower identifying it as a "potentially responsible
party" or requesting information under CERCLA or analogous state statutes, and
to the knowledge of Borrowers, there are no facts, circumstances or conditions
that may result in any Borrower being identified as a "potentially responsible
party" under CERCLA or analogous state statutes; and (vi) Borrowers have
provided Lender with access to all existing environmental reports, reviews and
audits and all written information pertaining to actual or potential
Environmental Liabilities, in each case relating to any Borrower.
(b) Each Borrower hereby acknowledges and agrees that Lender
(i) is not now, and has not ever been, in control of any of the Real Estate or
any Borrower's affairs, and (ii) does not have the capacity through the
provisions of the Loan Documents or otherwise to influence any Borrower's
conduct with respect to the ownership, operation or management of any of its
Real Estate or compliance with Environmental Laws or Environmental Permits.
3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies
of any nature maintained, as of the Closing Date, for current occurrences by
each Borrower.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19)
lists all banks and other financial institutions at which any Borrower maintains
deposit or other accounts as of the Closing Date, including any Disbursement
Accounts, and such Schedule correctly identifies the name, address and telephone
number of each depository, the name in which the account is held, a description
of the purpose of the account, and the complete account number therefor.
3.20 Government Contracts. Except as set forth in Disclosure Schedule
(3.20), as of the Closing Date, no Borrower is a party to any contract or
agreement with any Governmental Authority and no Borrower's Accounts are subject
to the Federal Assignment of Claims Act (31 U.S.C. Section 3727) or any similar
state or local law.
3.21 Customer and Trade Relations. As of the Closing Date, there exists
no actual or, to the knowledge of any Borrower, threatened termination or
cancellation of, or any material adverse modification or change in: (a) the
business relationship of any Borrower with any customer or group of customers
whose purchases during the preceding 12 months caused them to be ranked among
the ten largest customers of such Borrower; or (b) the business relationship of
any Borrower with any supplier material to its operations.
3.22 Agreements and Other Documents. As of the Closing Date, each
Borrower has
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provided to Lender or its counsel accurate and complete copies (or summaries) of
all of the following agreements or documents to which any of them are subject,
each of which is listed in Disclosure Schedule (3.22): (a) supply agreements and
purchase agreements not terminable by such Borrower within 60 days following
written notice issued by such Borrower and involving transactions in excess of
$1,000,000 per annum; (b) leases of Equipment having a remaining term of one
year or longer and requiring aggregate rental and other payments in excess of
$500,000 per annum; (c) licenses and permits held by Borrowers, the absence of
which could be reasonably likely to have a Material Adverse Effect; (d)
instruments or documents evidencing Indebtedness of such Borrower and any Lien
granted by such Borrower with respect thereto; and (e) instruments and
agreements evidencing the issuance of any equity securities, warrants, rights or
options to purchase equity securities of such Borrower.
3.23 Year 2000 Representations. Each Borrower has completed a Year 2000
Assessment and a Year 2000 Corrective Plan, and each Borrower has completed all
Year 2000 Corrective Actions, except where the failure to so complete could not
reasonably be expected to result in a Material Adverse Effect.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices.
(a) Each Borrower hereby agrees that, from and after the
Closing Date and until the Termination Date, it shall deliver to Lender the
Financial Statements, notices, Projections and other information at the times,
to the Persons and in the manner set forth in Annex E.
(b) Each Borrower hereby agrees that, from and after the
Closing Date and until the Termination Date, it shall deliver to Lender the
Collateral Reports (including Borrowing Base Certificates in the form of Exhibit
4.1(b)) at the times, to the Persons and in the manner set forth in Annex F.
4.2 Communication with Accountants. Each Borrower authorizes Lender to
communicate directly with its independent certified public accountants,
including Moss Adams LLP, and authorizes and shall instruct those accountants
and advisors to disclose and make available to Lender any and all Financial
Statements and other supporting financial documents, schedules and information
relating to any Borrower (including copies of any issued management letters)
with respect to the business, financial condition and other affairs of any
Borrower.
5. AFFIRMATIVE COVENANTS
Each Borrower jointly and severally agrees that from and after the date
hereof and until the Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Each Borrower
shall: (a) do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and its rights and franchises; (b)
continue to conduct its business substantially as now
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conducted or as otherwise permitted hereunder, except where the failure to do so
results solely from the filing of the Chapter 11 Cases; (c) at all times
maintain, preserve and protect all of its assets and properties used or useful
in the conduct of its business, and keep the same in good repair, working order
and condition in all material respects (taking into consideration ordinary wear
and tear) and from time to time make, or cause to be made, all necessary or
appropriate repairs, replacements and improvements thereto consistent with
industry practices; (d) make all payments and perform all other obligations to
be made and performed on its part under the terms of all agreements, contracts
or other arrangements for the cutting, harvesting or purchase of Forest
Products; and (e) transact business only under its corporate name or under any
trade name set forth in Disclosure Schedule (5.1).
5.2 Payment of Obligations.
(a) Except as nonpayment is permitted or payment is prohibited
by the Bankruptcy Code or the Bankruptcy Court, and subject to Sections 5.2(b)
and 6.19, each Borrower shall pay and discharge or cause to be paid and
discharged promptly (i) all Charges payable by it, including Charges imposed
upon it, its income and profits, or any of its property (real, personal or
mixed) and all Charges with respect to tax, social security and unemployment
withholding with respect to its employees, and (ii) lawful claims for labor,
materials, supplies and services or otherwise, in each case before any thereof
shall become past due.
(b) Each Borrower may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges, Taxes or claims described in
Section 5.2(a); provided, that: (i) adequate reserves with respect to such
contest are maintained on the books of such Borrower, in accordance with GAAP;
(ii) no Lien shall be imposed to secure payment of such Charges, Taxes or claims
that is superior to any of the Liens securing the Obligations and such contest
is maintained and prosecuted continuously and with diligence and operates to
suspend collection or enforcement of such Charges or claims; (iii) none of the
Collateral becomes subject to forfeiture or loss as a result of such contest;
(iv) such Borrower shall promptly pay or discharge such contested Charges, Taxes
or claims and all additional charges, interest, penalties and expenses, if any,
and shall deliver to Lender evidence acceptable to Lender of such compliance,
payment or discharge, if such contest is terminated or discontinued adversely to
such Borrower or the conditions set forth in this Section 5.2(b) are no longer
met; and (v) Lender has not advised Borrowers in writing that Lender believes in
its reasonable credit judgment that nonpayment or nondischarge thereof could
have or result in a Material Adverse Effect.
5.3 Books and Records. Each Borrower shall keep adequate books and
records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
(3.4(a)).
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5.4 Insurance; Damage to or Destruction of Collateral; Condemnation .
(a) Borrowers shall, at their sole cost and expense, maintain
the policies of insurance described in Disclosure Schedule (3.18) as in effect
on the Closing Date or otherwise in form and amounts and with insurers
acceptable to Lender. If any Borrower at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required above, or to pay
all premiums relating thereto, Lender may at any time or times thereafter obtain
and maintain such policies of insurance and pay such premiums and take any other
action with respect thereto that Lender deems advisable. Lender shall have no
obligation to obtain insurance for any Borrower or pay any premiums therefor. By
doing so, Lender shall not be deemed to have waived any Default or Event of
Default arising from any Borrower's failure to maintain such insurance or pay
any premiums therefor. All sums so disbursed, including attorneys' fees, court
costs and other charges related thereto, shall be payable on demand by Borrowers
to Lender and shall be additional Obligations hereunder secured by the
Collateral.
(b) Lender reserves the right at any time upon any change in
any Borrower's risk profile (including any change in the product mix maintained
by any Borrower or any laws affecting the potential liability of such Borrower)
to require additional forms and limits of insurance to, in Lender's opinion,
adequately protect Lender's interests in all or any portion of the Collateral
and to ensure that each Borrower is protected by insurance in amounts and with
coverage customary for its industry. If requested by Lender, each Borrower shall
deliver to Lender from time to time a report of a reputable insurance broker,
satisfactory to Lender, with respect to its insurance policies.
(c) Each Borrower shall deliver to Lender, in form and
substance satisfactory to Lender, endorsements to (i) all "All Risk" and
business interruption insurance naming Lender as loss payee, and (ii) all
general liability and other liability policies naming Lender as additional
insured. Each Borrower irrevocably makes, constitutes and appoints Lender (and
all officers, employees or agents designated by Lender) as such Borrower's true
and lawful agent and attorney-in-fact for the purpose of making, settling and
adjusting claims under such "All Risk" policies of insurance, endorsing the name
of such Borrower on any check or other item of payment for the proceeds of such
"All Risk" policies of insurance and for making all determinations and decisions
with respect to such "All Risk" policies of insurance; provided, that Lender
shall only be entitled to exercise such rights or powers (A) at any time that an
Event of Default has occurred and is continuing, or (B) when anticipated
insurance proceeds with respect to any loss exceed $5,000,000, or (C) to the
extent any loss involves Inventory; and further provided, that Lender shall have
no duty to exercise any rights or powers granted to it pursuant to the foregoing
power-of-attorney. After deducting from such proceeds the expenses, if any,
incurred by Lender in the collection or handling thereof, such proceeds will be
applied against the Obligations in accordance with Section 1.3(c).
(d) Each Borrower agrees that Lender may participate in the
institution of any proceeding for the condemnation or other taking of any of
such Borrower's property, and Borrower from time to time will deliver to Lender
all instruments reasonably requested by Lender to permit such participation.
Lender is authorized to collect the proceeds of any condemnation claim or award
and apply them to the reduction of the Obligations. If the condemned property is
to be replaced, repaired, restored or rebuilt, such replacement, repair,
restoration or rebuilding shall be done with materials and workmanship of
substantially as good a quality as existed before such condemnation or taking.
5.5 Compliance with Laws. Except as noncompliance is permitted or
compliance is prohibited by the Bankruptcy Code or the Bankruptcy Court, each
Borrower shall comply with all
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federal, state, local and foreign laws and regulations applicable to it,
including those relating to the Endangered Species Act of 1973, as amended, 16
U.S.C. Sections 1531-1536, 1538-1540, the Forest Resources Conservation and
Shortage Relief Act of 1990, 16 U.S.C. Sections 620 et seq., federal laws with
respect to sale area betterment (16 U.S.C. Section 576b), slash disposal (16
U.S.C. Section 490), and road maintenance (16 U.S.C. Section 537), laws and
regulations promulgated by the Washington State Department of Ecology, all
timber harvest plans required by applicable Governmental Authorities, all
requirements applicable to it relating to the ownership of standing timber and
the harvesting, cutting and removal of such timber, licensing, ERISA and labor
matters and Environmental Laws and Environmental Permits except to the extent
that the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
5.6 Supplemental Disclosure . From time to time as may be requested by
Lender (which request will not be made more frequently than once each year
absent the occurrence and continuance of a Default or an Event of Default),
Borrowers shall supplement each Disclosure Schedule hereto, or any
representation herein or in any other Loan Document, with respect to any matter
hereafter arising that, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in such Disclosure
Schedule or as an exception to such representation or that is necessary to
correct any information in such Disclosure Schedule or representation that has
been rendered inaccurate thereby (and, in the case of any supplements to any
Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to
show the changes made therein); provided, that: (a) no such supplement to any
such Disclosure Schedule or representation shall be or be deemed a waiver of any
Default or Event of Default resulting from the matters disclosed therein, except
as consented to by Lender in writing; and (b) no supplement shall be required as
to representations and warranties that relate solely to the Closing Date.
5.7 Intellectual Property. Each Borrower shall conduct its business and
affairs without infringement of or interference with any Intellectual Property
of any other Person in any material respect.
5.8 Environmental Matters. Each Borrower shall and shall cause each
Person within its control to: (a) conduct its operations and keep and maintain
its Real Estate in compliance with all Environmental Laws and Environmental
Permits other than noncompliance that could not reasonably be expected to have a
Material Adverse Effect; (b) implement any and all investigation, remediation,
removal and response actions that are necessary to comply with Environmental
Laws and Environmental Permits pertaining to the presence, generation,
treatment, storage, use, disposal, transportation or Release of any Hazardous
Material on, at, in, under, above, to, from or about any of its Real Estate,
except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect; (c) notify Lender promptly after such Borrower becomes
aware of any violation of Environmental Laws or Environmental Permits or any
Release on, at, in, under, above, to, from or about any Real Estate that is
reasonably likely to result in Environmental Liabilities in excess of $100,000;
and (d) promptly forward to Lender a copy of any order, notice, request for
information or any communication or report received by such Borrower in
connection with any such violation or Release or any other matter relating to
any Environmental Laws or Environmental Permits that could reasonably be
expected to result in Environmental Liabilities in excess of $250,000, in each
case whether or not the Environmental Protection Agency or any Governmental
Authority has taken or threatened any action in connection with any such
violation, Release or other matter.
5.9 Leased Locations . Each Borrower shall timely and fully pay and
perform its
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obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral having an aggregate book value
in excess of $100,000 is or may be located.
5.10 Further Assurances . Each Borrower agrees that it shall and shall
cause each other Borrower to, at such Borrower's expense and upon request of
Lender, duly execute and deliver, or cause to be duly executed and delivered, to
Lender such further instruments and do and cause to be done such further acts as
may be necessary or proper in the reasonable opinion of Lender to carry out more
effectively the provisions and purposes of this Agreement or any other Loan
Document.
5.11 Year 2000 Problems . On or before October 31, 1999, each Borrower
shall eliminate all Year 2000 Problems, except where the failure to correct the
same could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
6. NEGATIVE COVENANTS6. NEGATIVE COVENANTS
Each Borrower jointly and severally agrees that, without the prior
written consent of Lender, from and after the date hereof until the Termination
Date:
6.1 Mergers, Subsidiaries, Etc . No Borrower shall directly or
indirectly, by operation of law or otherwise, (a) form or acquire any
Subsidiary, or (b) merge with, consolidate with, acquire all or substantially
all of the assets or capital Stock of, or otherwise combine with or acquire, any
Person, other than mergers, consolidations or acquisitions among Borrowers.
6.2 Investments; Loans and Advances . Except as otherwise expressly
permitted by this Section 6, no Borrower shall make or permit to exist any
investment in, or make, accrue or permit to exist loans or advances of money to,
any Person, through the direct or indirect lending of money, holding of
securities or otherwise, except that, so long as Borrowers comply with Section
345 of the Bankruptcy Code: (a) each Borrower may hold investments comprised of
notes payable, or stock or other securities issued by Account Debtors to any
Borrower pursuant to negotiated agreements with respect to settlement of such
Account Debtor's Accounts in the ordinary course of business, so long as the
aggregate amount of such Accounts so settled by all Borrowers does not exceed
$250,000; (b) each Borrower may maintain its existing investments in its
Subsidiaries as of the Closing Date; (c) each Borrower may maintain cash in its
deposit accounts to the extent permitted in Annex C, (d) each Borrower may make
deposits in the ordinary course of business in favor of its suppliers; and (e)
so long as no Default or Event of Default shall have occurred and be continuing
and there is no outstanding Revolving Loan balance, Borrowers may make
investments up to $10,000,000 in the aggregate, subject to Control Letters in
favor of Lender or otherwise subject to a perfected security interest in favor
of Lender, in (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof maturing within
one year from the date of acquisition thereof, (ii) commercial paper maturing no
more than one year from the date of creation thereof and currently having the
highest rating obtainable from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc., (iii) certificates of deposit maturing no more than one
year from the date of creation thereof issued by commercial banks incorporated
under the laws of the United States of America, each having combined capital,
surplus and undivided profits of not less than $300,000,000 and having a senior
unsecured rating of "A" or better by a nationally recognized rating agency (an
"A
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Rated Bank"), and (iv) time deposits maturing no more than 30 days from the date
of creation thereof with A Rated Banks.
6.3 Indebtedness .
(a) No Borrower shall create, incur, assume or permit to exist
any Indebtedness, except (without duplication) to the extent not prohibited by
the Bankruptcy Code: (i) Indebtedness secured by purchase money security
interests and Capital Leases permitted in clause (k) of the definition of
Permitted Encumbrances, (ii) the Revolving Loan and the other Obligations, (iii)
unfunded pension fund and other employee benefit plan obligations and
liabilities to the extent they are permitted to remain unfunded under applicable
law, (iv) existing Indebtedness described in Disclosure Schedule (6.3) and
refinancings thereof or amendments or modifications thereof that do not have the
effect of increasing the principal amount thereof or changing the amortization
thereof (other than to extend the same) and that are otherwise on terms and
conditions no less favorable to any Borrower or Lender, as determined by Lender,
than the terms of the Indebtedness being refinanced, amended or modified, (v)
Indebtedness specifically permitted under Sections 6.4 and 6.17, and (vi) the
Prepetition Lender Obligations.
(b) No Borrower shall, directly or indirectly, voluntarily
purchase, redeem, defease or prepay any principal of, premium, if any, interest
or other amount payable in respect of any Indebtedness, other than: (i) the
Obligations; (ii) Indebtedness secured by a Permitted Encumbrance if the asset
securing such Indebtedness has been sold or otherwise disposed of in accordance
with Sections 6.8(b) or (c); (iii) other Indebtedness (other than the
Prepetition Lender Obligations) not in excess of $250,000; (iv) payments to
Prepetition Lender Obligations (A) from the proceeds of the Mill Sales and (B)
in accordance with the terms of the Cash Use Order to the extent permitted by
clause (iv) of Section 6.19; and (v) other payments permitted under Section
6.19.
6.4 Employee Loans and Affiliate Transactions
(a) Except as otherwise expressly permitted in this Section 6
with respect to Affiliates, no Credit Party shall enter into or be a party to
any transaction with any other Credit Party or any Affiliate thereof except in
the ordinary course of and pursuant to the reasonable requirements of such
Credit Party's business and upon fair and reasonable terms that are no less
favorable to such Credit Party than would be obtained in a comparable arm's
length transaction with a Person not an Affiliate of such Credit Party, and to
the extent not prohibited by the Bankruptcy Code. In addition, if any such
transaction or series of related transactions involves payments in excess of
$200,000 in the aggregate (other than transactions between Borrowers involving
the purchase and sale of Inventory and the reconciliation of their cash
management system, in each case in the ordinary course), the terms of these
transactions must be disclosed in advance to Lender. All such transactions
existing as of the date hereof are described in Disclosure Schedule (6.4(a)).
Any provision in Section 6.3 or this 6.4 to the contrary, Borrowers are
permitted to transfer assets or liabilities amounts between and among themselves
to the extent reflected in their books and records.
(b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except to the extent not
prohibited by the Bankruptcy Code, loans to their respective employees on an
arm's length basis in the ordinary course of business consistent with past
practices for travel expenses, relocation costs and similar purposes up to a
maximum of $100,000 to any employee and up to a maximum of $500,000 in the
aggregate at any one time outstanding.
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6.5 Capital Structure and Business . No Borrower shall: (a) make any
changes in any of its business objectives, purposes or operations that could in
any way adversely affect the repayment of the Revolving Loan or any of the other
Obligations or could reasonably be expected to have or result in a Material
Adverse Effect, (b) make any change in its capital structure as described in
Disclosure Schedule (3.8), including the issuance of any shares of Stock,
warrants or other securities convertible into Stock or any revision of the terms
of its outstanding Stock, or (c) amend its charter or bylaws in a manner that
would adversely affect Lender or such Borrower's duty or ability to repay the
Obligations. No Credit Party shall engage in any business other than the
businesses currently engaged in by it.
6.6 Guaranteed Indebtedness . No Borrower shall create, incur, assume
or permit to exist any Guaranteed Indebtedness except (a) by endorsement of
instruments or items of payment for deposit to the general account of any
Borrower, and (b) for Guaranteed Indebtedness incurred for the benefit of any
other Borrower if the primary obligation is expressly permitted by this
Agreement.
6.7 Liens . No Borrower shall create, incur, assume or permit to exist
any Lien on or with respect to its Accounts or any of its other properties or
assets (whether now owned or hereafter acquired) except for Liens in existence
on the date hereof and summarized in Disclosure Schedule (6.7) and other
Permitted Encumbrances. In addition, no Borrower shall become a party to any
agreement, note, indenture or instrument, or take any other action, that would
prohibit the creation of a Lien on any of its properties or other assets in
favor of Lender as additional collateral for the Obligations, except operating
leases, Capital Leases or Licenses that prohibit Liens upon the assets that are
subject thereto.
6.8 Sale of Stock and Assets . No Borrower shall sell, transfer,
convey, assign or otherwise dispose of any of its properties or other assets,
including the capital Stock of any of its Subsidiaries (whether in a public or a
private offering or otherwise) or any of its Accounts, other than, to the extent
not prohibited by the Bankruptcy Code: (a) the sale of Inventory in the ordinary
course of business; (b) the sale, transfer, conveyance or other disposition by a
Borrower of Equipment, Fixtures or Real Estate that is obsolete or no longer
used or useful in such Borrower's business and having a value not exceeding
$250,000 in any single transaction or $500,000 in the aggregate in any Fiscal
Year; (c) other Equipment and Fixtures having a value not exceeding $100,000 in
any single transaction or $250,000 in the aggregate in any Fiscal Year, and (d)
the Mill Sales. With respect to any disposition of assets or other properties
permitted pursuant to clauses (b), (c) and (d) above, Lender agrees on
reasonable prior written notice to release its Lien on such assets or other
properties in order to permit the applicable Borrower to effect such disposition
and shall execute and deliver to Borrowers, at Borrowers' expense, appropriate
UCC-3 termination statements and other releases as reasonably requested by
Borrowers.
6.9 ERISA . No Borrower shall, or shall cause or permit any ERISA
Affiliate to, cause or permit to occur an event that could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA or cause or permit to occur an ERISA Event to the extent such ERISA Event
could reasonably be expected to have a Material Adverse Effect.
6.10 Financial Covenants . Borrowers shall not breach or fail to comply
with any of the financial covenants set forth in Annex G (the "Financial
Covenants").
6.11 Hazardous Materials . No Borrower shall cause or permit a Release
of any Hazardous Material on, at, in, under, above, to, from or about any of the
Real Estate where such Release would
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(a) violate in any respect, or form the basis for any Environmental Liabilities
under, any Environmental Laws or Environmental Permits or (b) otherwise
adversely impact the value or marketability of any of the Real Estate or any of
the Collateral, other than such violations or Environmental Liabilities that
could not reasonably be expected to have a Material Adverse Effect.
6.12 Sale-Leasebacks . No Borrower shall engage in any sale-leaseback,
synthetic lease or similar transaction involving any of its assets.
6.13 Cancellation of Indebtedness . No Borrower shall cancel any claim
or debt owing to it, except for reasonable consideration negotiated on an arm's
length basis and in the ordinary course of its business consistent with past
practices.
6.14 Restricted Payments . Except as otherwise permitted in Section 6.4
or by the terms of the Cash Use Order, no Credit Party shall make any Restricted
Payment.
6.15 Change of Corporate Name or Location; Change of Fiscal Year . No
Borrower shall (a) change its corporate name or (b) change its chief executive
office, principal place of business, corporate offices or warehouses or
locations at which Collateral is held or stored, or the location of its records
concerning the Collateral, in each case without at least 30 days' prior written
notice to Lender and after Lender's written acknowledgment that any reasonable
action requested by Lender in connection therewith, including to continue the
perfection of any Liens in favor of Lender in any Collateral, has been completed
or taken, and provided that any such new location shall be in the continental
United States of America. Without limiting the generality of the foregoing, no
Borrower shall change its name, identity or corporate structure in any manner
that might make any financing or continuation statement filed in connection
herewith seriously misleading within the meaning of Section 9402(7) of the Code
or any other then applicable provision of the Code except upon prior written
notice to Lender and after Lender's written acknowledgment that any reasonable
action requested by Lender in connection therewith, including to continue the
perfection of any Liens in favor of Lender in any Collateral, has been completed
or taken. No Borrower shall change its Fiscal Year.
6.16 No Impairment of Intercompany Transfers . No Credit Party shall
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation (other than this Agreement and the other Loan
Documents) that could directly or indirectly restrict, prohibit or require the
consent of any Person with respect to the payment of dividends or distributions
or the making or repayment of intercompany loans by a Subsidiary of any Borrower
to any Borrower or between Borrowers.
6.17 No Speculative Transactions . No Credit Party shall engage in any
transaction involving commodity options, futures contracts or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it and interest swaps, caps or collars.
6.18 Leases . No Credit Party shall enter into any operating lease for
Equipment or Real Estate if the aggregate of all such operating lease payments
payable in any year for all Credit Parties on a consolidated basis would exceed
$250,000.
6.19 Prepetition Indebtedness . No Borrower shall consent to any
amendment, supplement or other modification of any of the terms or provisions
contained in, or applicable to, the Interim Order
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or the Final Order or the Prepetition Indebtedness. Except for (i) claims of
employees for unpaid wages, bonuses, accrued vacation and sick leave time,
business expenses and contributions to employee benefit plans for the period
immediately preceding the Petition Date, in each case to the extent permitted to
be paid by order of the Bankruptcy Court, (ii) cure payments made in accordance
with Section 365(b)(1)(A) of the Bankruptcy Code, (iii) utility deposits made in
accordance with Section 366 of the Bankruptcy Code, (iv) so long as no Default
or Event of Default has occurred and is continuing, payments to Prepetition
Lenders in accordance with the Cash Use Order, and (v) payments to certain
suppliers in accordance with the Lumberman's Order, no Borrower shall make any
payment in respect of, or repurchase, redeem, retire or defease any, Prepetition
Indebtedness.
6.20 Reclamation Claims . Unless ordered by the Bankruptcy Code, no
Borrower shall enter into any agreement to return any of its Inventory to any of
its creditors for application against any Prepetition Indebtedness under Section
546(g) of the Bankruptcy Code or allow any creditor to take any setoff against
any of its Prepetition Indebtedness based upon any such return pursuant to
Section 553(b)(1) of the Bankruptcy Code or otherwise.
6.21 Credit Parties Other Than Borrowers . None of the Credit Parties
other than Borrowers shall engage in any trade or business or incur any
Indebtedness or Guaranteed Indebtedness (other than the Obligations), and none
of the Credit Parties other than Borrowers, Midway, Pacific Soft, Philomath and
Sedro own any assets (other than Stock of their Subsidiaries).
7. TERM
7.1 Termination . The financing arrangements contemplated hereby shall
be in effect until the Commitment Termination Date, and the Revolving Loan and
all other Obligations shall be automatically due and payable in full on such
date.
7.2 Survival of Obligations Upon Termination of Financing Arrangements
. Except as otherwise expressly provided in the Loan Documents, no termination
or cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the obligations, duties
and liabilities of the Credit Parties or the rights of Lender relating to any
unpaid portion of the Revolving Loan or any other Obligations, due or not due,
liquidated, contingent or unliquidated, or any transaction or event occurring
prior to such termination, or any transaction or event, the performance of which
is required after the Commitment Termination Date. Except as otherwise expressly
provided herein or in any other Loan Document, all undertakings, agreements,
covenants, warranties and representations of or binding upon the Credit Parties,
and all rights of Lender, all as contained in the Loan Documents, shall not
terminate or expire, but rather shall survive any such termination or
cancellation and shall continue in full force and effect until the Termination
Date; provided, that the provisions of Section 11, the payment obligations under
Sections 1.15 and 1.16, and the indemnities contained in the Loan Documents
shall survive the Termination Date.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default . Notwithstanding the provisions of Section 362
of the Bankruptcy Code and without application to the Bankruptcy Court, the
occurrence of any one or more of the following events (regardless of the reason
therefor) shall constitute an "Event of Default" hereunder:
(a) Any Borrower (i) shall fail to make any payment of
principal of, or interest on, or Fees owing in respect of, the Revolving Loan or
any of the other Obligations when due and payable,
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or (ii) shall fail to pay or reimburse Lender for any expense reimbursable
hereunder or under any other Loan Document within ten days following Lender's
demand for such reimbursement or payment of expenses.
(b) Any Credit Party shall fail or neglect to perform, keep or
observe any of the provisions of Sections 1.4, 1.8, 5.4 or 6, or any of the
provisions set forth in Annexes C or G, respectively.
(c) Any Borrower shall fail or neglect to perform, keep or
observe any of the provisions of Section 4 or any provisions set forth in
Annexes E or F, respectively, and the same shall remain unremedied for three
days or more.
(d) Any Credit Party shall fail or neglect to perform, keep or
observe any other provision of this Agreement or of any of the other Loan
Documents (other than any provision embodied in or covered by any other clause
of this Section 8.1) and the same shall remain unremedied for 20 days or more.
(e) Except for defaults occasioned by the filing of the
Chapter 11 Cases and defaults resulting from obligations with respect to which
the Bankruptcy Code prohibits any Borrower from complying or permits any
Borrower not to comply, a default or breach shall occur under any other
agreement, document or instrument to which any Borrower is a party that is not
cured within any applicable grace period therefor, and such default or breach
(i) involves the failure to make any payment when due in respect of any
Indebtedness (other than the Obligations) of any Borrower in excess of $500,000
in the aggregate, or (ii) causes, or permits any holder of such Indebtedness or
a trustee to cause, Indebtedness or a portion thereof in excess of $500,000 in
the aggregate to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment, regardless of whether such default is
waived, or such right is exercised, by such holder or trustee.
(f) Any information contained in any Borrowing Base
Certificate (excluding immaterial clerical errors) shall be untrue or incorrect
in any respect, or any representation or warranty herein or in any Loan Document
or in any written statement, report, financial statement or certificate (other
than a Borrowing Base Certificate) made or delivered to Lender by any Borrower
is untrue or incorrect in any material respect as of the date when made or
deemed made.
(g) Assets of any Borrower with a fair market value of
$100,000 or more shall be attached, seized, levied upon or subjected to a writ
or distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of any Borrower and such
condition continues for 30 days or more.
(h) Any Credit Party shall bring a motion in any Chapter 11
Case: to obtain working capital financing from any Person other than Lender
under Section 364(c) or (d) of the Bankruptcy Code; to obtain financing from any
Person other than Lender under Section 364(c) of the Bankruptcy Code (other than
with respect to a financing used, in whole or in part, to repay in full the
Obligations); to grant any Lien other than Permitted Encumbrances upon or
affecting any Collateral; to use Cash Collateral of Lender under Section 363(c)
of the Bankruptcy Code without Lender's prior written consent; to recover from
any portions of the Collateral any costs or expenses of preserving or disposing
of such Collateral under Section 506(c) of the Bankruptcy Code; or to authorize
any other action or actions adverse to Lender, or their rights and remedies
hereunder or their interests in the
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Collateral, that would, individually or in the aggregate, have a Material
Adverse Effect.
(i) The allowance of any claim or claims under Section 506(c)
of the Bankruptcy Code against or with respect to any Collateral in excess of
$50,000 in the aggregate.
(j) The occurrence of any postpetition judgments, liabilities
or events that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
(k) The entry by the Bankruptcy Court of an order authorizing
the appointment of an interim or permanent trustee in any Chapter 11 Case or the
appointment of an examiner or any other Person in any Chapter 11 Case with
expanded powers to operate or manage the financial affairs, business, or
reorganization of any Borrower.
(l) Any Chapter 11 Case shall be dismissed or converted from
one under Chapter 11 to one under Chapter 7 of the Bankruptcy Code.
(m) The entry of an order by the Bankruptcy Court granting
relief from or modifying the automatic stay of Section 362 of the Bankruptcy
Code to allow any creditor (other than Lender) to execute upon or enforce a Lien
on any Collateral (other than Permitted Liens on Collateral not included in the
Borrowing Base),, or with respect to any Lien of or the granting of any Lien on
any Collateral to any state or local environmental or regulatory agency or
authority that could reasonably be expected to have a Material Adverse Effect.
(n) The Interim Order or the Final Order shall be modified or
revoked without Lender's prior written consent.
(o) There shall commence any suit or action against Lender by
or on behalf of any Credit Party, the Environmental Protection Agency, any state
environmental protection or health and safety agency, or any official committee
in any Chapter 11 Case, in each case that asserts a claim or seeks a legal or
equitable remedy that would have the effect of subordinating the claim or Lien
of Lender and, if such suit or action is commenced by any Person other than any
Credit Party or any Subsidiary, officer, or employee of any Credit Party, such
suit or action shall not have been dismissed or stayed within 30 days after
service thereof on Lender, and if stayed, such stay shall have been lifted.
(p) Any material provision of any Loan Document shall for any
reason cease to be valid, binding and enforceable in accordance with its terms
(or any Credit Party shall challenge the enforceability of any Loan Document or
shall assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or
otherwise is not valid, binding and enforceable in accordance with its terms),
or any Lien created under any Loan Document shall cease to be a valid and
perfected first priority Lien (except as otherwise permitted herein or therein)
in any of the Collateral purported to be covered thereby.
(q) Any Change of Control shall occur.
(r) Any "Event of Default" shall have occurred and be
continuing under the Cash Use Order.
8.2 Remedies .
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(a) If any Default or Event of Default shall have occurred and
be continuing, then Lender may, without notice, (i) suspend the Revolving Loan
facility with respect to further Revolving Credit Advances or the incurrence of
further Letter of Credit Obligations whereupon any further Revolving Credit
Advances and the incurrence of further Letter of Credit Obligations shall be
made or incurred in Lender's sole discretion so long as such Default or Event of
Default is continuing, and (ii) increase the rate of interest applicable to the
outstanding revolving Credit Advances and the Letter of Credit Fees to the
Default Rate.
(b) If any Event of Default shall have occurred and be
continuing, then Lender may, by notice to Borrower Representative, (i) terminate
the Revolving Loan with respect to further Revolving Credit Advances and the
incurrence of further Letter of Credit Obligations; (ii) declare all or any
portion of the Obligations, including all or any portion of the Revolving Loan,
to be forthwith due and payable, and require that the Letter of Credit
Obligations be cash collateralized as provided in Annex B,, and (iii) revoke
each Borrower's right to use Cash Collateral in which Lender has an interest,
and the automatic stay of Section 362 of the Bankruptcy Code shall be modified
and vacated to permit Lender to take such actions without further application or
motion to, or order from, the Bankruptcy Court. In addition, upon shortened
notice of not less than ten days (which notice period Credit Parties consent to
as being appropriate), Lender may seek relief from the automatic stay under
Section 362 of the Bankruptcy Code to exercise all other rights and remedies
under the Loan Documents or at law or in equity. Upon the occurrence of an Event
of Default and the exercise by Lender of its rights and remedies in accordance
with the terms of this Agreement and the other Loan Documents, Borrowers shall
assist Lender in effecting a sale or other disposition of the Collateral upon
such terms as are designed to maximize the proceeds obtainable from such sale or
other disposition.
8.3 Waivers by Credit Parties. Except as otherwise provided for in this
Agreement or by applicable law, each Credit Party waives: (a) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Lender on which any Credit Party may in any way
be liable, and hereby ratifies and confirms whatever Lender may do in this
regard, (b) except as otherwise provided in Section 8.2(b), all rights to notice
and a hearing prior to Lender's taking possession or control of, or Lender's
replevy, attachment or levy upon, the Collateral or any bond or security that
might be required by any court prior to allowing Lender to exercise any of its
remedies, and (c) the benefit of all valuation, appraisal, marshaling and
exemption laws.
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9. PARTICIPATIONS
9.1 The Credit Parties signatory hereto consent to Lender's sale of
participations in the Revolving Loan Commitment or any portion thereof or
interest therein at any time when an Event of Default has occurred and is
continuing. At all other times, Lender shall not sell any participations in the
Revolving Loan Commitment without the written prior consent of Borrowers, which
consent shall not be unreasonably withheld or delayed. Any participation by
Lender of all or any part of its Revolving Loan Commitments shall be sold with
the understanding that all amounts payable by Borrowers hereunder shall be
determined as if Lender had not sold such participation, and that the holder of
any such participation shall not be entitled to require Lender to take or omit
to take any action hereunder except actions directly affecting (i) any reduction
in the principal amount of, or interest rate or Fees payable with respect to,
the Revolving Loan in which such holder participates, (ii) any extension of the
scheduled amortization of the principal amount of the Revolving Loan in which
such holder participates or the final maturity date thereof, and (iii) any
release of all or substantially all of the Collateral (other than in accordance
with the terms of this Agreement, the Collateral Documents or the other Loan
Documents). Solely for purposes of Sections 1.13, 1.15, and 1.16, each Borrower
acknowledges and agrees that a participation shall give rise to a direct
obligation of Borrowers to the participant and the participant shall be
considered to be a "Lender." Except as set forth in the preceding sentence no
Borrower or Credit Party shall have any obligation or duty to any participant.
9.2 Each Credit Party executing this Agreement shall assist Lender as
reasonably required to enable Lender to effect any such permitted participation,
including, if requested by Lender, participation of Borrowers' management in
meetings with potential participants. Each Credit Party executing this Agreement
shall certify the correctness, completeness and accuracy of all descriptions of
the Credit Parties and their affairs contained in any selling materials provided
by them and all other information provided by them and included in such
materials, except that any Projections delivered by Borrowers shall only be
certified by Borrowers as having been prepared by Borrowers in compliance with
the representations contained in Section 3.4(b).
9.3 Lender may furnish any information concerning Credit Parties in the
possession of Lender from time to time to participants (including prospective
participants). Lender shall obtain from assignees or participants
confidentiality covenants substantially equivalent to those contained in Section
11.8 hereof.
10. SUCCESSORS AND ASSIGNS
This Agreement and the other Loan Documents shall be binding on and
shall inure to the benefit of each Credit Party, Lender and their respective
successors and permitted assigns (including, in the case of any Credit Party, a
trustee or debtor-in-possession on behalf of such Credit Party), except as
otherwise provided herein or therein. No Credit Party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder or under any of the other Loan Documents without the prior express
written consent of Lender. Any such purported assignment, transfer,
hypothecation or other conveyance by any Credit Party without the prior express
written consent of Lender shall be void. So long as no Event of Default has
occurred and is continuing, Lender shall not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the other Loan Documents without the prior express written consent of
Borrowers, which consent shall not be unreasonably withheld or delayed. The
terms and provisions of
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this Agreement are for the purpose of defining the relative rights and
obligations of each Credit Party and Lender with respect to the transactions
contemplated hereby and no Person shall be a third party beneficiary of any of
the terms and provisions of this Agreement or any of the other Loan Documents.
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement . The Loan Documents
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2. Any letter of interest, commitment letter, fee letter or
confidentiality agreement between any Credit Party and Lender or any of their
respective Affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be superseded by this
Agreement.
11.2 Amendments and Waivers .
(a) No amendment, modification, termination or waiver of any
provision of this Agreement, the Revolving Note or any other Loan Document, or
any consent to any departure by any Credit Party therefrom, shall in any event
be effective unless the same shall be in writing and signed by Lender and
Borrowers.
(b) Upon indefeasible payment in full in cash and performance
of all of the Obligations (other than indemnification Obligations under Section
1.13), termination of the Revolving Loan Commitment and a release of all claims
against Lender, and so long as no suits, actions, proceedings or claims are
pending or threatened against any Indemnified Person asserting any damages,
losses or liabilities that are Indemnified Liabilities, Lender shall deliver to
Borrowers termination statements, mortgage releases and other documents
necessary or appropriate to evidence the termination of the Liens securing
payment of the Obligations. In addition, upon the sale of the stock of Burke
under a Mill Sale and a release by Burke of all claims against Lender, Burke
shall no longer be a "Borrower" hereunder and Lender shall deliver to Burke such
documents necessary or appropriate to evidence the termination of the Liens
securing payment of the Obligations by Burke.
11.3 Fees and Expenses . Borrowers shall reimburse Lender for all
out-of-pocket expenses incurred in connection with the negotiation and
preparation of the Loan Documents and the obtaining of approval of the Loan
Documents by the Bankruptcy Court (including the reasonable fees and expenses of
all of its special loan counsel, advisors, consultants and auditors retained in
connection with the Loan Documents and advice in connection therewith).
Borrowers shall reimburse Lender for all fees, costs and expenses, including the
fees, costs and expenses of counsel or other advisors (including environmental
and management consultants and appraisers) for advice, assistance, or other
representation in connection with:
(a) the forwarding to Borrowers or any other Person on behalf
of Borrowers by Lender of the proceeds of the Revolving Loan;
(b) any amendment, modification or waiver of, consent with
respect to, or termination of, any of the Loan Documents or the Obligations or
advice in connection with the administration of the Revolving Loan made pursuant
hereto or its rights hereunder or thereunder;
(c) the review of pleadings and documents related to any
Chapter 11 Case and any subsequent Chapter 7 case, attendance at hearings and
meetings related to any Chapter 11 Case and any subsequent Chapter 7 case, and
general monitoring of any Chapter 11 Case and any subsequent
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Chapter 7 case;
(d) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Lender, any Borrower or any other Person, and
whether as a party, witness or otherwise) in any way relating to the Collateral,
any of the Loan Documents or any other agreement to be executed or delivered in
connection herewith or therewith, including any litigation, contest, dispute,
suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against any or all of the Borrowers or
any other Person that may be obligated to Lender by virtue of the Loan
Documents, including any such litigation, contest, dispute, suit, proceeding or
action arising in connection with any work-out or restructuring of the Revolving
Loan during the pendency of one or more Events of Default;
(e) any attempt to enforce any remedies of Lender against any
or all of the Credit Parties or any other Person that may be obligated to Lender
by virtue of any of the Loan Documents, including any such attempt to enforce
any such remedies in the course of any work-out or restructuring of the
Revolving Loan during the pendency of one or more Events of Default;
(f) any work-out or restructuring of the Revolving Loan during
the pendency of one or more Events of Default; and
(g) efforts to (i) monitor the Revolving Loan or any of the
other Obligations, (ii) evaluate, observe or assess any of the Credit Parties or
their respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;
including, as to each of clauses (a) through (g) above, all attorneys' and
other professional and service providers' fees arising from such services,
including those in connection with any appellate proceedings, and all expenses,
costs, charges and other fees incurred by such counsel and others in connection
with or relating to any of the events or actions described in this Section 11.3,
all of which shall be payable, on demand, by Borrowers to Lender. Without
limiting the generality of the foregoing, such expenses, costs, charges and fees
may include: fees, costs and expenses of accountants, environmental advisors,
appraisers, investment bankers, management and other consultants and paralegals;
court costs and expenses; photocopying and duplication expenses; court reporter
fees, costs and expenses; long distance telephone charges; air express charges;
telegram or telecopy charges; secretarial overtime charges; and expenses for
travel, lodging and food paid or incurred in connection with the performance of
such legal or other advisory services.
11.4 No Waiver . Lender's failure, at any time or times, to require
strict performance by the Credit Parties of any provision of this Agreement or
any other Loan Document shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance herewith or therewith.
Any suspension or waiver of an Event of Default shall not suspend, waive or
affect any other Event of Default whether the same is prior or subsequent
thereto and whether the same or of a different type. None of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Lender, unless such waiver or suspension is by an instrument in
writing signed by an officer of or other authorized employee of Lender and
directed to Borrowers specifying such suspension or waiver.
11.5 Remedies . Lender's rights and remedies under this Agreement shall
be cumulative
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and nonexclusive of any other rights and remedies that Lender may
have under any other agreement, including the other Loan Documents, by operation
of law or otherwise. Recourse to the Collateral shall not be required.
11.6 Severability . Wherever possible, each provision of this Agreement
and the other Loan Documents shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any other Loan Document shall be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or the
remaining provisions of this Agreement or such other Loan Document.
11.7 Conflict of Terms . Except as otherwise provided in this Agreement
or any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
11.8 Confidentiality . Lender agrees to use commercially reasonable
efforts (equivalent to the efforts Lender applies to maintaining the
confidentiality of its own confidential information) to maintain as confidential
all confidential information provided to it by the Credit Parties and designated
as confidential for a period of two years following receipt thereof, except that
Lender may disclose such information: (a) to Persons employed or engaged by
Lender in evaluating, approving, structuring or administering the Revolving Loan
and the Revolving Loan Commitment; (b) to any bona fide assignee or participant
or potential assignee or participant that has agreed to comply with the covenant
contained in this Section 11.8 (and any such bona fide assignee or participant
or potential assignee or participant may disclose such information to Persons
employed or engaged by them as described in clause (a) above); (c) as required
or requested by any Governmental Authority or reasonably believed by Lender to
be compelled by any court decree, subpoena or legal or administrative order or
process; (d) as, on the advice of Lender's counsel, is required by law; (e) in
connection with the exercise of any right or remedy under the Loan Documents or
in connection with any Litigation to which Lender is a party; or (f) that ceases
to be confidential through no fault of Lender.
11.9 GOVERNING LAW . EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF OREGON APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE
(WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND
AGREES THAT THE BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF WASHINGTON SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
THE CREDIT PARTIES AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL
BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE
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COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF LENDER.
11.10 Notices . Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other parties, or whenever any of the parties desires to give or
serve upon any other parties any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed to have been validly
served, given or delivered: (a) upon the earlier of actual receipt and five
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
11.10); (c) one Business Day after deposit with a reputable overnight courier
with all charges prepaid; or (d) when delivered, if hand-delivered by messenger,
all of which shall be addressed to the party to be notified and sent to the
address or facsimile number indicated in Annex H or to such other address (or
facsimile number) as may be substituted by notice given as herein provided. The
giving of any notice required hereunder may be waived in writing by the party
entitled to receive such notice. Failure or delay in delivering copies of any
notice, demand, request, consent, approval, declaration or other communication
to any Person (other than Borrower Representative or Lender) designated in Annex
H to receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
11.11 Section Titles . The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
11.12 Counterparts . This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
11.13 WAIVER OF JURY TRIAL . BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG LENDER AND ANY CREDIT PARTY ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO.
11.14 Press Releases . Each Credit Party executing this Agreement
agrees that neither it nor its Affiliates will in the future issue any press
releases or other public disclosure (other than filings with the Bankruptcy
Court in any Chapter 11 Case and required filings with the Securities and
Exchange
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Commission) using the name of GE Capital or its affiliates or referring to this
Agreement, the other Loan Documents without at least two Business Days' prior
notice to GE Capital and without the prior written consent of GE Capital unless
(and only to the extent that) such Credit Party or Affiliate is required to do
so under law and then, in any event, such Credit Party or Affiliate will consult
with GE Capital before issuing such press release or other public disclosure.
Each Credit Party consents to the publication by Lender of a tombstone or
similar advertising material relating to the financing transactions contemplated
by this Agreement. Lender shall provide a draft of any such tombstone or similar
advertising material to each Credit Party for review and comment prior to the
publication thereof. Lender reserves the right to provide to industry trade
organizations information necessary and customary for inclusion in league table
measurements with Borrowers' consent, which shall not be unreasonably withheld
or delayed.
11.15 Parties Including Trustees; Bankruptcy Court Proceedings . This
Agreement, the other Loan Documents, and all Liens created hereby or pursuant to
the Security Agreement or any other Loan Document shall be binding upon each
Credit Party, the estate of each Credit Party, and any trustee or successor in
interest of any Credit Party in any Chapter 11 Case or any subsequent case
commenced under Chapter 7 of the Bankruptcy Code, and shall not be subject to
Section 365 of the Bankruptcy Code. This Agreement and the other Loan Documents
shall be binding upon, and inure to the benefit of, the successors of Lender and
its assigns, transferees and endorsees. The Liens created by this Agreement, the
Security Agreement and the other Loan Documents shall be and remain valid and
perfected in the event of the substantive consolidation or conversion of any
Chapter 11 Case or any other bankruptcy case of any Credit Party to a case under
Chapter 7 of the Bankruptcy Code or in the event of dismissal of any Chapter 11
Case or the release of any Collateral from the jurisdiction of the Bankruptcy
Court for any reason, without the necessity that Lender file financing
statements or otherwise perfect its security interests or Liens under applicable
law.
11.16 Advice of Counsel . Each of the parties represents to each other
party hereto that it has discussed this Agreement and, specifically, the
provisions of Sections 11.9 and 11.13, with its counsel.
11.17 No Strict Construction . The parties hereto 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 hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
11.18 Additional Waivers by Borrowers
(a) Joint and Several Obligations. Each Borrower hereby agrees
that such Borrower is jointly and severally liable for the full and prompt
payment (whether at stated maturity, by acceleration or otherwise) and
performance of all Obligations owed or hereafter owing to Lender by each other
Borrower. Each Borrower agrees that its obligations under this Section 11.18
shall be absolute and unconditional, irrespective of, and unaffected by,
(i) the genuineness, validity, regularity,
enforceability or any future amendment of, or change in, this
Agreement, any other Loan Document or any other agreement, document or
instrument to which any Borrower is or may become a party (except to
the extent expressly set forth in any such amendment or change);
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(ii) the absence of any action to enforce this
Agreement (including this Section 11.18) or any other Loan Document or
the waiver or consent by Lender with respect to any of the provisions
thereof;
(iii) the existence, value or condition of, or
failure to perfect its Lien against, any security for the Obligations
or any action, or the absence of any action, by Lender in respect
thereof (including the release of any such security);
(iv) the insolvency of any Credit Party; or
(v) any other action or circumstances that might
otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor,
Each Borrower shall be regarded, and shall be in the same position, as principal
debtor with respect to the Obligations guaranteed hereunder.
(b) Waivers by Borrowers. Each Borrower expressly waives all
rights it may have now or in the future under any statute, or at common law, or
at law or in equity, or otherwise, to compel Lender to marshall assets or to
proceed in respect of the Obligations against any other Credit Party, any other
party or against any security for the payment and performance of the Obligations
before proceeding against, or as a condition to proceeding against, such
Borrower. It is agreed among each Borrower and Lender that the foregoing waivers
are of the essence of the transaction contemplated by this Agreement and the
other Loan Documents and that, but for the provisions of this Section 11.18 and
such waivers, Lender would decline to enter into this Agreement.
(c) Benefit of Provisions. Each Borrower agrees that the
provisions of this Section 11.18 are for the benefit of Lender and its permitted
successors, transferees, endorsees and assigns, and nothing herein contained
shall impair, as between any other Borrower and Lender, the obligations of such
other Borrower under the Loan Documents.
(d) Subordination of Subrogation, Etc. Notwithstanding
anything to the contrary in this Agreement or in any other Loan Document, each
Borrower hereby expressly and irrevocably subordinates to payment of the
Obligations any and all rights at law or in equity to subrogation,
reimbursement, exoneration, contribution, indemnification or set off and any and
all defenses available to a surety, guarantor or accommodation co-obligor until
the Obligations are indefeasibly paid in full in cash. Each Borrower
acknowledges and agrees that this subordination is intended to benefit Lender
and shall not limit or otherwise affect such Borrower's liability hereunder or
the enforceability of this Section 11.18, and that Lender and its successors and
assigns are intended third party beneficiaries of the waivers and agreements set
forth in this Section 11.18(d).
(e) Election of Remedies. If Lender may, under applicable law,
proceed to realize its benefits under any of the Loan Documents giving Lender a
Lien upon any Collateral, whether owned by any Borrower or by any other Person,
either by judicial foreclosure or by non-judicial sale or enforcement, Lender
may, at its sole option, determine which of its remedies or rights it may pursue
without affecting any of its rights and remedies under this Section 11.18. If,
in the exercise of any of its rights and remedies, Lender shall forfeit any of
its rights or remedies, including its right to enter a deficiency judgment
against any Borrower or any other Person, whether because of any applicable laws
pertaining to "election of remedies" or the like, each Borrower hereby consents
to such action by
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Lender and waives any claim based upon such action, even if
such action by Lender shall result in a full or partial loss of any rights of
subrogation that each Borrower might otherwise have had but for such action by
Lender. Any election of remedies that results in the denial or impairment of the
right of Lender to seek a deficiency judgment against any Borrower shall not
impair any other Borrower's obligation to pay the full amount of the
Obligations. In the event Lender shall bid at any foreclosure or trustee's sale
or at any private sale permitted by law or the Loan Documents, Lender may bid
all or less than the amount of the Obligations and the amount of such bid need
not be paid by Lender but shall be credited against the Obligations.
(f) Liability Cumulative. The liability of Borrowers under
this Section 11.18 is in addition to and shall be cumulative with all
liabilities of each Borrower to Lender under this Agreement and the other Loan
Documents to which such Borrower is a party or in respect of any Obligations or
obligation of the other Borrowers, without any limitation as to amount, unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
11.19 Oregon State Laws .
(a) Each Borrower and each other Credit Party a signatory to
this Agreement covenant and warrant to Lender that none of the Loan Documents is
a "residential trust deed" within the meaning of ORS 86.705.
(b) Each applicable Collateral Document, Loan Document, and
Mortgage shall be governed by the following ORS 93.040 disclosure:
ORS 93.040 (1) DISCLOSURE:
"THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY DESCRIBED
IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS
AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT,
THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK
WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO
VERIFY APPROVED USES AND TO DETERMINE ANY LIMITS ON LAWSUITS
AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930."
(c) Each Borrower and each other Credit Party a signatory to
this Agreement covenant and warrant to Lender that the Revolving Loans is not a
loan of money that is primarily for personal, family or household use within the
meaning of ORS 82.150.
(d) Each Borrower and each other Credit Party a signatory to
this Agreement covenant and warrant to Lender that this Agreement is not a "real
estate loan agreement" as that term is defined in ORS 86.205(7), and likewise
that the Revolving Loan is not a "real estate loan" within the meaning of ORS
86.205 (7).
(e) ORS 41.580 DISCLOSURE:
"UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS
MADE BY US AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR
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<PAGE>
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE."
(f) ORS 746.201(2) DISCLOSURE:
WARNING
AS REQUIRED BY ORS 746.201(2), NOTICE IS GIVEN THAT:
"UNLESS BORROWER (AKA "YOU" AND "YOUR") PROVIDE LENDER (AKA
"US" AND "WE") WITH EVIDENCE OF THE INSURANCE COVERAGE AS
REQUIRED BY OUR CONTRACT OR LOAN AGREEMENT, WE MAY PURCHASE
INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST. THIS
INSURANCE MAY, BUT NEED NOT, ALSO PROTECT YOUR INTEREST. IF
THE COLLATERAL BECOMES DAMAGED, THE COVERAGE WE PURCHASE MAY
NOT PAY ANY CLAIM YOU MAKE OR ANY CLAIM MADE AGAINST YOU. YOU
MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT YOU
HAVE OBTAINED PROPERTY COVERAGE ELSEWHERE.
YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY
US. THE COST OF THIS INSURANCE MAY BE ADDED TO YOUR CONTRACT
OR LOAN BALANCE. IF THE COST IS ADDED TO YOUR CONTRACT OR LOAN
BALANCE, THE INTEREST RATE ON THE UNDERLYING CONTRACT OR LOAN
WILL APPLY TO THIS ADDED AMOUNT. THE EFFECTIVE DATE OF
COVERAGE MAY BE THE DATE YOUR PRIOR COVERAGE LAPSED OR THE
DATE YOU FAILED TO PROVIDE PROOF OF COVERAGE.
THE COVERAGE WE PURCHASE MAY BE CONSIDERABLY MORE EXPENSIVE
THAN INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY
ANY NEED FOR PROPERTY DAMAGE COVERAGE OR ANY MANDATORY
LIABILITY INSURANCE REQUIREMENTS IMPOSED BY APPLICABLE LAW.
(g) Each Borrower and each other Credit Party a signatory to
this Agreement acknowledge that the maximum principal amount to be advanced
pursuant to this Agreement may be exceeded by advances to complete construction
pursuant to ORS 86.155 (2)(c).
11.20 STATUTE OF FRAUDS . ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
"Borrowers"
TREESOURCE INDUSTRIES, INC., Debtor and Debtor in Possession
TREESOURCE, INC., Debtor and Debtor in Possession
BURKE LUMBER CO., Debtor and Debtor in Possession
CENTRAL POINT LUMBER CO., Debtor and Debtor in Possession
GLIDE LUMBER PRODUCTS CO., Debtor and Debtor in Possession
MORTON FOREST PRODUCTS CO., Debtor and Debtor in Possession
NORTH POWDER LUMBER CO., Debtor and Debtor in Possession
PACIFIC HARDWOODS-SOUTH BEND CO., Debtor and Debtor in Possession
SPANAWAY LUMBER CO., Debtor and Debtor in Possession
TRASK RIVER LUMBER CO., Debtor and Debtor in Possession
TUMWATER LUMBER CO., Debtor and Debtor in Possession
WESTERN TIMBER CO., Debtor and Debtor in Possession
By:
- --------------------------------------
Jess R. Drake
President
"Lender"
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
- --------------------------------------
John Crawford
Duly Authorized Signatory
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The following Persons are signatories to this Agreement in
their capacity as Credit Parties and not as Borrowers.
"Credit Parties"
ALTURAS LUMBER CO., Debtor and Debtor in Possession
CLE ELUM LAKE VENEER CO., Debtor and Debtor in Possession
COLUMBIA FALLS FOREST PRODUCTS
COTTAGE GROVE LUMBER CO., Debtor and Debtor in Possession
CRATER LAKE LUMBER CO.
CUSTER LUMBER CO.
EUGENE WOOD PRODUCTS CO., Debtor and Debtor in Possession
GRAHAM PLYWOOD CO.
GREENWELD NORTH AMERICA CO., Debtor and Debtor in Possession
HALSEY VENEER CO.
JUDITH GAP LUMBER CO.
JUNCTION CITY LUMBER CO.
MIDWAY ENGINEERED WOOD PRODUCTS, INC., Debtor and Debtor in Possession
OLYMPIA FOREST PRODUCTS CO.
ORIENT LUMBER CO.
PACIFIC HARDWOODS-ABERDEEN CO.
PACIFIC SOFTWOODS CO., Debtor and Debtor in Possession
PORT WESTWARD PULP CO.
PHILOMATH FOREST PRODUCTS CO., Debtor and Debtor in Possession
RIVERSIDE LUMBER CO.
SEDRO-WOOLLEY LUMBER CO., Debtor and Debtor in Possession
SILVERTON FOREST PRODUCTS, CO., Debtor and Debtor in Possession
TREESOURCE INTERNATIONAL, INC.
UNION FOREST PRODUCTS CO., Debtor and Debtor in Possession
UNION RAIL ENTERPRISES, INC., Debtor and Debtor in Possession
WHITEHALL PLYWOOD, INC.
WTD INDUSTRIES CO., Debtor and Debtor in Possession
VALLEY WOOD PRODUCTS CO., Debtor and Debtor in Possession
By:
- --------------------------------------
Jess R. Drake
President
45
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Annex A (Recitals)
--------
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
DEFINITIONS
-----------
Capitalized terms used in the Loan Documents shall have
(unless otherwise provided elsewhere in the Loan Documents) the following
respective meanings, and all references in the following definitions to
Sections, Exhibits, Schedules or Annexes shall refer to Sections, Exhibits,
Schedules or Annexes of the Agreement:
"Account Debtor" shall mean any Person who may become
obligated to any other Person under, with respect to, or on account of, an
Account.
"Accounts" shall mean all "accounts," as such term is defined
in the Code, now owned or hereafter acquired by any Person, including (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments), whether arising out of goods sold or services
rendered by it or from any other transaction (including any such obligations
that may be characterized as an account or contract right under the Code), (b)
all of such Person's rights in, to and under all purchase orders or receipts for
goods or services, (c) all of such Person's rights to any goods represented by
any of the foregoing (including unpaid sellers' rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed or
repossessed goods), (d) all monies due or to become due to such Person under all
purchase orders and contracts for the sale of goods or the performance of
services or both by such Person or in connection with any other transaction
(whether or not yet earned by performance on the part of such Person), including
the right to receive the proceeds of said purchase orders and contracts, and (e)
all collateral security and guaranties of any kind given by any other Person
with respect to any of the foregoing.
"Affiliate" shall mean, with respect to any Person, (a) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, five percent (5%) or more of the
Stock having ordinary voting power in the election of directors of such Person,
(b) each Person that controls, is controlled by or is under common control with
such Person, (c) each of such Person's officers, directors, joint venturers and
partners or (d) in the case of Borrowers, the immediate family members, spouses
and lineal descendants of individuals who are Affiliates of any Borrower. For
the purposes of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise; provided, that the term "Affiliate" shall
specifically exclude Lender.
"Agreement" shall mean the Debtor in Possession Credit
Agreement by and among Borrowers, the other Credit Parties party thereto and
Lender, as the same may be amended, supplemented, restated or otherwise modified
from time to time in accordance with the terms thereof.
"Appendices" shall have the meaning assigned to it in the
recitals to the Agreement.
"Applicable L/C Margin" shall mean 1.5% per annum.
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"Applicable Margins" shall mean, collectively, the Applicable
L/C Margin, the Applicable Revolver Index Margin and the Applicable Revolver
LIBOR Margin.
"Applicable Revolver Index Margin" shall mean 0% per annum.
"Applicable Revolver LIBOR Margin" shall mean 1.85% per annum.
"Authorized Representative" shall mean a Person designated by
Borrower Representative in a Notice of Authorized Representative received by
Lender.
"Avoidance Actions" shall mean any and all rights of any
Borrower or a subsequent Chapter 11 or Chapter 7 trustee to recover property and
to avoid liens or other property interests under the Bankruptcy Code and all
property interests recovered or obtained thereby under Sections 544 through 550,
inclusive, of the Bankruptcy Code.
"Bankruptcy Code" shall mean the provisions of title 11 of the
United States Code, 11 U.S.C. Sections 101 et seq.
"Bankruptcy Court" shall mean the United States Bankruptcy
Court for the Western District of Washington.
"Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy
Procedure, as the same may from time to time be in effect and applicable to the
Chapter 11 Cases.
"Borrower Accounts" shall have the meaning assigned to it in
Annex C.
"Borrower Representative" shall mean TreeSource, in its
capacity as Borrower Representative pursuant to the provisions of Section 1.1(c)
acting through its Authorized Representative.
"Borrowers" and "Borrower" shall have the respective meanings
assigned thereto in the preamble to the Agreement.
"Borrowing Availability" shall have the meaning assigned to it
in Section 1.1(a).
Borrowing Base" shall mean, as of any date of determination by
Lender, from time to time, an amount equal to the sum at such time of:
(a) 85% of the book value of Borrowers' Eligible Accounts,
less any Reserves established by Lender at such time; and
(b) (i) 60% of (A) the book value of Borrowers' Eligible
Inventory valued at the lower of cost (determined on a first-in,
first-out basis) or market, less (B) the Lumberman's Lien Reserve
established by Lender at such time, less (ii) without duplication, any
Reserves established by Lender at such time.
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"Borrowing Base Certificate" shall mean a certificate to be
executed and delivered from time to time by Borrower Representative in the form
attached to the Agreement as Exhibit 4.1(b).
"Burke" shall mean Burke Lumber Co., an Oregon corporation.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
States of California, Oregon and New York and in reference to LIBOR Loans shall
mean any such day that is also a LIBOR Business Day.
"Capital Expenditures" shall mean, with respect to any Person,
all expenditures (by the expenditure of cash or the incurrence of Indebtedness)
by such Person during any measuring period for any fixed assets or improvements
or for replacements, substitutions or additions thereto that have a useful life
of more than one year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease of any Person, the amount of the obligation of the lessee
thereunder that, in accordance with GAAP, would appear on a balance sheet of
such lessee in respect of such Capital Lease.
"Carve-Out" shall have the meaning assigned to it in Section
1.18(c).
"Cash Collateral" shall mean "cash collateral" as that phrase
is defined in Section 363(a) of the Bankruptcy Code.
"Cash Collateral Account" shall have the meaning assigned to
it in Annex B.
"Cash Equivalents" shall have the meaning assigned to it in
Annex B.
"Cash Management System" shall have the meaning assigned to it
in Section 1.8.
"Cash Use Order" shall mean, with respect to the Prepetition
Lender Obligations, the "Agreed Order Authorizing Use of Cash Collateral by
Debtors in Possession and Granting Replacement Liens and Other Adequate
Protection" entered by the Bankruptcy Court on September 27, 1999, as amended by
(a) the "First Amended Agreed Order Authorizing Use of Cash Collateral by
Debtors in Possession and Granting Replacement Liens and Other Adequate
Protection" entered by the Bankruptcy Court in conjunction with the Interim
Hearing, (b) such other amendments or modifications acceptable to Lender and
approved by the Bankruptcy Court.
"Central" shall mean Central Point Lumber Co., an Oregon
corporation.
"Change of Control" means any of the following: (a) any Person
or group of Persons (within the meaning of the Securities Exchange Act) shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended) of 20% or more of the issued and outstanding shares of
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capital Stock of TreeSource having the right to vote for the election of
directors of TreeSource under ordinary circumstances; (b) during any period of
12 consecutive calendar months, individuals who at the beginning of such period
constituted the board of directors of TreeSource (together with any new
directors whose election by the board of directors of TreeSource or whose
nomination for election by the Stockholders of TreeSource was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election were previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in office; (c)
TreeSource shall cease to own and control all of the economic and voting rights
associated with all of the outstanding capital Stock of any of any other
Borrower (other than Burke, Midway, Pacific Soft, Philomath, and Sedro).
"Charges" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental taxes (including taxes owed to
the PBGC at the time due and payable), levies, assessments, charges, liens,
claims or encumbrances upon or relating to (a) the Collateral, (b) the
Obligations, (c) the employees, payroll, income or gross receipts of any Person,
(d) any Person's ownership or use of any properties or other assets, or (e) any
other aspect of any Person's business.
"Chapter 11 Case" and "Chapter 11 Cases" shall have the
respective meanings assigned to them in the Recitals to the Agreement.
"Chattel Paper" shall mean any "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by any Person, wherever
located.
"Closing Date" shall mean October 5, 1999.
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be enacted and in effect in the State of Oregon; provided,
that in the event that, by reason of mandatory provisions of law, any or all of
the attachment, perfection or priority of, or remedies with respect to, Lender's
Lien on any Collateral is governed by the Uniform Commercial Code as enacted and
in effect in a jurisdiction other than the State of Oregon, the term "Code"
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions
related to such provisions.
"Collateral" shall mean the property covered by the Security
Agreement, the Mortgages and the other Collateral Documents and any other
property, real or personal, tangible or intangible, now existing or hereafter
acquired, that may at any time be or become subject to a security interest or
Lien in favor of Lender to secure the Obligations.
"Collateral Documents" shall mean the Security Agreement, the
Pledge Agreements, the Mortgages, the Patent, Trademark and Copyright Security
Agreement, and all similar agreements entered into guaranteeing payment of, or
granting a Lien upon property as security for payment of, the Obligations,
including the Interim Order and the Final Order.
"Collateral Reports" shall mean the reports with respect to
the Collateral referred to in Annex F.
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"Collection Account" shall mean that certain account of
Lender, account number 502-328-54 in the name of Lender at Bankers Trust Company
in New York, New York, ABA No. 021 001 033, or such other account as may be
designated in writing by Lender as the "Collection Account."
"Commitment Termination Date" shall mean the earliest of (a)
April 5, 2001, (b) the date of termination of Lender's obligations to make
Revolving Credit Advances or incur Letter of Credit Obligations or permit
existing Loans to remain outstanding pursuant to Section 8.2(b), (c) the date of
indefeasible prepayment in full by Borrowers of the Revolving Loan, the
cancellation and return (or stand-by guarantee) of all Letters of Credit or the
cash collateralization of all Letter of Credit Obligations pursuant to Annex B,
and the permanent reduction of the Revolving Loan Commitment to zero dollars
($0), in each case in accordance with the provisions of Section 1.3(a); (d) the
date that is ten days after the Petition Date if the Interim Order has not been
entered by the Bankruptcy Court by such date; (e) the date that is 35 days after
the Petition Date if the Final Order has not been entered by the Bankruptcy
Court by such date, unless the Interim Order has been extended with Lender's
written consent to a date acceptable to Lender; (f) the date upon which the
Interim Order expires, unless the Final Order shall have been entered and become
effective by such date; (g) the date all or substantially all of any Borrower's
real and personal property assets are sold, whether in one transaction or a
series of transactions (excluding the Mill Sales); and (h) the date a plan of
reorganization in any Chapter 11 Case becomes effective.
"Compliance Certificate" shall have the meaning assigned to it
in Annex E.
"Concentration Accounts" shall have the meaning assigned to it
in Annex C.
"Contracts" shall mean all contracts, undertakings, or
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which such Person may now or hereafter have any right,
title or interest, including any agreement relating to the terms of payment or
the terms of performance of any Account.
"Control Letter" shall mean a letter agreement between Lender
and (a) the issuer of uncertificated securities with respect to uncertificated
securities in the name of any Borrower, (b) a securities intermediary with
respect to securities, whether certificated or uncertificated, securities
entitlements and other financial assets held in a securities account in the name
of any Borrower, (c) a futures commission merchant or clearing house with
respect to commodity accounts and commodity contracts held by any Borrower,
whereby, among other things, the issuer, securities intermediary or futures
commission merchant, as applicable, disclaims any security interest in the
applicable financial assets, acknowledges the Lien of Lender on such financial
assets, and agrees to follow the instructions or entitlement orders of Lender
without further consent by the affected Borrower.
"Copyright License" shall mean any and all rights now owned or
hereafter acquired by any Person under any written agreement granting any right
to use any Copyright or Copyright registration.
"Copyrights" shall mean all of the following now owned or
existing or hereafter adopted or acquired by any Person: (a) all copyrights and
General Intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any similar office or agency of the United
States or any territory thereof, or any other country or
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any political subdivision thereof; and (b) all extensions or renewals thereof.
"Credit Parties" shall mean each Borrower, and each of its
Subsidiaries.
"Default" shall mean any event that, with the passage of time
or notice or both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it in
Section 1.5(d).
"Disbursement Accounts" shall have the meaning assigned to it
in Annex C.
"Disclosure Schedules" shall mean the Schedules prepared by
Borrowers and denominated as Disclosure Schedules (1.1(c)) through (6.7) in the
Index to the Agreement.
"Documents" shall mean any "documents," as such term is
defined in the Code, now owned or hereafter acquired by any Person, wherever
located.
"Dollars" or "$" shall mean lawful currency of the United
States of America.
"Eligible Accounts" shall have the meaning assigned to it in
Section 1.6.
"Eligible Inventory" shall have the meaning assigned to it in
Section 1.7.
"Environmental Laws" shall mean all applicable federal, state,
local and foreign laws, statutes, ordinances, codes, rules, standards and
regulations, now or hereafter in effect, and any applicable judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or
standards of conduct for or relating to the regulation and protection of human
health, safety, the environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. Sections 9601 et seq.) ("CERCLA"); the Hazardous Materials
Transportation Authorization Act of 1994 (49 U.S.C. Sections 5101 et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sections 136 et
seq.); the Solid Waste Disposal Act (42 U.S.C. Sections 6901 et seq.); the Toxic
Substance Control Act (15 U.S.C. Sections 2601 et seq.); the Clean Air Act (42
U.S.C. Sections 7401 et seq.); the Federal Water Pollution Control Act (33
U.S.C. Sections 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C.
Sections 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. Sections
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state, local and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.
"Environmental Liabilities" shall mean, with respect to any
Person, all liabilities, obligations, responsibilities, response, remedial and
removal costs, investigation and feasibility study costs, capital costs,
operation and maintenance costs, losses, damages, punitive damages, property
damages, natural resource damages, consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation,
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proceeding or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law,
including any arising under or related to any Environmental Laws, Environmental
Permits, or in connection with any Release or threatened Release or presence of
a Hazardous Material whether on, at, in, under, from or about or in the vicinity
of any real or personal property.
"Environmental Permits" shall mean all permits, licenses,
authorizations, certificates, approvals or registrations required by any
Governmental Authority under any Environmental Laws.
"Equipment" shall mean all "equipment," as such term is
defined in the Code, now owned or hereafter acquired by any Person, wherever
located, including all such Person's machinery and equipment, including
processing equipment, conveyors, machine tools, data processing and computer
equipment with software and peripheral equipment, and all engineering,
processing and manufacturing equipment, office machinery, furniture, materials
handling equipment, tools, attachments, accessories, automotive equipment,
trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock
and other equipment of every kind and nature, trade fixtures and fixtures,
together with all additions and accessions thereto, replacements therefor, all
parts therefor, all substitutes for any of the foregoing, fuel therefor, and all
manuals, drawings, instructions, warranties and rights with respect thereto, and
all products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Borrower,
any trade or business (whether or not incorporated) that, together with such
Borrower, are treated as a single employer within the meaning of Sections
414(b), (c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to any Borrower or any
ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with
respect to a Title IV Plan; (b) the withdrawal of any Borrower or ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan
year in which it was a "substantial employer," as defined in Section 4001(a)(2)
of ERISA; (c) the complete or partial withdrawal of any Borrower or any ERISA
Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a termination
under Section 4041 of ERISA; (e) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Borrower
or ERISA Affiliate to make when due required contributions to a Multiemployer
Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other
event or condition that might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 of ERISA; (i) the loss of
a Qualified Plan's qualification or tax exempt status; or (j) the termination of
a Plan described in Section 4064 of ERISA.
"ESOP" shall mean a Plan that is intended to satisfy the
requirements of Section 4975(e)(7) of the IRC.
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"Event of Default" shall have the meaning assigned to it in
Section 8.1.
"Fair Labor Standards Act" shall mean the provisions of the
Fair Labor Standards Act, 29 U.S.C. Sections 201 et seq.
"Federal Funds Rate" shall mean, for any day, a floating rate
equal to the weighted average of the rates on overnight Federal funds
transactions among members of the Federal Reserve System, as determined by
Lender in its sole discretion, which determination shall be final, binding and
conclusive (absent manifest error).
"Federal Reserve Board" shall mean the Board of Governors of
the Federal Reserve System.
"Fees" shall mean any and all fees payable to Lender pursuant
to the Agreement or any of the other Loan Documents.
"Final Order" shall mean the order of the Bankruptcy Court
entered in the Chapter 11 Cases after a final hearing pursuant to Section 364 of
the Bankruptcy Code and Bankruptcy Rule 4001, satisfactory in form and substance
to Lender, and from which no appeal has been timely filed, or if timely filed,
no stay pending appeal shall have been granted, together with all extensions,
modifications and amendments thereto, authorizing Borrowers to obtain credit,
incur indebtedness, and grant Liens under the Agreement and the other Loan
Documents and providing for the superpriority of Lender's claims, all as set
forth in such order.
"Financial Covenants" shall have the meaning assigned to it in
Section 6.10.
"Financial Statements" shall mean the consolidated and
consolidating income statements, statements of cash flows and balance sheets of
Borrowers delivered in accordance with Section 3.4 and Annex E.
"Fiscal Month" shall mean any of the monthly accounting
periods of Borrowers.
"Fiscal Quarter" shall mean any of the quarterly accounting
periods of Borrowers, ending on July 31, October 31, January 31 and April 30 of
each year.
"Fiscal Year" shall mean any of the annual accounting periods
of Borrowers ending on April 30 of each year.
"Fixtures" shall mean all "fixtures," as such term is defined
in the Code, now owned or hereafter acquired by any Person, wherever located.
"Forest Products" shall mean all trees and forest products of
every kind and species now owned or hereafter acquired by any Person, whether
now located in or on or hereafter planted or growing in or on the land,
including all trees of every kind and species (whether or not merchantable),
whether severed or unsevered, standing or downed, and stumps and cut timber
lying, being or remaining on the ground, and any and all logs, lumber, finished
or milled lumber, veneer, plywood,
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bark, sawdust, logging and milling waste, hog fuel, wood chips, all timber and
lumber subject to any manufacturing process, all raw material and work in
process, and all other timber products), whether or not related to the land.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the Closing Date, consistently
applied as such term is further defined in Annex G to the Agreement.
"General Account" shall have the meaning assigned to it in
Annex C.
"General Intangibles" shall mean all "general intangibles," as
such term is defined in the Code, now owned or hereafter acquired by any Person,
including all right, title and interest that such Person may now or hereafter
have in or under any Contracts, Licenses, Copyrights, Trademarks and Patents and
all applications therefor and reissues, extensions or renewals thereof,
interests in partnerships, joint ventures and other business associations,
permits, inventions (whether or not patented or patentable), knowledge,
know-how, software, data bases, data, skill, expertise, experience, processes,
models, drawings, materials and records, Goodwill (including the goodwill
associated with any Trademark or Trademark License), all rights and claims in or
under insurance policies (including insurance for fire, damage, loss and
casualty, whether covering personal property, real property, tangible rights or
intangible rights, all liability, life, key man and business interruption
insurance, and all unearned premiums), uncertificated and certificated
securities, choses in action, deposit, checking and other bank accounts, rights
to receive tax refunds and other payments, rights to receive dividends,
distributions, cash, instruments and other property in respect of or in exchange
for pledged shares or other equity interests, rights of indemnification, all
books and records, correspondence, credit files, invoices and other papers,
including all tapes, cards, computer runs and other papers and documents in the
possession or under the control of such Person or any computer bureau or service
company from time to time acting for such Person.
"Glide" shall mean Glide Lumber Products Co., an Oregon
corporation.
"Goods" shall mean any "goods" as such term is defined in the
Code, now owned or hereafter acquired by any Person.
"Goodwill" shall mean all goodwill, trade secrets, proprietary
or confidential information, technical information, procedures, formulae,
quality control standards, designs, operating and training manuals, customer
lists and distribution agreements now or hereafter owned or acquired by any
Person.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any indebtedness, lease, dividend, or
other obligation ("primary obligation") of any other Person (the "primary
obligor") in any manner, including any obligation or arrangement of such Person
to (a) purchase or repurchase any such primary obligation, (b) advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital
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of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor, (c) purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) indemnify the owner of such primary obligation
against loss in respect thereof. The amount of any Guaranteed Indebtedness at
any time shall be deemed to be an amount equal to the lesser at such time of (x)
the stated or determinable amount of the primary obligation in respect of which
such Guaranteed Indebtedness is incurred and (y) the maximum amount for which
such Person may be liable pursuant to the terms of the instrument embodying such
Guaranteed Indebtedness or, if not stated or determinable, the maximum
reasonably anticipated liability (assuming full performance) in respect thereof.
"Hazardous Material" shall mean any substance, material or
waste that is regulated by, or forms the basis of liability now or hereafter
under, any Environmental Laws, including any material or substance that is (a)
defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"pollutant," "contaminant," "hazardous constituent," "special waste," "toxic
substance" or other similar term or phrase under any Environmental Laws, or (b)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls (PCB's), or any radioactive substance.
"Indebtedness" shall mean, with respect to any Person, without
duplication, (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property payment for which is deferred six months or
more, but excluding obligations to trade creditors incurred in the ordinary
course of business that are not overdue by more than six months unless being
contested in good faith, (b) all reimbursement and other obligations with
respect to letters of credit, bankers' acceptances and surety bonds, whether or
not matured, (c) all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic leases, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, and (i) the
Obligations with respect to which such Person is liable.
"Indemnified Liabilities" shall have the meaning assigned to
it in Section 1.13.
"Index Rate" shall mean, for any day, a floating rate equal to
the higher of (a) the rate publicly quoted from time to time by The Wall Street
Journal as the "base rate on corporate loans at large U.S. money center
commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of
the type described, the highest per annum rate of interest published by the
Federal Reserve Board in
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Federal Reserve statistical release H.15 (519) entitled "Selected Interest
Rates" as the Bank prime loan rate or its equivalent), and (b) the Federal Funds
Rate plus 50 basis points per annum. Each change in any interest rate provided
for in the Agreement based upon the Index Rate shall take effect at the time of
such change in the Index Rate.
"Index Rate Loan" shall mean that portion of the Revolving
Loan bearing interest by reference to the Index Rate.
"Instruments" shall mean any "instrument," as such term is
defined in the Code, now owned or hereafter acquired by any Person, wherever
located, including all certificated securities, all certificates of deposit, and
all notes and other evidences of indebtedness, other than instruments that
constitute, or are a part of a group of writings that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses,
Patents, Copyrights, Trademarks and the Goodwill associated with any of the
foregoing.
"Intellectual Property Collateral" shall mean all of the
right, title and interest of any Borrower, whether presently existing or
hereafter arising or acquired, in, to and under the following:
(a) each Patent owned and Patent application filed by
such Person;
(b) each Patent License to which such Person is a
party (or the assignee of a party);
(c) each Trademark owned and Trademark application
filed by such Person;
(d) each Trademark License to which such Person is a
party (or the assignee of a party);
(e) each Copyright owned and Copyright application
filed by such Person;
(f) each Copyright License to which such Person is a
party;
(g) the Goodwill associated with each Trademark and
Trademark application, and each of such Person's Trademarks licensed under any
Trademark License; and
(h) all Proceeds of the foregoing, including (i) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
any Person from time to time with respect to any of the foregoing, (ii) any and
all payments (in any form whatsoever) made or due and payable to any Person from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the foregoing by any Governmental
Authority (or any Person acting under color of Governmental Authority), (iii)
any claim of any Person against third parties for (A) past, present or future
infringement of any Patent or Patent License, (B) past, present or future
infringement of any Copyright, Copyright License, (C) past, present or future
infringement or dilution of any Trademark or Trademark License, or (D) injury to
the Goodwill associated with any Trademark or Trademark License, (iv) any
recoveries by any Person against third parties with respect to any litigation
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<PAGE>
or dispute concerning any of the foregoing, and (v) any and all other amounts
from time to time paid or payable under or in connection with any of the
foregoing, upon disposition or otherwise.
"Intercompany Notes" shall have the meaning assigned
to it in Section 6.3(a).
"Interest Payment Date" shall mean (a) as to any Index Rate
Loan, the first Business Day of each month to occur while such Index Rate Loan
is outstanding, and (b) as to any LIBOR Loan, the last day of the applicable
LIBOR Period; provided that in addition to the foregoing, each of (x) the date
upon which the Revolving Loan Commitment has been terminated and the Revolving
Loan has been paid in full and (y) the Commitment Termination Date shall be
deemed to be an "Interest Payment Date" with respect to any interest that has
then accrued under the Agreement.
"Interim Order" shall mean the interim order of the Bankruptcy
Court entered in the Chapter 11 Cases after an interim hearing (assuming
satisfaction of the standards prescribed in Section 364 of the Bankruptcy Code
and Bankruptcy Rule 4001 and other applicable law), together with all
extensions, modifications and amendments thereto, satisfactory in form and
substance to Lender, authorizing, on an interim basis, Borrowers to execute and
perform under the terms of the Agreement and the other Loan Documents.
"Inventory" shall mean any "inventory," as such term is
defined in the Code, now owned or hereafter acquired by any Person, wherever
located, including inventory, merchandise, goods and other personal property
that are held by or on behalf of such Person for sale or lease or are furnished
or are to be furnished under a contract of service, or that constitute raw
materials, work in process, finished goods, returned goods, or materials or
supplies of any kind, nature or description used or consumed or to be used or
consumed in such Person's business or in the processing, production, packaging,
promotion, delivery or shipping of the same, including other supplies.
"Investment Property" shall mean all "investment property," as
such term is defined in Section 9115 of the Code in those jurisdictions in which
such definition has been adopted, now owned or hereafter acquired by any Person,
wherever located, including (a) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares, (b) all securities entitlements of such Person, including
the rights of such Person to any securities account and the financial assets
held by a securities intermediary in such securities account and any free credit
balance or other money owing by any securities intermediary with respect to such
account, (c) all securities accounts of such Person, (d) all commodity contracts
held by such Person, and (e) all commodity accounts held by such Person.
"IRC" shall mean the Internal Revenue Code of 1986 and any
regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"L/C Issuer" shall have the meaning assigned to it in Annex B.
"L/C Sublimit" shall have the meaning assigned to it in Annex
B.
"Lender" shall mean GE Capital.
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"Letter of Credit Fee" shall have the meaning assigned to it
in Annex B.
"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Lender at the request of Borrower Representative,
whether direct or indirect, contingent or otherwise, due or not due, in
connection with the issuance of a reimbursement agreement or guaranty by Lender
with respect to any Letter of Credit. The amount of such Letter of Credit
Obligations shall equal the maximum amount that may be payable by Lender
thereupon or pursuant thereto.
"Letters of Credit" shall mean commercial or standby letters
of credit issued for the account of any Borrower by any L/C Issuer, and bankers'
acceptances issued by any Borrower, for which Lender has incurred Letter of
Credit Obligations.
"LIBOR Business Day" shall mean a Business Day on which banks
in the City of London are generally open for interbank or foreign exchange
transactions.
"LIBOR Loan" shall mean any portion of the Revolving Loan
bearing interest by reference to the LIBOR Rate.
"LIBOR Period" shall mean, with respect to any LIBOR Loan,
each period commencing on a LIBOR Business Day selected by Borrower
Representative pursuant to the Agreement and ending one, two or three months
thereafter, as selected by Borrower Representative's irrevocable notice to
Lender as set forth in Section 1.5(e); provided, that the foregoing provision
relating to LIBOR Periods is subject to the following:
(i) if any LIBOR Period would otherwise end on a day that is
not a LIBOR Business Day, such LIBOR Period shall be extended to the
next succeeding LIBOR Business Day unless the result of such extension
would be to carry such LIBOR Period into another calendar month in
which event such LIBOR Period shall end on the immediately preceding
LIBOR Business Day;
(ii) any LIBOR Period that would otherwise extend beyond the
Commitment Termination Date shall end two LIBOR Business Days prior to
such date;
(iii) any LIBOR Period that begins on the last LIBOR Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such LIBOR
Period) shall end on the last LIBOR Business Day of a calendar month;
(iv) Borrower Representative shall select LIBOR Periods so as
not to require a payment or prepayment of any LIBOR Loan during a LIBOR
Period for such Loan; and
(v) Borrower Representative shall select LIBOR Periods so that
there shall be no more than five separate LIBOR Loans in existence at
any one time.
"LIBOR Rate" shall mean for each LIBOR Period, a rate of
interest determined by Lender equal to:
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(a) the offered rate for deposits in United States Dollars for
the applicable LIBOR Period that appears on Dow Jones Market Service
Page 3750 as of 11:00 a.m. (London time) on the second full LIBOR
Business Day preceding the first day of such LIBOR Period (unless such
date is not a Business Day, in which event the next succeeding Business
Day will be used); divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day that is two LIBOR Business Days prior
to the beginning of such LIBOR Period (including basic, supplemental,
marginal and emergency reserves under any regulations of the Federal
Reserve Board or other Governmental Authority having jurisdiction with
respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Federal Reserve Board) that are
required to be maintained by a member bank of the Federal Reserve
System.
If such interest rates shall cease to be available from Dow Jones Market
Service, the LIBOR Rate shall be determined from such financial reporting
service or other information as shall be mutually acceptable to Lender and
Borrower Representative.
"License" shall mean any Copyright License, Patent License,
Trademark License or other license of rights or interests now held or hereafter
acquired by any Person.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority (excluding the
priority treatment provided claims under Section 507 of the Bankruptcy Code) or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Litigation" shall have the meaning assigned to it in Section
3.13.
"Loan Account" shall have the meaning assigned to it in
Section 1.12.
"Loan Documents" shall mean the Agreement, the Revolving Note,
the Collateral Documents and all other agreements, instruments, documents and
certificates identified in the Schedule of Documents executed and delivered to,
or in favor of, Lender and including all other pledges, powers of attorney,
consents, assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of any Credit Party and
delivered to Lender in connection with the Agreement or the transactions
contemplated thereby. Any reference in the Agreement or any other Loan Document
to a Loan Document shall include all appendices, exhibits or schedules thereto,
and all amendments, restatements, supplements or other modifications thereto,
and shall refer to such Agreement or Loan Document as the same may be in effect
at any and all times such reference becomes operative.
"Lock Box" shall have the meaning assigned to it in Annex C.
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<PAGE>
"Lock Box Account" shall have the meaning assigned to it in
Annex C.
"Lumberman's Order" shall mean the"Order Granting Debtors'
Emergency Application For Order Authorizing Payment Of Essential Trade
Creditors' Prepetition Claims" entered by the Bankruptcy Court in the Chapter 11
Cases.
"Lumberman's Lien" shall mean a Lien on Forest Products in
favor of a Person who performs labor on, or assists another Person in obtaining,
handling, manufacturing or transporting, such Forest Products.
"Lumberman's Lien Reserve" shall mean the reserve against
Eligible Inventory established by Lender from time to time based upon the
aggregate amount of payables owing to Persons for labor or services performed on
or in connection with Inventory or Forest Products of Borrower subject to
Lumberman's Liens or similar laws. As of the Closing Date, such Reserve shall be
in the amount equal to 40% of the aggregate amount of unpaid trade payables for
Inventory or Forest Products of Borrowers.
"Margin Stock" shall have the meaning assigned to it in
Section 3.10.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the business, assets, operations, prospects or financial or other
condition of Borrowers taken as a whole, (b) Borrowers' ability to pay any
portion of the Revolving Loan or any of the other Obligations in accordance with
the terms of the Agreement, (c) the Collateral or Lender's Liens on the
Collateral or the priority of such Liens, or (d) Lender's rights and remedies
under the Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, any event or occurrence adverse to one or more
Borrowers that results or could reasonably be expected to result in costs or
liabilities in excess of the lesser of $1,000,000 and 10% of Borrowing
Availability as of any date of determination shall be deemed to constitute a
Material Adverse Effect.
"Maximum Lawful Rate" shall have the meaning assigned to it in
Section 1.5(f).
"Midway" shall mean Midway Engineered Wood Products, Inc., an
Oregon corporation.
"Mill Sales" shall mean the sale by Borrowers, pursuant to an
order or orders of the Bankruptcy Court, of the assets and stock of the
following Borrowers: (a) Burke; (b) Midway; (c) Pacific Soft; (d) Philomath; and
(e) Sedro.
"Mortgages" shall mean each of the mortgages, deeds of trust,
leasehold mortgages, leasehold deeds of trust, collateral assignments of leases
or other real estate security documents delivered by any Borrower to Lender, all
in form and substance satisfactory to Lender.
"Morton" shall mean Morton Forest Products Co., a Washington
corporation.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA, and to which any Borrower or ERISA
Affiliate is making, is obligated to
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make, or has made or been obligated to make, contributions on behalf of
participants who are or were employed by any of them.
"Net Borrowing Availability" shall mean as of any date of
determination, the lesser of (i) the Revolving Loan Commitment and (ii) the
Borrowing Base, in each case less the Revolving Loan then outstanding.
"North Powder" shall mean North Powder Lumber Co., an Oregon
corporation.
"Notice of Authorized Representative" shall mean the notice
given from time to time by Borrower Representative to Lender substantially in
the form of Exhibit 1.1(c) which notice designates by name one or more Persons
as Authorized Representatives of Borrower Representative.
"Notice of Conversion/Continuation" shall have the meaning
assigned to it in Section 1.5(e).
"Notice of Revolving Credit Advance" shall have the meaning
assigned to it in Section 1.1(a).
"Obligations" shall mean all loans, advances, debts,
liabilities and obligations, for the performance of covenants, tasks or duties
or for payment of monetary amounts (whether or not such performance is then
required or contingent, or such amounts are liquidated or determinable) owing by
any Credit Party to Lender, and all covenants and duties regarding such amounts,
of any kind or nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under the Agreement or any of the other
Loan Documents. This term includes all principal, interest (including all
interest that accrues after the commencement of any case or proceeding by or
against any Credit Party in bankruptcy, whether or not allowed in such case or
proceeding), Fees, Charges, expenses, attorneys' fees and any other sum
chargeable to any Credit Party under the Agreement or any of the other Loan
Documents.
"Pacific Hard" shall mean Pacific Hardwoods-South Bend Co., a
Washington corporation.
"Pacific Soft" shall mean Pacific Softwoods Co., an Oregon
corporation.
"Patent License" shall mean rights under any written agreement
now owned or hereafter acquired by any Person granting any right with respect to
any invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person
now holds or hereafter acquires any interest: (a) all letters patent of the
United States or of any other country, all registrations and recordings thereof,
and all applications for letters patent of the United States or any other
country, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States or any Territory thereof, or any other country, and (b) all
reissues, continuations, continuations-in-part, divisions, or extensions
thereof.
"Patent, Trademark and Copyright Security Agreement" shall
mean the Patent,
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Trademark and Copyright Security Agreement made in favor of Lender by each
applicable Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean a Plan described in Section 3(2) of
ERISA.
"Permitted Encumbrances" shall mean the following
encumbrances: (a) Liens for taxes or assessments or other governmental Charges
not yet due and payable; (b) pledges or deposits of money securing statutory
obligations under workmen's compensation, unemployment insurance, social
security or public liability laws or similar legislation (excluding Liens under
ERISA); (c) pledges or deposits of money securing bids, tenders, contracts
(other than contracts for the payment of money) or leases to which any Borrower
is a party as lessee made in the ordinary course of business; (d) inchoate and
unperfected workers', mechanics' or similar liens arising in the ordinary course
of business, so long as such Liens attach only to Equipment, Fixtures or Real
Estate; (e) carriers', warehousemen's, suppliers' or other similar possessory
liens arising in the ordinary course of business and securing liabilities in an
outstanding aggregate amount not in excess of $100,000 at any time, so long as
such Liens attach only to Inventory; (f) deposits securing, or in lieu of,
surety, appeal or customs bonds in proceedings to which any Borrower is a party;
(g) any attachment or judgment lien not constituting an Event of Default under
Section 8.1(j); (h) zoning restrictions, easements, licenses, or other
restrictions on the use of any Real Estate or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such Real Estate; (i) Liens existing
on the Closing Date and listed in Disclosure Schedule (6.7); (j) presently
existing or hereafter created Liens in favor of Lender; (k) Liens created after
the Closing Date by conditional sale or other title retention agreements
(including Capital Leases) or in connection with purchase money Indebtedness
with respect to Equipment and Fixtures acquired by any Borrower in the ordinary
course of business, involving the incurrence of an aggregate amount of purchase
money Indebtedness and Capital Lease Obligations of not more than $500,000
outstanding at any one time for all such Liens (provided that such Liens attach
only to the assets subject to such purchase money debt and such Indebtedness is
incurred within 20 days following such purchase and does not exceed 100% of the
purchase price of the subject assets); (l) Liens in favor of Prepetition Lenders
and subordinated to Lender's Liens in a manner satisfactory to Lender; and (m)
Lumberman's Liens.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal, state, county, city, municipal,
local, foreign, or otherwise, including any instrumentality, division, agency,
body or department thereof).
"Petition Date" shall have the meaning assigned to it in the
Recitals of the Agreement.
"Philomath" shall mean Philomath Forest Products Co., an
Oregon corporation.
"Plan" shall mean, at any time, an "employee benefit plan," as
defined in Section 3(3) of ERISA, that any Borrower or any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any Borrower.
"Pledge Agreement" shall mean the Pledge Agreement of even
date herewith executed by each Borrower in favor of Lender, pledging all Stock
of its Subsidiaries, if any, and all
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Intercompany Notes owing to or held by it, as the same may be amended,
supplemented, restated or otherwise modified from time to time in accordance
with the terms thereof.
"Prepetition Indebtedness" shall mean all Indebtedness of any
Credit Party incurred or assumed prior to the Petition Date.
"Prepetition Lenders" shall mean Principal Life Insurance
Company, The Northwestern Mutual Life Insurance Company, Foothill Capital
Corporation, Contrarian Capital Advisors L.L.C., and Fixed Plus Partners.
"Prepetition Lender Obligations" shall mean the obligations of
Borrowers to Prepetition Lenders arising under that certain Credit and Security
Agreement dated as of November 30, 1992, as amended through the Petition Date.
"Proceeds" shall mean "proceeds," as such term is defined in
the Code, including (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Borrower from time to time with respect to
any of the Collateral, (b) any and all payments (in any form whatsoever) made or
due and payable to any Person from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting under
color of governmental authority), (c) any claim of any Person against third
parties (i) for past, present or future infringement of any Patent or Patent
License, or (ii) for past, present or future infringement or dilution of any
Copyright, Copyright License, Trademark or Trademark License, or for injury to
the Goodwill associated with any Trademark or Trademark License, (d) any
recoveries by any Person against third parties with respect to any litigation or
dispute concerning any of the Collateral, and (e) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral,
upon disposition or otherwise.
"Projections" shall mean Borrowers' forecasted consolidated
(a) balance sheets; (b) profit and loss statements; and (c) cash flow
statements, all prepared on a Subsidiary-by-Subsidiary or division-by-division
basis, if applicable, and otherwise consistent with the historical Financial
Statements of the Borrowers, together with appropriate supporting details and a
statement of underlying assumptions.
"Qualified Plan" shall mean a Pension Plan that is intended to
be tax-qualified under Section 401(a) of the IRC.
"Real Estate" shall have the meaning assigned to it in Section
3.6.
"Release" shall mean any release, threatened release, spill,
emission, leaking, pumping, pouring, emitting, emptying, escape, injection,
deposit, disposal, discharge, dispersal, dumping, leaching or migration of
Hazardous Material in the indoor or outdoor environment, including the movement
of Hazardous Material through or in the air, soil, surface water, ground water
or property.
"Reserves" shall mean, with respect to the Borrowing Base of
any Borrower, (a) reserves established by Lender from time to time against
Eligible Inventory pursuant to Section 5.9, (b) reserves established pursuant to
Section 5.4(c), (c) the Lumberman's Lien Reserve, (d) a reserve in the amount of
the Carve-Out, and (e) such other reserves against Eligible Accounts, Eligible
Inventory
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<PAGE>
or Borrowing Availability of any Borrower that Lender may, in its reasonable
credit judgment, establish from time to time.
"Restricted Payment" shall mean, with respect to any Person:
(a) the declaration or payment of any dividend or the incurrence of any
liability to make any other payment or distribution of cash or other property or
assets in respect of such Person's Stock; (b) any payment on account of the
purchase, redemption, defeasance, sinking fund or other retirement of such
Person's Stock or any other payment or distribution made in respect thereof,
either directly or indirectly; (c) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire Stock of such Person now or hereafter
outstanding; (d) any payment of a claim for the rescission of the purchase or
sale of, or for material damages arising from the purchase or sale of, any
shares of such Person's Stock or of a claim for reimbursement, indemnification
or contribution arising out of or related to any such claim for damages or
rescission; (e) any payment, loan, contribution, or other transfer of funds or
other property to any Stockholder of such Person other than payment of
compensation in the ordinary course of business to Stockholders who are
employees of such Person; and (f) any payment of management fees (or other fees
of a similar nature) by such Person to any Stockholder of such Person or its
Affiliates.
"Retiree Welfare Plan" shall mean, at any time, a Welfare Plan
that provides for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant's termination of employment,
other than continuation coverage provided pursuant to Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant.
"Revolving Credit Advance" shall have the meaning assigned to
it in Section 1.1(a).
"Revolving Loan" shall mean, at any time, and as the context
may require, (a) the aggregate amount of Revolving Credit Advances outstanding
to Borrowers plus (b) the aggregate Letter of Credit Obligations incurred on
behalf of Borrowers.
"Revolving Loan Commitment" shall mean the commitment of
Lender to make Revolving Credit Advances or incur Letter of Credit Obligations,
which commitment shall be SIXTEEN MILLION DOLLARS ($16,000,000) on the Closing
Date, as such amount may be adjusted, if at all, from time to time in accordance
with the Agreement.
"Revolving Note" shall have the meaning assigned to it in
Section 1.1(b).
"Schedule of Documents" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the Agreement, the other Loan
Documents and the transactions contemplated thereunder, substantially in the
form attached hereto as Annex D.
"Securities Act" shall mean the provisions of the Securities
Act of 1933, 15 U.S.C. Sections 77a et seq.
"Securities Exchange Act" shall mean the provisions of the
Securities Exchange Act of
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1934, 15 U.S.C. Sections 78a et seq.
"Security Agreement" shall mean the Security Agreement of even
date herewith entered into by and among Lender and each Borrower, as the same
may be amended, supplemented, restated or otherwise modified from time to time,
in accordance with the terms thereof.
"Sedro" shall mean Sedro-Woolley Lumber Co., a Washington
corporation.
"Spanaway" shall mean Spanaway Lumber Co., a Washington
corporation.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests or other equivalents (regardless of how
designated) of or in a corporation, partnership or equivalent entity whether
voting or nonvoting, including common stock, preferred stock or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act.
"Stockholder" shall mean, with respect to any Person, each
holder of Stock of such Person.
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned legally or beneficially by such Person or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (b) any partnership or limited liability
company in which such Person or one or more Subsidiaries of such Person shall
have an interest (whether in the form of voting or participation in profits or
capital contribution) of more than 50% or of which any such Person is a general
partner or may exercise the powers of a general partner.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges
or withholdings, and all liabilities with respect thereto.
"Termination Date" shall mean the date on which (a) the
Revolving Loan have been indefeasibly repaid in full, (b) all other Obligations
under the Agreement and the other Loan Documents have been completely discharged
(other than Obligations that expressly survive the Termination Date), (c) Letter
of Credit Obligations have been terminated, replaced, guaranteed or cash
collateralized in accordance with Annex B, and (d) none of Borrowers shall have
any further right to borrow any monies under the Agreement.
"Third Party Interactives" shall mean all Persons with whom
any Borrower exchanges data electronically in the ordinary course of business,
including customers, suppliers, third-party vendors, subcontractors,
processors-converters, shippers and warehousemen.
"TI" shall mean TreeSource, Inc., an Oregon corporation.
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<PAGE>
"Title IV Plan" shall mean a Pension Plan (other than a
Multiemployer Plan) that is covered by Title IV of ERISA and that any Borrower
or ERISA Affiliate maintains, contributes to or has an obligation to contribute
to on behalf of participants who are or were employed by any of them.
"Trademark License" shall mean rights under any written
agreement now owned or hereafter acquired by any Person granting any right to
use any Trademark.
"Trademarks" shall mean all of the following now owned or
existing or hereafter adopted or acquired by any Person: (a) all trademarks,
trade names, corporate names, business names, trade styles, service marks,
logos, other source or business identifiers, prints and labels on which any of
the foregoing have appeared or appear, designs and general intangibles of like
nature (whether registered or unregistered), all registrations and recordings
thereof, and all applications in connection therewith, including registrations,
recordings and applications in the United States Patent and Trademark Office or
in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof; (b) all
extensions or renewals thereof; and (c) all goodwill associated with or
symbolized by any of the foregoing.
"Trask" shall mean Trask River Lumber Co., an Oregon
corporation.
"TreeSource" shall mean TreeSource Industries, Inc., an Oregon
corporation.
"Tumwater" shall mean Tumwater Lumber Co., a Washington
corporation.
"Unfunded Pension Liability" shall mean, at any time, the
aggregate amount, if any, of the sum of (a) the amount by which the present
value of all accrued benefits under each Title IV Plan exceeds the fair market
value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent
valuation date for each such Title IV Plan using the actuarial assumptions for
funding purposes in effect under such Title IV Plan, and (b) for a period of
five years following a transaction that might reasonably be expected to be
covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that
could be avoided by any Borrower or any ERISA Affiliate as a result of such
transaction.
"Welfare Plan" shall mean a Plan described in Section 3(1) of
ERISA.
"Western" shall mean Western Timber Co., an Oregon
corporation.
"Year 2000 Assessment" shall mean a comprehensive written
assessment of the nature and extent of each Borrower's Year 2000 Problems and
Year 2000 Date-Sensitive Systems/Components, including Year 2000 Problems
regarding data exchanges with Third Party Interactives.
"Year 2000 Corrective Actions" shall mean, as to each
Borrower, all actions necessary to eliminate such Person's Year 2000 Problems,
including, without limitation, computer code enhancements and revisions,
upgrades and replacements of Year 2000 Date-Sensitive Systems/Components, and
coordination of such enhancements, revisions, upgrades and replacements with
Third Party Interactives.
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<PAGE>
"Year 2000 Corrective Plan" shall mean, with respect to each
Borrower, a comprehensive plan to eliminate all of its Year 2000 Problems on or
before October 31, 1999, including (a) computer code enhancements or revisions,
(b) upgrades or replacements of Year 2000 Date-Sensitive Systems/Components, (c)
test and validation procedures, (d) an implementation time line and budget and
(e) designation of specific employees who will be responsible for planning,
coordinating and implementing each phase or subpart of the Year 2000 Corrective
Plan.
"Year 2000 Date-Sensitive System/Component" shall mean, as to
any Person, any system software, network software, applications software, data
base, computer file, embedded microchip, firmware or hardware that accepts,
creates, manipulates, sorts, sequences, calculates, compares or outputs
calendar-related data accurately; such systems and components shall include,
without limitation, mainframe computers, file server/client systems, computer
workstations, routers, hubs, other network-related hardware, and other
computer-related software, firmware or hardware and information processing and
delivery systems of any kind and telecommunications systems and other
communications processors, security systems, alarms, elevators and HVAC systems.
"Year 2000 Implementation Testing" shall mean, as to each
Borrower, (a) the performance of test and validation procedures regarding Year
2000 Corrective Actions on a unit basis and on a systemwide basis, (b) the
performance of test and validation procedures regarding data exchanges among
Borrowers' Year 2000 Date-Sensitive Systems/Components and data exchanges with
Third Party Interactives, and (c) the design and implementation of additional
Year 2000 Corrective Actions, the need for which has been demonstrated by test
and validation procedures.
"Year 2000 Problems" shall mean, with respect to each
Borrower, limitations on the capacity or readiness of any such Borrower's Year
2000 Date-Sensitive Systems/Components to accurately accept, create, manipulate,
sort, sequence, calculate, compare or output calendar date information with
respect to calendar year 1999 or any subsequent calendar year beginning on or
after January 1, 2000 (including leap year computations), including exchanges of
information among Year 2000 Date-Sensitive Systems/Components of Borrowers and
exchanges of information among Borrowers and Year 2000 Date-Sensitive
Systems/Components of Third Party Interactives and functionality of peripheral
interfaces, firmware and embedded microchips.
Rules of construction with respect to accounting terms used in
the Agreement or any of the other Loan Documents shall be as set forth in Annex
G. All other undefined terms contained in any of the Loan Documents shall,
unless the context indicates otherwise, have the meanings provided for by the
Code as in effect in the State of Oregon to the extent the same are used or
defined therein. Unless otherwise specified, references in the Agreement or any
of the Appendices to a section, subsection or clause refer to such section,
subsection or clause as contained in the Agreement. The words "herein," "hereof"
and "hereunder" and other words of similar import refer to the Agreement as a
whole, including all Annexes, Exhibits and Schedules, as the same may from time
to time be amended, restated, modified or supplemented, and not to any
particular section, subsection or clause contained in the Agreement or any such
Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter genders. The words
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<PAGE>
"including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; the word "or" is not exclusive;
references to Persons include their respective successors and assigns (to the
extent and only to the extent permitted by the Loan Documents) or, in the case
of governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations. Whenever
any provision in any Loan Document refers to the knowledge (or an analogous
phrase) of any Credit Party, such words are intended to signify that such Credit
Party has actual knowledge or awareness of a particular fact or circumstance or
that such Credit Party, if it had exercised reasonable diligence, would have
known or been aware of such fact or circumstance.
A-23
<PAGE>
Annex B (Section 1.2)
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to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
LETTERS OF CREDIT
-----------------
(a) Issuance. Subject to the terms and conditions of the
Agreement, Lender agrees to incur from time to time prior to the Commitment
Termination Date, upon the request of Borrower Representative on behalf of the
applicable Borrower and for such Borrower's account, Letter of Credit
Obligations by causing Letters of Credit to be issued (by a bank or other
legally authorized Person selected by or acceptable to Lender in its sole
discretion (each, an "L/C Issuer")) for such Borrower's account and guaranteed
by Lender; provided, that the aggregate amount of all such Letter of Credit
Obligations shall not at any time exceed the least of (i) $5,000,000 (the "L/C
Sublimit"), (ii) the Revolving Loan Commitment less the aggregate outstanding
principal balance of the Revolving Credit Advances, and (iii) the Borrowing Base
less the aggregate outstanding principal balance of the Revolving Credit
Advances. No such Letter of Credit shall have an expiry date that is more than
one year following the date of issuance thereof, and Lender shall be under no
obligation to incur Letter of Credit Obligations in respect of any Letter of
Credit having an expiry date that is later than the Commitment Termination Date.
(b) Revolving Credit Advances Automatic. In the event that
Lender shall make any payment on or pursuant to any Letter of Credit Obligation,
such payment shall then be deemed automatically to constitute a Revolving Credit
Advance to the applicable Borrower under Section 1.1(a) regardless of whether a
Default or Event of Default shall have occurred and be continuing and
notwithstanding any Borrower's failure to satisfy the conditions precedent set
forth in Section 2.
(c) Cash Collateral.
(i) If Borrowers are required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement prior
to the Commitment Termination Date, each Borrower will pay to Lender cash or
cash equivalents acceptable to Lender ("Cash Equivalents") in an amount equal to
102% of the maximum amount then available to be drawn under each applicable
Letter of Credit outstanding for the benefit of such Borrower. Such funds or
Cash Equivalents shall be held by Lender in a cash collateral account (the "Cash
Collateral Account") maintained at a bank or financial institution acceptable to
Lender. The Cash Collateral Account shall be in the name of the applicable
Borrower and shall be pledged to, and subject to the control of, Lender, in a
manner satisfactory to Lender. Each Borrower hereby pledges and grants to Lender
a security interest in all such funds and Cash Equivalents held in the Cash
Collateral Account from time to time and all proceeds thereof as security for
the payment of all amounts due in respect of the Letter of Credit Obligations
and other Obligations, whether or not then due. The Agreement, including this
Annex B, shall constitute a security agreement under applicable law.
(ii) If any Letter of Credit Obligations, whether or
not then due and payable, shall for any reason be outstanding on the Commitment
Termination Date, Borrowers shall either (A) provide cash collateral therefor in
the manner described above, (B) cause all such Letters of
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<PAGE>
Credit and guaranties thereof to be canceled and returned, or (C) deliver a
stand-by letter (or letters) of credit in guaranty of such Letter of Credit
Obligations, which stand-by letter (or letters) of credit shall be of like tenor
and duration as, and in an amount equal to 102% of the aggregate maximum amount
then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as are be satisfactory to
Lender in its sole discretion.
(iii) From time to time after funds are deposited in
the Cash Collateral Account by any Borrower, whether before or after the
Commitment Termination Date, Lender may apply such funds or Cash Equivalents
then held in the Cash Collateral Account to the payment of any amounts, and in
such order as Lender may elect, as shall be or shall become due and payable by
such Borrower to Lender with respect to such Letter of Credit Obligations of
such Borrower and, upon the satisfaction in full of all Letter of Credit
Obligations of such Borrower, to any other Obligations of any Borrower then due
and payable.
(iv) No Borrower nor any Person claiming on behalf of
or through any Borrower shall have any right to withdraw any of the funds or
Cash Equivalents held in the Cash Collateral Account, except that upon the
termination of all Letter of Credit Obligations and the payment of all amounts
payable by Borrowers to Lender in respect thereof, any funds remaining in the
Cash Collateral Account shall be applied to other Obligations then due and owing
and upon payment in full of such Obligations, any remaining amount shall be paid
to Borrowers or as otherwise required by law.
(d) Fees and Expenses. Borrowers agree to pay (i) to Lender,
as compensation to Lender for Letter of Credit Obligations incurred hereunder,
(A) all costs and expenses incurred by Lender on account of such Letter of
Credit Obligations, and (B) for each month during which any Letter of Credit
Obligation shall remain outstanding, a Fee (the "Letter of Credit Fee") in an
amount equal to the Applicable L/C Margin multiplied by the daily average of the
maximum amount available from time to time to be drawn under the applicable
Letter of Credit during such month, which Fee shall be paid to Lender in arrears
on the first day of each month and on the Commitment Termination Date, and (ii)
to any L/C Issuer, on demand, such fees (including all per annum fees), charges
and expenses of such L/C Issuer in respect of the issuance, negotiation,
acceptance, amendment, transfer and payment of such Letter of Credit or
otherwise payable pursuant to the application and related documentation under
which such Letter of Credit is issued.
(e) Request for Incurrence of Letter of Credit Obligations.
Borrower Representative shall give Lender at least two Business Days' prior
written notice requesting the incurrence of any Letter of Credit Obligation,
specifying the date such Letter of Credit Obligation is to be incurred,
identifying the beneficiary and the Borrower to which such Letter of Credit
Obligation relates and describing the nature of the transactions proposed to be
supported thereby. The notice shall be accompanied by the form of the Letter of
Credit (which shall be acceptable to the L/C Issuer) to be guaranteed and, to
the extent not previously delivered to Lender, copies of all agreements between
any Borrower and the L/C issuer pertaining to the issuance of Letters of Credit.
Notwithstanding anything contained herein to the contrary, Letter of Credit
applications by Borrower Representative and approvals by Lender and the L/C
Issuer may be made and transmitted pursuant to electronic codes and security
measures mutually agreed upon and established by and among Borrower
Representative, Lender and the L/C Issuer.
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<PAGE>
(f) Obligation Absolute. The obligation of Borrowers to
reimburse Lender for payments made with respect to any Letter of Credit
Obligation shall be absolute, unconditional and irrevocable, without necessity
of presentment, demand, protest or other formalities. Such obligations of
Borrowers shall be paid strictly in accordance with the terms hereof under all
circumstances, including the following:
(i) any lack of validity or enforceability of any
Letter of Credit or the Agreement or the other Loan Documents or any
other agreement;
(ii) the existence of any claim, setoff, defense or
other right that any Borrower or any of their respective Affiliates may
at any time have against a beneficiary or any transferee of any Letter
of Credit (or any Persons or entities for whom any such transferee may
be acting), Lender, or any other Person, whether in connection with the
Agreement, the Letter of Credit, the transactions contemplated herein
or therein or any unrelated transaction (including any underlying
transaction between any Borrower or any of their respective Affiliates
and the beneficiary for which the Letter of Credit was procured);
(iii) any draft, demand, certificate or any other
document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(iv) payment by Lender (except as otherwise expressly
provided in paragraph (g)(ii)(C) below) or any L/C Issuer under any
Letter of Credit or guaranty thereof against presentation of a demand,
draft or certificate or other document that does not comply with the
terms of such Letter of Credit or such guaranty;
(v) any other circumstance or event whatsoever that
is similar to any of the foregoing; or
(vi) the fact that a Default or an Event of Default
shall have occurred and be continuing.
(g) Indemnification; Nature of Lender's Duties.
(i) In addition to amounts payable as elsewhere
provided in the Agreement, Borrowers hereby agree to pay and to protect,
indemnify, and save Lender harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses (including
attorneys' fees and allocated costs of internal counsel) that Lender may incur
or be subject to as a consequence, direct or indirect, of the (A) issuance of
any Letter of Credit or guaranty thereof, or (B) the failure of Lender or any
L/C Issuer to honor a demand for payment under any Letter of Credit or guaranty
thereof as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or Governmental Authority, in
each case other than to the extent solely as a result of the gross negligence or
willful misconduct of Lender (as finally determined by a court of competent
jurisdiction).
(ii) As between Lender and Borrowers, Borrowers
assume all risks of the acts and omissions of, or misuse of any Letter of Credit
by, beneficiaries of any Letter of Credit. In
B-3
<PAGE>
furtherance and not in limitation of the foregoing, to the fullest extent
permitted by law, Lender shall not be responsible for: (A) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document issued by any
party in connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, that may prove to be invalid or ineffective for any reason;
(C) failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment under such Letter of Credit;
provided, that in the case of any payment by Lender under any Letter of Credit
or guaranty thereof, Lender shall be liable to the extent such payment was made
solely as a result of its gross negligence or willful misconduct (as finally
determined by a court of competent jurisdiction) in determining that the demand
for payment under such Letter of Credit or guaranty thereof complies on its face
with any applicable requirements for a demand for payment under such Letter of
Credit or guaranty thereof; (D) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they may be in cipher; (E) errors in interpretation of
technical terms; (F) any loss or delay in the transmission or otherwise of any
document required in order to make a payment under any Letter of Credit or
guaranty thereof or of the proceeds thereof; (G) the credit of the proceeds of
any drawing under any Letter of Credit or guaranty thereof; and (H) any
consequences arising from causes beyond the control of Lender. None of the above
shall affect, impair, or prevent the vesting of any of Lender's rights or powers
hereunder or under the Agreement.
(iii) Nothing contained herein shall be deemed to
limit or to expand any waivers, covenants or indemnities made by Borrowers in
favor of any L/C Issuer in any letter of credit application, reimbursement
agreement or similar document, instrument or agreement between or among
Borrowers and such L/C Issuer.
B-4
<PAGE>
Annex C (Section 1.8)
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to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
CASH MANAGEMENT SYSTEM
----------------------
Borrowers shall establish and maintain the cash management system
described below:
(a) On or before the Closing Date and until the Termination
Date, (i) TreeSource shall establish a lock box (the "Lock Box") with Union Bank
of California providing for the deposit of all receipts into the account
identified in Disclosure Schedule (3.19) as the Lock Box Account (the "Lock Box
Account"), and Borrowers shall request in writing and otherwise take such
reasonable steps to ensure that all Account Debtors forward payment directly to
such Lock Box, and (ii) each Borrower shall deposit promptly, and in any event
no later than the first Business Day after the date of receipt thereof, (A) into
the Lock Box Account, all checks, drafts and other similar items of payment, and
all cash receipts exceeding $1,000, in each case received by such Borrower on
any such day, and (B) into such Borrower's "general account" identified in
Disclosure Schedule (3.19) (each, a "General Account"), the cash receipts of up
to $1,000 received by such Borrower on any such day, in each case relating to or
constituting payments made in respect of any and all Collateral (other than the
proceeds of any Mill Sales).
(b) Lender shall, from time to time, deposit proceeds of
Revolving Credit Advances made pursuant to Section 1.1 into the General Account
of TreeSource, for use by Borrowers solely in accordance with the provisions of
Section 1.4.
(c) On or before the Closing Date, Union Bank of California
shall have entered into a blocked account agreement with Lender and Borrowers,
providing among other things, that (i) all items of payment deposited into the
Lock Box Account and the proceeds thereof are held by such bank as agent or
bailee-in-possession for Lender, (ii) Union Bank of California has no rights of
setoff or recoupment or any other claim against such account, as the case may
be, other than for payment of its service fees and other charges directly
related to the administration of such account and for returned checks or other
items of payment, and (iii) from and after the Closing Date Union Bank of
California agrees to forward immediately all amounts in the Lock box Account to
the Collection Account through daily sweeps. Except when there is no outstanding
Revolving Loan balance, Borrowers shall not accumulate or maintain cash in their
General Accounts (including the "investment account" of TreeSource identified in
Disclosure Schedule (3.19)) or payroll accounts as of any date of determination
that exceeds, for all Borrowers, $700,000 in the aggregate in excess of checks
outstanding against all such accounts.
(d) So long as no Event of Default shall have occurred and be
continuing, Borrowers may amend Disclosure Schedule (3.19) to add or replace the
Lock Box, the Lock Box Account, a General Account or any other account;
provided, that (i) Lender shall have consented in writing in advance to the
opening of such account or Lock Box with the relevant bank and (ii) prior to the
time of the opening of a new Lock Box, the applicable Borrowers and the
applicable bank shall have executed and delivered to Lender a tri-party blocked
account agreement, in form and substance satisfactory to Lender.
C-1
<PAGE>
(e) The Lock Box, Lock Box Account, General Accounts and all
other accounts of Borrowers (other than payroll accounts), shall be cash
collateral accounts, with all cash, checks and other similar items of payment in
such accounts securing payment of the Loans and all other Obligations, and in
which each Borrower and each Subsidiary thereof shall have granted a Lien to
Lender pursuant to the Security Agreement.
(f) All amounts deposited in the Collection Account shall be
deemed received by Lender in accordance with Section 1.10 and shall be applied
(and allocated) by Lender in accordance with Section 1.11. In no event shall any
amount be so applied unless and until such amount shall have been credited in
immediately available funds to the Collection Account.
(g) Each Borrower shall and shall cause its Affiliates,
officers, employees, agents, directors or other Persons acting for or in concert
with such Borrower (each a "Related Person") to (i) hold in trust for Lender all
checks, cash and other items of payment received by such Borrower or any such
Related Person, and (ii) within one Business Day after receipt by such Borrower
or any such Related Person of any checks, cash (in excess of $1,000)or other
items of payment, deposit the same into the Lock Box Account, and deposit all
cash of up to $1,000 into such Borrower's General Account. Each Borrower and
each Related Person thereof acknowledges and agrees that all cash, checks or
other items of payment constituting proceeds of Collateral are the property of
Lender. All proceeds of the sale or other disposition of any Collateral shall be
deposited in the manner described in paragraph (a) above.
C-2
<PAGE>
Annex D (Section 2.1(a))
--------------
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
SCHEDULE OF DOCUMENTS
[See attached]
D-1
<PAGE>
Annex E (Section 4.1(a))
--------------
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
-------------------------------------------------
Borrowers shall deliver or cause to be delivered to Lender the
following:
(a) Monthly Financials. Within 30 days after the end of each
Fiscal Month, financial information regarding Borrowers and their Subsidiaries,
certified by the Chief Financial Officer of Borrower Representative, consisting
of consolidated and consolidating (i) unaudited balance sheets as of the close
of such Fiscal Month and the related statements of income and cash flows for
that portion of the Fiscal Year ending as of the close of such Fiscal Month;
(ii) unaudited statements of income and cash flows for such Fiscal Month,
setting forth in comparative form the figures for the corresponding period in
the prior year and the figures contained in the Projections for such Fiscal
Year, all prepared in accordance with GAAP (subject to normal year-end
adjustments without footnotes); and (iii) a summary of the outstanding balance
of all Intercompany Notes as of the last day of such Fiscal Month. Such
financial information shall be accompanied by (A) a statement in reasonable
detail (each, a "Compliance Certificate") showing the calculations used in
determining compliance with each financial covenant set forth on Annex G that is
tested on a monthly basis, and (B) the certification of the Chief Financial
Officer of Borrower Representative that (i) such financial information presents
fairly in accordance with GAAP (subject to normal year-end adjustments without
footnotes) the financial position and results of operations of Borrowers and
their Subsidiaries, on a consolidated and consolidating basis, in each case as
at the end of such Fiscal Month and for that portion of the Fiscal Year ending
as of the end of such Fiscal Month and (ii) any other information presented is
true, correct and complete in all material respects and that there was no
Default or Event of Default in existence as of such time or, if a Default or
Event of Default shall have occurred and be continuing, describing the nature
thereof and all efforts undertaken to cure such Default or Event of Default.
(b) Quarterly Financials. Within 45 days after the end of each
Fiscal Quarter, consolidated and consolidating financial information regarding
Borrowers and their Subsidiaries, certified by the Chief Financial Officer of
Borrower Representative, including (i) unaudited balance sheets as of the close
of such Fiscal Quarter and the related statements of income and cash flows for
that portion of the Fiscal Year ending as of the close of such Fiscal Quarter
and (ii) unaudited statements of income and cash flows for such Fiscal Quarter,
in each case setting forth in comparative form the figures for the corresponding
period in the prior year and the figures contained in the Projections for such
Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end
adjustments without footnotes). Such financial information shall be accompanied
by (A) a Compliance Certificate in respect of each of the financial covenants
set forth on Annex G that is tested on a quarterly basis and (B) the
certification of the Chief Financial Officer of Borrower Representative that (i)
such financial information presents fairly in accordance with GAAP (subject to
normal year-end adjustments without footnotes) the financial position, results
of operations and statements of cash flows of Borrowers and their Subsidiaries,
on both a consolidated and consolidating basis, as at the end of such Fiscal
Quarter and for that portion of the Fiscal Year ending as of the end of such
Fiscal Quarter, (ii) any other information presented is true, correct and
complete in all material respects and that there was no Default or Event of
Default in existence as of such time or, if a Default or Event of Default
E-1
<PAGE>
shall have occurred and be continuing, describing the nature thereof and all
efforts undertaken to cure such Default or Event of Default. In addition,
Borrowers shall deliver to Lender, within 45 days after the end of each Fiscal
Quarter, a management discussion and analysis that includes a comparison to
budget for that Fiscal Quarter and a comparison of performance for that Fiscal
Quarter to the corresponding period in the prior year.
(c) Operating Plan. As soon as available, but not later than
30 days after the end of each Fiscal Year, an annual operating plan for each
Borrower, approved by the Board of Directors of such Borrower, for the following
year, which will (i) include a statement of all of the material assumptions on
which such plan is based, (ii) include monthly balance sheets and a monthly
budget for the following Fiscal Year and (iii) integrate sales, gross profits,
operating expenses, operating profit, cash flow projections and Borrowing
Availability projections, all prepared on the same basis and in similar detail
as that on which operating results are reported (and in the case of cash flow
projections, representing management's good faith estimates of future financial
performance based on historical performance), and including plans for personnel,
Capital Expenditures and facilities.
(d) Annual Audited Financials. Within 90 days after the end of
each Fiscal Year, audited Financial Statements for Borrowers and their
Subsidiaries on a consolidated basis, consisting of balance sheets and
statements of income and retained earnings and cash flows, setting forth in
comparative form in each case the figures for the previous Fiscal Year, which
Financial Statements shall be prepared in accordance with GAAP and certified
without qualification by an independent certified public accounting firm of
national standing or otherwise acceptable to Lender. Such Financial Statements
shall be accompanied by (i) a statement prepared in reasonable detail showing
the calculations used in determining compliance with each of the Financial
Covenants, (ii) a report from such accounting firm to the effect that, in
connection with their audit examination, nothing has come to their attention to
cause them to believe that a Default or Event of Default has occurred (or
specifying those Defaults and Events of Default that they became aware of), it
being understood that such audit examination extended only to accounting matters
and that no special investigation was made with respect to the existence of
Defaults or Events of Default, (iii) the annual letters to such accountants in
connection with their audit examination detailing contingent liabilities and
material litigation matters, and (iv) the certification of the Chief Executive
Officer or Chief Financial Officer of Borrowers that all such Financial
Statements present fairly in accordance with GAAP the financial position,
results of operations and statements of cash flows of Borrowers and their
Subsidiaries on a consolidated and consolidating basis, as at the end of such
Fiscal Year and for the period then ended, and that there was no Default or
Event of Default in existence as of such time or, if a Default or Event of
Default shall have occurred and be continuing, describing the nature thereof and
all efforts undertaken to cure such Default or Event of Default.
(e) Management Letters. Within five Business Days after
receipt thereof by any Borrower, copies of all management letters, exception
reports or similar letters or reports received by such Borrower from its
independent certified public accountants.
(f) Default Notices. As soon as practicable, and in any event
within five Business Days after an executive officer of any Borrower has actual
knowledge of the existence of any Default, Event of Default or other event that
has had a Material Adverse Effect, telephonic or telecopied notice specifying
the nature of such Default or Event of Default or other event, including the
anticipated effect thereof, which notice, if given telephonically, shall be
promptly confirmed in writing on the next
E-2
<PAGE>
Business Day.
(g) SEC Filings and Press Releases. Promptly upon their
becoming available, copies of: (i) all Financial Statements, reports, notices
and proxy statements made publicly available by any Credit Party to its security
holders; (ii) all regular and periodic reports and all registration statements
and prospectuses, if any, filed by any Credit Party with any securities exchange
or with the Securities and Exchange Commission or any governmental or private
regulatory authority; and (iii) all press releases and other statements made
available by any Credit Party to the public concerning material adverse changes
or developments in the business of any such Person.
(h) Prepetition Lender Obligations and Equity Notices. As soon
as practicable, copies of all material written notices given or received by any
Borrower with respect to the Prepetition Lender Obligations or any Stock of such
Person, and, within two Business Days after any Borrower obtains knowledge of
any matured or unmatured event of default with respect to the Prepetition Lender
Obligations, notice of such event of default.
(i) Supplemental Schedules. Supplemental disclosures, if
any, required by Section 5.6.
(j) Litigation. Promptly upon learning thereof, written notice
of any Litigation commenced or threatened against any Borrower that (i) seeks
damages in excess of $100,000, (ii) seeks injunctive relief, (iii) is asserted
or instituted against any Plan, its fiduciaries or its assets or against any
Borrower or ERISA Affiliate in connection with any Plan, (iv) alleges criminal
misconduct by any Borrower, (v) alleges the violation of any law regarding, or
seeks remedies in connection with, any Environmental Liabilities, or (vi)
involves any product recall.
(k) Insurance/Condemnation Notices. Promptly upon learning
thereof, written notice of (i) any loss, damage, or destruction to the
Collateral in the amount of $250,000 or more, whether or not covered by
insurance, and (ii) the institution of any proceeding for the condemnation or
other taking of any property of any Borrower.
(l) Lease Default Notices. Copies of (i) any and all default
notices received under or with respect to any leased location or public
warehouse where Collateral having a book value in excess of $100,000 is located,
and (ii) such other notices or documents as Lender may request in its reasonable
discretion.
(m) Lease Amendments. Copies of all amendments any real estate
lease of any Borrower.
(n) The Chapter 11 Cases. As soon as practicable, copies of
all pleadings, motions, applications, judicial information, financial
information and other documents filed on or behalf of any Credit Party with the
Bankruptcy Court or the United States Trustee in any Chapter 11 Case, or
distributed by or on behalf of any Credit Party to any official committee
appointed in any Chapter 11 Case (except to the extent any such information is
subject to a confidentiality agreement between such Credit Party and any such
committee), and all budgets relating to the use of Prepetition Lenders' Cash
Collateral.
E-3
<PAGE>
(o) Other Documents. Such other financial and other
information respecting any Credit Party's business or financial condition as
Lender shall, from time to time, reasonably request.
E-4
<PAGE>
Annex F (Section 4.1(b))
--------------
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
COLLATERAL REPORTS
------------------
Borrowers shall deliver or cause to be delivered to Lender the
following:
(a) As soon as available and in any event no later than the
fifth Business Day of each Fiscal Month, the following reports, each of which
shall be prepared by the applicable Borrower as of the last day of the
immediately preceding Fiscal Month; provided, that if (i) a Default or an Event
of Default shall have occurred and be continuing or (ii) Lender in good faith
believes that a Default or an Event of Default is imminent or deems its rights
or interests in the Collateral insecure, then such reports shall be delivered
for such periods and as frequently as Lender shall request:
(i) a Borrowing Base Certificate with respect to each
Borrower, in each case accompanied by such supporting detail and
documentation as shall be requested by Lender in its reasonable
discretion;
(ii) with respect to each Borrower, a summary of
Inventory by location and type with a supporting perpetual Inventory
report, in each case accompanied by such supporting detail and
documentation as shall be requested by Lender in its reasonable
discretion;
(iii) with respect to each Borrower, a monthly trial
balance showing Accounts outstanding aged from invoice due date as
follows: 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or
more, accompanied by such supporting detail and documentation as shall
be requested by Lender in its reasonable discretion; and
(iv) a summary report of all payables owing to third
parties retained by Borrower for the purpose of obtaining, handling,
manufacturing, transporting, harvesting or cutting Forest Products.
(b) As soon as available and in any event no later than the
second Business Day of each week, collateral reports with respect to each
Borrower, including all additions and reductions (cash and non-cash) with
respect to Accounts of each Borrower, in each case accompanied by such
supporting detail and documentation as shall be requested by Lender in its
reasonable discretion, each of which shall be prepared by the applicable
Borrower as of the last day of the immediately preceding week; provided, that if
(i) a Default or an Event of Default shall have occurred and be continuing or
(ii) Lender in good faith believes that a Default or an Event of Default is
imminent or deems its rights or interests in the Collateral insecure, then such
reports shall be delivered for such periods and as frequently as Lender shall
request.
(c) At the time of delivery of each of the monthly Financial
Statements delivered pursuant to Annex E, a reconciliation of the Accounts trial
balance and month-end Inventory reports of each Borrower to such Borrower's
general ledger and monthly Financial Statements delivered pursuant
F-1
<PAGE>
to Annex E, in each case accompanied by such supporting detail and documentation
as shall be requested by Lender in its reasonable discretion.
(d) At the time of delivery of each of the annual Financial
Statements delivered pursuant to Annex E, (i) a listing of government contracts
of each Borrower subject to the Federal Assignment of Claims Act of 1940; and
(ii) a list of any applications for the registration of any Patent, Trademark or
Copyright filed by any Borrower with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency in
the prior Fiscal Quarter.
(e) Each Borrower, at its own expense, shall deliver to Lender
the results of each physical verification, if any, that such Borrower or any of
its Subsidiaries may in their discretion have made, or caused any other Person
to have made on their behalf, of all or any portion of their Inventory (and, if
a Default or an Event of Default shall have occurred and be continuing, each
Borrower shall, upon the request of Lender, conduct, and deliver the results of,
such physical verifications as Lender may require).
(f) Each Borrower, at its own expense, shall deliver to Lender
such appraisals of its assets as Lender may request at any time after the
occurrence and during the continuance of an Event of Default, such appraisals to
be conducted by an appraiser, and in form and substance, satisfactory to Lender.
(g) Such other reports, statements and reconciliations with
respect to the Borrowing Base or Collateral of any or all Credit Parties as
Lender shall from time to time request in its reasonable discretion.
F-2
<PAGE>
Annex G (Section 6.10)
------------
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
FINANCIAL COVENANTS
-------------------
1. Borrowers shall maintain at all times Net Borrowing Availability
(with trade payables being paid currently, and expenses and liabilities being
paid in the ordinary course of business and without acceleration of sales) of at
least $2,000,000, which amount shall not be decreased without the prior written
consent of Prepetition Lenders.
G-1
<PAGE>
Annex H (Section 11.10)
-------------
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
NOTICE ADDRESSES
----------------
(A) If to Lender, at
General Electric Capital Corporation
350 South Beverly Drive, Suite 200
Beverly Hills, California 90212
Attention: Account Manager (TreeSource)
Facsimile: (310) 785-0644
Telephone: (310) 203-0335
with copies to:
Murphy Sheneman Julian & Rogers
2049 Century Park East, Suite 2100
Los Angeles, California 90067
Attention: Adam G. Spiegel, Esq.
Facsimile: (310) 788-3777
Telephone: (310) 788-3700
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel
Facsimile: (203) 316-7889
Telephone: (203) 316-7555
(B) If to any Borrower, to Borrower Representative at
TreeSource Industries, Inc.
10260 SW Greenburg Road, Suite 900
Portland, Oregon 97223-5519
Attention: Robert W. Lockwood
Facsimile: (503) 245-4229
Telephone: (503) 246-3440
With copies to:
Perkins Coie LLP
1211 SW Fifth Avenue, Suite 1500
Portland, Oregon 97204-3715
Attention: Roy W. Tucker, Esq.
Telephone: (206) 583-8888
Facsimile: (206) 583-8500
H-1
<PAGE>
SCHEDULE (1.1)
---
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
LENDER'S REPRESENTATIVE
-----------------------
General Electric Capital Corporation
350 South Beverly Drive, Suite 200
Beverly Hills, California 90212
Attention: Portfolio Analyst (TreeSource)
Facsimile: (310) 785-0644
Telephone: (310) 203-0335
<PAGE>
DISCLOSURE SCHEDULE (3.12)
to
DEBTOR IN POSSESSION CREDIT AGREEMENT
-------------------------------------
ERISA PLANS
-----------
None.
<PAGE>
REVOLVING NOTE
$16,000,000 October 5, 1999
FOR VALUE RECEIVED, the undersigned, TREESOURCE INDUSTRIES,
INC., an Oregon corporation ("TreeSource"), TREESOURCE, INC., an Oregon
corporation ("TI"), BURKE LUMBER CO., an Oregon corporation ("Burke"), CENTRAL
POINT LUMBER CO., an Oregon corporation ("Central"), GLIDE LUMBER PRODUCTS CO.,
an Oregon corporation ("Glide"), MORTON FOREST PRODUCTS CO., a Washington
corporation ("Morton"), NORTH POWDER LUMBER CO., an Oregon corporation ("North
Powder"), PACIFIC HARDWOODS-SOUTH BEND CO., a Washington corporation ("Pacific
Hard"), SPANAWAY LUMBER CO., a Washington corporation ("Spanaway"), TRASK RIVER
LUMBER CO., an Oregon corporation ("Trask"), TUMWATER LUMBER CO., a Washington
corporation ("Tumwater"), and WESTERN TIMBER CO., an Oregon corporation
("Western") (TreeSource, TI, Burke Central, Glide, Morton, North Powder, Pacific
Hard, Spanaway, Trask, Tumwater, and Western, each as a Debtor and Debtor in
Possession, are collectively referred to herein as "Borrowers" and each
individually as a "Borrower"), hereby jointly and severally promise to pay to
the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
("Lender"), or its assigns, at its address at 350 South Beverly Drive, Suite
200, Beverly Hills, California 90212, or at such other place as Lender may
designate from time to time in writing, in lawful money of the United States of
America and in immediately available funds, the principal amount of SIXTEEN
MILLION DOLLARS ($16,000,000), or such lesser or greater principal amount as may
be from time to time outstanding pursuant to the Credit Agreement (as
hereinafter defined) with respect to the Revolving Loan.
Capitalized terms or matters of construction defined or
established in Annex A to the Debtor in Possession Credit Agreement of even date
herewith by and among Borrowers, the other Credit Parties party thereto, and
Lender (as the same may be amended, restated, supplemented or otherwise modified
from time to time, the "Credit Agreement") shall be applied herein as defined or
established therein. This Revolving Note ("Note") is issued pursuant to the
Credit Agreement, is the "Revolving Note" referred to therein, and is entitled
to the benefit and security of the Loan Documents provided for therein, to which
a reference is hereby made for a statement of all of the terms and conditions
under which the Revolving Loan is made and is to be repaid. All of the terms,
covenants and conditions of the Credit Agreement and all other Instruments
evidencing or securing the Indebtedness hereunder, including the Loan Documents,
are hereby made a part of this Note and are deemed incorporated herein in full.
The date and amount of each Revolving Credit Advance made by Lender to any
Borrower, the rates of interest applicable thereto and each payment made on
account of the principal thereof shall be recorded by Lender on its books and
records; provided, that the failure by Lender to make any such recordation shall
not affect the obligations of any Borrower to make payment when due of any
amount owing under the Loan Documents in respect of the Revolving Credit
Advances made by Lender to any Borrower.
1
<PAGE>
The principal amount of the Indebtedness from time to time
evidenced hereby may be repaid and reborrowed and shall be payable in the
amounts and on the dates specified in the Credit Agreement and, if not sooner
paid in full, on the Commitment Termination Date. Interest on the outstanding
principal amount of this Note shall be paid until such principal amount is paid
in full at such rates of interest, including the Default Rate, if applicable,
and at such times as are specified in the Credit Agreement.
Except as otherwise provided in the Credit Agreement, if any
payment or prepayment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
Upon the occurrence and during the continuance of an Event of
Default, this Note may, without demand, notice or legal process of any kind,
except as otherwise provided in the Credit Agreement, be declared, and upon such
declaration immediately shall become, or upon certain circumstances set forth in
the Credit Agreement may become without declaration, due and payable.
Time is of the essence of this Note. To the fullest extent
permitted by applicable law, each Borrower waives presentment, demand, protest,
and notice of nonpayment and protest.
Except as provided in the Credit Agreement, this Note may not
be assigned by any Borrower to any Person.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF OREGON, WITHOUT REGARD TO THE
PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
ORS 41.580 DISCLOSURE: "UNDER OREGON LAW, MOST AGREEMENTS,
PROMISES AND COMMITMENTS MADE BY US AFTER OCTOBER 3, 1989, CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES
OR SECURED SOLELY BY THE BORROWER'S RESIDENCE
2
<PAGE>
MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE
ENFORCEABLE."
"Borrowers"
TREESOURCE INDUSTRIES, INC., Debtor and Debtor in Possession
TREESOURCE, INC., Debtor and Debtor in Possession
BURKE LUMBER CO., Debtor and Debtor in Possession
CENTRAL POINT LUMBER CO., Debtor and Debtor in Possession
GLIDE LUMBER PRODUCTS CO., Debtor and Debtor in Possession
MORTON FOREST PRODUCTS CO., Debtor and Debtor in Possession
NORTH POWDER LUMBER CO., Debtor and Debtor in Possession
PACIFIC HARDWOODS-SOUTH BEND CO., Debtor and Debtor in Possession
SPANAWAY LUMBER CO., Debtor and Debtor in Possession
TRASK RIVER LUMBER CO., Debtor and Debtor in Possession
TUMWATER LUMBER CO., Debtor and Debtor in Possession
WESTERN TIMBER CO., Debtor and Debtor in Possession
By:
-----------------------------
Jess R. Drake
President
3
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Security Agreement"),
dated as of October 5, 1999, is made by TREESOURCE INDUSTRIES, INC., an Oregon
corporation, ("TreeSource"), TREESOURCE, INC., an Oregon corporation ("TI"),
BURKE LUMBER CO., an Oregon corporation ("Burke"), CENTRAL POINT LUMBER CO., an
Oregon corporation ("Central"), GLIDE LUMBER PRODUCTS CO., an Oregon corporation
("Glide"), MORTON FOREST PRODUCTS CO., a Washington corporation ("Morton"),
NORTH POWDER LUMBER CO., an Oregon corporation ("North Powder"), PACIFIC
HARDWOODS-SOUTH BEND CO., a Washington corporation ("Pacific Hard"), SPANAWAY
LUMBER CO., a Washington corporation ("Spanaway"), TRASK RIVER LUMBER CO., an
Oregon corporation ("Trask"), TUMWATER LUMBER CO., a Washington corporation
("Tumwater"), and WESTERN TIMBER CO., an Oregon corporation ("Western")
(TreeSource, TI, Burke Central, Glide, Morton, North Powder, Pacific Hard,
Spanaway, Trask, Tumwater, and Western, each as a Debtor and Debtor in
Possession, are collectively referred to herein as "Grantors" and each
individually as a "Grantor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation, as lender ("Lender").
RECITALS
--------
A. Pursuant to that certain Debtor in Possession Credit
Agreement of even date herewith by and among Grantors and Lender (including all
annexes, exhibits and schedules thereto, and as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Credit
Agreement"), Lender has agreed to extend certain financial accommodations to or
for the direct or indirect benefit of Grantors.
B. In order to induce Lender to enter into the Credit
Agreement and the other Loan Documents and to induce Lender to extend the
financial accommodations as provided for in the Credit Agreement, Grantors have
agreed to grant a continuing Lien on the Collateral to secure the Obligations
(each as hereinafter defined). These recitals shall be construed as part of this
Security Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Grantors and
Lender agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized
terms or matters of construction defined or established in Annex A to the Credit
Agreement shall be applied herein as defined or established therein. All other
undefined terms contained in this Security Agreement, unless the context
indicates otherwise, shall have the meanings provided for by the Code to the
extent the same are used or defined therein.
<PAGE>
2. GRANT OF LIEN.
(a) To secure the prompt and complete payment,
performance and observance of all of the Obligations, each Grantor hereby
grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to
Lender, in accordance with Section 364(c) and (d) of the Bankruptcy Code, a Lien
upon all of its right, title and interest in, to and under the following
prepetition and postpetition assets of such Grantor and such Grantor's estate,
whether now owned by or owing to, or hereafter acquired by or arising in favor
of, such Grantor (including under any trade names, styles or derivations of such
Grantor), and whether owned by or consigned by or to, or leased from or to, such
Grantor, and regardless of where located (all of which being hereinafter
collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all Fixtures;
(vii) all Forest Products;
(viii) all General Intangibles;
(ix) all Goods;
(x) all Instruments and letters of credit;
(xi) all Inventory;
(xii) all Investment Property;
(xiii) all Borrower Accounts, all Lock Boxes, all
Concentration Accounts, all Disbursement
Accounts, and all other deposit and other bank
accounts and all deposits therein;
(xiv) all money, cash or cash equivalents of any
Grantor; and to the extent not otherwise
included, all Proceeds and products of the
foregoing and all accessions to, substitutions
and replacements for, and rents and profits of,
each of the foregoing.
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Notwithstanding anything to the contrary contained in this Security Agreement,
the "Collateral" shall not include any Grantor's Avoidance Actions or the
proceeds thereof.
(b) In addition, to secure the prompt and complete
payment, performance and observance of the Obligations and in order to induce
Lender as aforesaid, each Grantor hereby grants to Lender a right of setoff
against the property of such Grantor held by Lender, including all property
described above in Section 2(a) now or hereafter in the possession or custody of
or in transit to Lender, for any purpose, (including safekeeping, collection or
pledge), for the account of such Grantor, or as to which such Grantor may have
any right or power.
(c) The Liens granted by Grantors hereunder or
pursuant to any other Loan Document shall be automatically perfected upon entry
of the Interim Order, or, if the Interim Order is not entered, upon the entry of
the Final Order, without the requirement of any further filings, notices,
recordings or actions of any kind by Lender, any Grantor, or any other Person.
(d) The priority of Lender's Liens on the Collateral
of Grantors shall be set forth in the Interim Order, if any, and the Final
Order.
3. LENDER'S RIGHTS; LIMITATIONS ON LENDER'S OBLIGATIONS.
(a) It is expressly agreed by each Grantor that,
anything herein to the contrary notwithstanding, and except as otherwise
permitted by the Bankruptcy Code, such Grantor shall remain liable under each of
its Contracts and each of its Licenses to observe and perform all the conditions
and obligations to be observed and performed by it thereunder. Lender shall not
have any obligation or liability under any such Contract or License by reason of
or arising out of this Security Agreement or the granting herein of a Lien
thereon or the receipt by Lender of any payment relating to any such Contract or
License pursuant hereto. Lender shall not be required or obligated in any manner
to perform or fulfill any of the obligations of any Grantor under or pursuant to
any such Contract or License, or to make any payment, or to make any inquiry as
to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any such Contract or License,
or to present or file any claims, or to take any action to collect or enforce
any performance or the payment of any amounts that may have been assigned to it
or to which it may be entitled at any time or times.
(b) Lender may, at any time after a Default or an
Event of Default shall have occurred and be continuing, upon approval of the
Bankruptcy Court, notify Account Debtors of such Grantor, parties to the
Contracts of such Grantor and obligors in respect of Instruments and Chattel
Paper of such Grantor, that the Accounts of such Grantor and the right, title
and interest of such Grantor in, to and under such Contracts, Instruments and
Chattel Paper have been assigned to Lender, and that payments shall be made
directly to Lender. Upon the request of Lender, each Grantor shall so notify
such Account Debtors, parties to such Contracts and obligors in respect of such
Instruments and Chattel Paper.
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(c) Without notice to or approval by the Bankruptcy
Court, Lender may at any time in Lender's own name or in the name of any Grantor
communicate with Account Debtors of such Grantor, parties to Contracts of such
Grantor, and obligors in respect of Instruments or Chattel Paper of such Grantor
to verify with such Persons, to Lender's satisfaction, the existence, amount and
terms of any such Accounts, Contracts, Instruments or Chattel Paper. If a
Default or an Event of Default shall have occurred and be continuing, each
Grantor, at its own expense, shall cause the independent certified public
accountants then engaged by such Grantor to prepare and deliver to Lender at any
time and from time to time promptly upon Lender's request, the following reports
with respect to such Grantor: (i) a reconciliation of all Accounts of such
Grantor; (ii) an aging of all such Accounts; (iii) trial balances of such
Accounts; and (iv) test verifications of such Accounts as Lender may request.
Each Grantor, at its own expense, shall deliver to Lender the results of each
physical verification, if any, that such Grantor may in its discretion have
made, or caused any other Person to have made on its behalf, of all or any
portion of its Inventory.
4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants that:
(a) Ownership of Collateral. Such Grantor is the sole
owner of each item of the Collateral upon which it purports to grant a Lien
hereunder, and has good and marketable title thereto free and clear of any and
all Liens other than Permitted Encumbrances.
(b) Filings. No effective security agreement,
financing statement, equivalent security or Lien instrument or continuation
statement covering all or any part of the Collateral is on file or of record in
any public office, except such as may have been filed (i) by such Grantor in
favor of Lender pursuant to this Security Agreement or the other Loan Documents,
or (ii) in connection with any other Permitted Encumbrances.
(c) Liens. This Security Agreement is effective to
create a valid and continuing Lien upon the Collateral. The priority of such
Lien with respect to the Collateral of such Grantor is set forth in the Interim
Order, if any, and the Final Order. Such Lien will at all times be senior to the
rights of any Grantor and any successor trustee or estate representative in the
Chapter 11 Case or any subsequent case or proceedings under the Bankruptcy Code.
Further, any Lien upon the Collateral that is avoided or otherwise preserved for
the benefit of any Grantor?s estate under Section 551 of the Bankruptcy Code
will be subordinate to the Lien of Lender upon the Collateral.
(d) Instruments. Schedule I hereto lists all
Instruments (other than checks received in the ordinary course of business),
letters of credit and Chattel Paper of such Grantor. All action by such Grantor
necessary or desirable to protect and perfect the Lien in favor of Lender on
each item set forth in Schedule I (including the delivery of all originals
thereof to Lender and the legending of all such Chattel Paper as required by
Section 5(b) hereof) has been duly taken. The Lien in favor of Lender on the
Collateral listed in Schedule I hereto is enforceable as such against any and
all creditors of and purchasers from such Grantor. Such Grantor shall, upon
obtaining ownership of any additional Instruments (other than checks received
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in the ordinary course of business), letters of credit or Chattel Paper,
promptly (and in any event within three Business Days) deliver to Lender all
such additional Instruments or Chattel Paper duly endorsed and all such letters
of credit.
(e) Locations of Collateral. Such Grantor's chief
executive office, principal place of business, corporate offices, all warehouses
and premises where any item of Collateral is stored or located, and the
locations of all of its books and records concerning the Collateral are set
forth in Disclosure Schedule (3.2) to the Credit Agreement.
(f) Accounts. With respect to any Account of such
Grantor that is reported as an "Eligible Account," except as specifically
disclosed on the most recent Collateral Report delivered to Lender (i) such
Account represents a bona fide sale of Inventory or rendering of services to the
applicable Account Debtor in the ordinary course of such Grantor's business and
is not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no
setoffs, claims or disputes existing or asserted with respect thereto and such
Grantor has made no agreement with the applicable Account Debtor for any
extension of time for the payment thereof, any compromise or settlement for less
than the full amount thereof, any release of such Account Debtor from liability
therefor, or any deduction therefrom except a discount or allowance allowed by
such Grantor in the ordinary course of its business for prompt payment and
disclosed to Lender; (iii) to such Grantor's knowledge, there are no facts,
events or occurrences that in any way impair the validity or enforceability
thereof or could reasonably be expected to reduce the amount payable thereunder
as shown on such Grantor's books and records and any invoices, statements and
Collateral Reports delivered to Lender with respect thereto; (iv) such Grantor
has received no notice of proceedings or actions that are threatened or pending
against the applicable Account Debtor that might result in any adverse change in
such Account Debtor's financial condition; and (v) such Grantor has no knowledge
that the applicable Account Debtor is unable generally to pay its debts as they
become due. In addition, with respect to any Account of such Grantor that is
reported as an "Eligible Account," (A) the amounts reflected on all records,
invoices, statements and Collateral Reports that may be delivered to the Lender
with respect thereto are actually and absolutely owing to such Grantor as
indicated thereon and are not in any way contingent; (B) no payments have been
or shall be made thereon after the Closing Date except payments made in
accordance with the requirements of Annex C to the Credit Agreement; and (C) to
such Grantor's knowledge, the applicable Account Debtor has the capacity to
contract.
(g) Inventory. With respect to any Inventory of such
Grantor that is reported as "Eligible Inventory," except as specifically
disclosed on the most recent Collateral Report delivered to Lender, (i) such
Inventory is located at one of such Grantor's locations set forth in Disclosure
Schedule (3.2) to the Credit Agreement, (ii) such Inventory is not now, nor
shall at any time or times hereafter be stored at any other location without
Lender's prior written consent, and if Lender provides such consent, such
Grantor will concurrently therewith obtain, to the extent required by the Credit
Agreement, bailee, landlord or mortgagee agreements, as applicable, (iii) such
Grantor has good, indefeasible and merchantable title to such Inventory and such
Inventory is not subject to any Lien or document whatsoever except for the Lien
granted to Lender and except for Permitted Encumbrances, (iv) such Inventory is
of good and merchantable quality, free from any defects, (v) such Inventory is
not subject to any licensing, patent, royalty,
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trademark, trade name or copyright agreements with any third parties that would
require any consent of any third party upon sale or disposition of such
Inventory or the payment of any monies to any third party as a precondition of
such sale or other disposition, and (vi) the completion of manufacture, sale or
other disposition of such Inventory by Lender following an Event of Default
shall not require the consent of any Person and shall not constitute a breach or
default under any Contract or agreement to which such Grantor is a party or to
which such Inventory is subject.
(h) Intellectual Property Collateral. Such Grantor
has no interest in, or title to, any License, Patent, Trademark or Copyright
except as set forth in Schedule II hereto. This Security Agreement is effective
to create a valid and continuing Lien upon the Intellectual Property of such
Grantor. All action by any Grantor necessary or desirable to protect and perfect
the Lien of Lender in each item set forth in Schedule II hereto has been duly
taken; and such Lien is enforceable as such against any and all creditors of and
purchasers from such Grantor.
(i) Survival. The representations and warranties set
forth in this Section 4 shall survive the execution and delivery of this
Security Agreement.
5. COVENANTS. Each Grantor covenants and agrees with
Lender that from and after the date of this Security Agreement and until the
Termination Date:
(a) Further Assurances; Pledge of Instruments. At any
time and from time to time, upon the written request of Lender and at the sole
expense of such Grantor, and without any requirement of notice t or approval of
the Bankruptcy Court, such Grantor shall promptly and duly execute and deliver
any and all such further instruments and documents and take such further actions
as Lender may deem desirable to obtain the full benefits of this Security
Agreement and of the rights and powers herein granted, including (i) using its
best efforts to secure all consents and approvals necessary or appropriate for
the assignment to or for the benefit of Lender of any License or Contract held
by such Grantor or in which such Grantor has any rights not heretofore assigned,
(ii) filing any financing or continuation statements under the Code with respect
to the Liens granted hereunder or under any other Loan Document, (iii)
transferring Collateral to Lender's possession if such Collateral consists of
Chattel Paper, Instruments or letters of credit or if a Lien on such Collateral
can be perfected only by possession, or if otherwise requested by Lender, and
(iv) obtaining, or using its best efforts to obtain, a Control Letter from any
issuer or securities intermediary with respect to Investment Property of such
Grantor, and (v) obtaining, or using its best efforts to obtain, waivers of
Liens, if any exist, from landlords and mortgagees in accordance with the Credit
Agreement. Such Grantor also hereby authorizes Lender to file any such financing
or continuation statements without the signature of such Grantor to the extent
permitted by applicable law. If any amount payable under or in connection with
any of the Collateral is or shall become evidenced by any Instrument, such
Instrument, other than checks and notes received in the ordinary course of
business, shall be duly endorsed in a manner satisfactory to Lender immediately
upon such Grantor's receipt thereof and promptly delivered to Lender.
(b) Maintenance of Books and Records. Such Grantor
shall keep and
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maintain, at its own cost and expense, satisfactory and complete records of each
item of Collateral to which it purports to grant a Lien hereunder, including a
record of any and all payments received and any and all credits granted with
respect to each such item of Collateral and all other dealings with respect to
each such item of Collateral. Such Grantor shall mark its books and records
pertaining to each such item of Collateral to evidence this Security Agreement
and the Liens granted hereby. All Chattel Paper shall be marked with the
following legend: "This writing and the obligations evidenced or secured hereby
are subject to the security interest of General Electric Capital Corporation, as
Lender."
(c) Covenants Regarding Intellectual Property.
(i) Such Grantor shall notify Lender immediately
if it knows or has reason to know (A) that any application or
registration relating to any of its Licenses, Patents, Trademarks or
Copyrights may become abandoned or dedicated, or (B) of any adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States
Patent and Trademark Office, the United States Copyright Office or any
court) regarding such Grantor's ownership of any such License, Patent,
Trademark or Copyright, its right to register the same, or to keep and
maintain the same.
(ii) In no event shall such Grantor, either
directly or through any agent, employee, licensee or designee, file an
application for the registration of any Patent, Trademark or Copyright
with the United States Patent and Trademark Office, the United States
Copyright Office or any similar office or agency without giving Lender
prior written notice thereof, and, upon request of Lender, such Grantor
shall execute and deliver any and all security documents as Lender may
request, including the Patent, Trademark and Copyright Security
Agreement, to evidence Lender's Lien on such Patent, Trademark or
Copyright, and the General Intangibles of such Grantor relating thereto
or represented thereby.
(iii) Such Grantor shall take all actions deemed
necessary by such Grantor or requested by Lender to maintain and pursue
each application, to obtain the relevant registration and to maintain
the registration of each of the Patents, Trademarks and Copyrights,
including the filing of applications for renewal, affidavits of use,
affidavits of noncontestability and opposition and interference and
cancellation proceedings.
(iv) In the event that any of such Grantor's
Intellectual Property is infringed upon, or misappropriated or diluted
by a third party, such Grantor shall notify Lender promptly after such
Grantor learns thereof. Such Grantor shall, unless such Grantor shall
reasonably determine that such Intellectual Property is in no way
material to the conduct of its business or operations, promptly sue
for, and seek recovery of any and all damages resulting from, such
infringement, misappropriation or dilution, and shall take such other
actions as Lender shall deem appropriate under the circumstances to
protect such Intellectual Property.
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(d) Indemnification. In any suit, proceeding or
action brought by Lender relating to any Account, Chattel Paper, Contract,
Document, General Intangible, Investment Property or Instrument of such Grantor
for any sum owing thereunder or to enforce any provision of any such Account,
Chattel Paper, Contract, Document, General Intangible, Investment Property or
Instrument, such Grantor shall save, indemnify and keep Lender harmless from and
against all expense (including reasonable attorneys' fees and expenses), loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by such Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from such Grantor, except to the extent such expense,
loss, or damage is attributable solely to the gross negligence or willful
misconduct of Lender as finally determined by a court of competent jurisdiction.
All such obligations of such Grantor shall be and remain enforceable against and
only against such Grantor and shall not be enforceable against Lender.
(e) Compliance with Terms of Accounts, etc. In all
material respects, except as permitted by the Bankruptcy Code, such Grantor
shall perform and comply with all obligations in respect of its Accounts,
Chattel Paper, Contracts and Licenses and all other agreements to which it is a
party or by which it is bound relating to the Collateral.
(f) Limitation on Liens on Collateral. Such Grantor
shall not create, permit or suffer to exist, and such Grantor shall defend the
Collateral against, and take such other action as is necessary to remove, any
Lien upon the Collateral except Permitted Encumbrances, and shall defend the
right, title and interest of Lender in and to any of such Grantor's rights under
the Collateral against the claims and demands of all Persons.
(g) Limitations on Disposition. Such Grantor shall
not sell, lease, transfer or otherwise dispose of any of the Collateral, or
attempt or contract to do so except as permitted by the Credit Agreement.
(h) Further Identification of Collateral. Such
Grantor shall, if so requested by Lender, furnish to Lender, as often as Lender
requests, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Lender
may reasonably request, all in such detail as Lender may specify.
(i) Notices. Such Grantor shall advise Lender
promptly, in reasonable detail, (i) of any Lien (other than Permitted
Encumbrances) or claim made or asserted against any of the Collateral, and (ii)
of the occurrence of any other event that would have a Material Adverse Effect
on the aggregate value of the Collateral or on the Liens created hereunder or
under any other Loan Document.
6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
On the Closing Date each Grantor shall execute and
deliver to Lender a
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power of attorney (each, a "Power of Attorney") substantially in the form
attached hereto as Exhibit A. The power of attorney granted pursuant to each
Power of Attorney is a power coupled with an interest and shall be irrevocable
until the Termination Date. The powers conferred on Lender under each Power of
Attorney are solely to protect Lender's Liens upon and interests in the
Collateral and shall not impose any duty upon Lender to exercise any such
powers. Lender agrees that (a) it shall not exercise any power or authority
granted under any Power of Attorney unless an Event of Default has occurred and
is continuing, and (b) Lender shall account for any moneys received by Lender in
respect of any foreclosure on or disposition of any of the Collateral pursuant
to any Power of Attorney; provided, that, except as set forth in Section 9,
Lender shall have no duty as to any Collateral, and Lender shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers. NONE OF LENDER OR ITS AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO
ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
7. REMEDIES; RIGHTS UPON DEFAULT.
(a) If any Event of Default shall have occurred and
be continuing, Lender may exercise, upon approval by the Bankruptcy Court:
(i) In addition to all other rights and remedies
granted to it under this Security Agreement, the Credit Agreement, the other
Loan Documents and under any other instrument or agreement securing, evidencing
or relating to any of the Obligations, Lender may exercise all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, each Grantor expressly agrees that in any such event Lender,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified in clause (ii) below of the time and place of
any public or private sale) to or upon such Grantor or any other Person (all and
each of which demands, advertisements and notices are hereby expressly waived to
the maximum extent permitted by the Code and other applicable law), may
immediately enter upon the premises of such Grantor where any Collateral is
located through self-help, without judicial process, without first obtaining a
final judgment or giving such Grantor or any other Person notice and opportunity
for a hearing on Lender's claim or action, and without paying rent to such
Grantor, and may collect, receive, assemble, process, appropriate and realize
upon the Collateral, or any part thereof, and may sell, lease, assign, give an
option or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, or at any exchange, at such prices as it may
deem appropriate, for cash or on credit or for future delivery without
assumption of any credit risk. Lender shall have the right upon any such public
sale or sales and, to the extent permitted by law, upon any such private sale or
sales to purchase the whole or any part of said Collateral so sold, free of any
right or equity of redemption, which equity of redemption each Grantor hereby
releases. Such sales may be adjourned or continued from time to time with or
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without notice. Lender shall have the right to conduct such sales on any
Grantor's premises or elsewhere and shall have the right to use any Grantor's
premises without charge for such sales at such time or times as Lender deems
necessary or advisable.
(ii) Each Grantor further agrees, at Lender's
request, to assemble the Collateral and make it available to Lender at places
that Lender shall select, whether at such Grantor's premises or elsewhere. Until
Lender is able to effect a sale, lease, or other disposition of the Collateral,
Lender shall have the right to hold or use the Collateral, or any part thereof,
to the extent that it deems appropriate for the purpose of preserving the
Collateral or its value or for any other purpose deemed appropriate by Lender.
Lender shall have no obligation to any Grantor to maintain or preserve the
rights of such Grantor as against third parties with respect to Collateral while
Collateral is in the possession of Lender. Lender may, if it so elects, seek the
appointment of a receiver or keeper to take possession of Collateral and to
enforce any of Lender's remedies, with respect to such appointment, without
prior notice or hearing. Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale to the
Obligations as provided in the Credit Agreement, and only after so paying over
such net proceeds, and after the payment by Lender of any other amount required
by any provision of law, need Lender account for the surplus, if any, to any
Grantor. To the maximum extent permitted by applicable law, each Grantor waives
all claims, damages, and demands against Lender arising out of the repossession,
retention or sale of the Collateral except such as arise solely out of the gross
negligence or willful misconduct of Lender as finally determined by a court of
competent jurisdiction. Each Grantor agrees that ten days' prior notice by
Lender of the time and place of any public sale or of the time after which a
private sale may take place is reasonable notification of such matters. Grantors
shall remain liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all Obligations, including
any attorneys' fees or other expenses incurred by Lender to collect such
deficiency.
(b) Except as otherwise specifically provided herein,
each Grantor hereby waives presentment, demand, protest or any notice (to the
maximum extent permitted by applicable law) of any kind in connection with this
Security Agreement or any Collateral.
8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the
purpose of enabling Lender to exercise its rights and remedies under Section 7
hereof (including, without limiting the terms of Section 7 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time or times as
Lender shall be lawfully entitled to exercise such rights and remedies, each
Grantor hereby grants to Lender, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to such Grantor)
to use, license or sublicense any Intellectual Property of such Grantor, and
wherever the same may be located, and including in such license access to all
media in which any of the licensed items may be recorded or stored and to all
computer software and programs used for the compilation or printout thereof.
9. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL.
Lender shall use reasonable care with respect to the Collateral in its
possession or under its control. Lender shall not have any other duty as to any
Collateral in its possession or control or in
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the possession or control of any agent or nominee of Lender, or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto.
10. REINSTATEMENT. This Security Agreement shall remain in
full force and effect and continue to be effective should any Chapter 11 Case be
dismissed, converted to a case under chapter 7 of the Bankruptcy Code or
substantively consolidated with any other bankruptcy case, and shall continue to
be effective or be reinstated, as the case may be, if at any time payment and
performance of the Obligations, or any part thereof, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligee of the Obligations, whether as a "voidable preference,"
"fraudulent transfer," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
11. NOTICES. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other party any communication with respect to this
Security Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be given in the
manner, and deemed received, as provided for in the Credit Agreement.
12. SEVERABILITY. Whenever possible, each provision of this
Security Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement. This Security Agreement is to be read, construed and applied
together with the Credit Agreement and the other Loan Documents, which, taken
together, set forth the complete understanding and agreement of Lender and
Grantors with respect to the matters referred to herein and therein.
13. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing and signed by
Lender and then only to the extent therein set forth. A waiver by Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy that Lender would otherwise have on any future occasion. No
failure by Lender to exercise, nor any delay in exercising, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided hereunder are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by Lender and Grantors.
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14. LIMITATION BY LAW. All rights, remedies and powers
provided in this Security Agreement may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they do not render this Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered or filed under the provisions of any applicable law.
15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section
10 hereof, this Security Agreement shall terminate upon the Termination Date.
16. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of each Grantor hereunder shall be binding upon the successors and
assigns of such Grantor (including any trustee or other estate representative
appointed in such Grantor's Chapter 11 Case or any subsequent bankruptcy case)
and shall, together with the rights and remedies of Lender hereunder, inure to
the benefit of Lender, all future holders of any Instrument evidencing any of
the Obligations and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or Instrument evidencing the Obligations or any portion
thereof or interest therein shall in any manner affect the Lien granted to
Lender hereunder. No Grantor may assign, sell, hypothecate or otherwise transfer
any interest in or obligation under this Security Agreement.
17. COUNTERPARTS. This Security Agreement may be executed in
any number of separate counterparts, each of which shall collectively and
separately constitute one agreement.
18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF OREGON APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISION
THEREOF), AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH GRANTOR
HEREBY CONSENTS AND AGREES THAT THE BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF
WASHINGTON SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE GRANTORS AND LENDER PERTAINING TO THIS SECURITY AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING
TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT
NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR
12
<PAGE>
THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
LENDER. SERVICE OF PROCESS ON ANY GRANTOR OR ANY LENDER IN ANY ACTION ARISING
OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS SHALL BE EFFECTIVE IF SENT TO
SUCH PARTY BY CERTIFIED OR REGISTERED MAIL AT ITS ADDRESS LISTED IN ANNEX H TO
THE CREDIT AGREEMENT.
19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATED HERETO BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE, AMONG LENDER AND
GRANTORS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS SECURITY AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO.
20. SECTION TITLES. The Section titles contained in this
Security Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.
21. NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Security Agreement.
In the event an ambiguity or question of intent or interpretation arises, this
Security Agreement shall be construed as if drafted jointly by the parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any provisions of this Security
Agreement.
22. ADVICE OF COUNSEL. Each of the parties represents to each
other party hereto that it has discussed this Security Agreement (and,
specifically, the provisions of Sections 18 and 19) with its counsel.
23. STATUTE OF FRAUDS. ORAL AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
[Remainder of Page Intentionally Left Blank]
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above.
"Grantors"
TREESOURCE INDUSTRIES, INC., Debtor and Debtor in Possession TREESOURCE, INC.,
Debtor and Debtor in Possession BURKE LUMBER CO., Debtor and Debtor in
Possession CENTRAL POINT LUMBER CO., Debtor and Debtor in Possession GLIDE
LUMBER PRODUCTS CO., Debtor and Debtor in Possession MORTON FOREST PRODUCTS CO.,
Debtor and Debtor in Possession NORTH POWDER LUMBER CO., Debtor and Debtor in
Possession PACIFIC HARDWOODS-SOUTH BEND CO., Debtor and Debtor in Possession
SPANAWAY LUMBER CO., Debtor and Debtor in Possession TRASK RIVER LUMBER CO.,
Debtor and Debtor in Possession TUMWATER LUMBER CO., Debtor and Debtor in
Possession WESTERN TIMBER CO., Debtor and Debtor in Possession
By:
--------------------------
Jess R. Drake
President
"Lender"
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
--------------------------
John Crawford
Duly Authorized Signatory
14
<PAGE>
SCHEDULE I
to
SECURITY AGREEMENT
INSTRUMENTS
AND
CHATTEL PAPER
[to be completed by each Grantor]
<PAGE>
SCHEDULE II
to
SECURITY AGREEMENT
Patents, Trademarks and Copyrights
[to be completed by each Grantor]
<PAGE>
EXHIBIT A
POWER OF ATTORNEY
This Power of Attorney is executed and delivered by
, a corporation, as Debtor and Debtor in
Possession ("Grantor"), to General Electric Capital Corporation, a New York
corporation (hereinafter referred to as "Attorney"), as Lender, pursuant to that
certain Debtor in Possession Credit Agreement dated as of October ,1999 (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "Credit Agreement"), and the other Loan Documents (as defined in
the Credit Agreement). Unless otherwise defined herein, capitalized terms or
matters of construction defined or established in Annex A to the Credit
Agreement shall be applied herein as defined or established therein. No Person
to whom this Power of Attorney is presented, as authority for Attorney to take
any action or actions contemplated hereby, shall inquire into or seek
confirmation from Grantor as to the authority of Attorney to take any action
described below, or as to the existence of or fulfillment of any condition to
this Power of Attorney, which is intended to grant to Attorney unconditionally
the authority to take and perform the actions contemplated herein, and Grantor
irrevocably waives any right to commence any suit or action, in law or equity,
against any Person or entity that acts in reliance upon or acknowledges the
authority granted under this Power of Attorney. The power of attorney granted
hereby is coupled with an interest, and may not be revoked or cancelled by
Grantor without Attorney's written consent.
Subject to the limitations set forth in Sections 6 and 7(a) of
the Security Agreement, the terms of which are incorporated herein by this
reference, Grantor hereby irrevocably constitutes and appoints Attorney (and all
officers, employees or agents designated by Attorney), with full power of
substitution, as Grantor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time in Attorney's discretion,
to take any and all appropriate action and to execute and deliver any and all
documents and Instruments that may be necessary or desirable to accomplish the
purposes of the Loan Documents and, without limiting the generality of the
foregoing, Grantor hereby grants to Attorney the power and right, on behalf of
Grantor, upon approval of the Bankruptcy Court and without notice to or assent
by Grantor, and at any time, to do the following: (a) change the mailing address
of Grantor, open a post office box on behalf of Grantor, open mail for Grantor,
and ask, demand, collect, give acquittances and receipts for, and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, and notices in
connection with any property of Grantor; (b) effect any repairs to any asset of
Grantor, or continue or obtain any insurance and pay all or any part of the
premiums therefor and costs thereof, and make, settle and adjust all claims
under such policies of insurance, and make all determinations and decisions with
respect to such policies; (c) pay or discharge any Taxes, Liens, or other
encumbrances levied or placed on or threatened against Grantor or its property;
(d) defend any suit, action or proceeding brought against Grantor if Grantor
does not defend such suit, action or proceeding or if Attorney believes that
Grantor is not pursuing such defense in a manner that will maximize the recovery
to Attorney, and settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or releases
as Attorney may deem appropriate; (e) file
<PAGE>
or prosecute any claim, litigation, suit or proceeding in any court of competent
jurisdiction or before any arbitrator, or take any other action otherwise deemed
appropriate by Attorney for the purpose of collecting any and all such moneys
due to Grantor whenever payable and to enforce any other right in respect of
Grantor's property; (f) sell, transfer, pledge, make any agreement with respect
to, or otherwise deal with, any property of Grantor, and execute, in connection
with such sale or action, any endorsements, assignments or other instruments of
conveyance or transfer in connection therewith; (g) cause the certified public
accountants then engaged by Grantor to prepare and deliver to Attorney at any
time and from time to time, promptly upon Attorney's request, the following
reports: (i) a reconciliation of all its Accounts, (ii) an aging of all such
Accounts, (iii) trial balances, (iv) test verifications of such Accounts as
Attorney may request, and (v) the results of each physical verification of its
Inventory; (h) communicate in its own name with any party to any Contract of
Grantor with regard to the assignment of the right, title and interest of such
Grantor in, to and under such Contract and other matters relating thereto; (i)
execute, in connection with any sale provided for in any Loan Document, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral and to otherwise direct such sale or resale, all as
though Attorney were the absolute owner of the property of Grantor for all
purposes; and (j) do, at Attorney's option and Grantor's expense, at any time or
from time to time, all acts and other things that Attorney reasonably deems
necessary to perfect, preserve, or realize upon Grantor's property or assets and
Attorney's Liens thereon, all as fully and effectively as Grantor might do.
Grantor hereby ratifies, to the extent permitted by law, all that said Attorney
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney is executed by
Grantor, and Grantor has caused its seal to be affixed pursuant to the authority
of its board of directors this day of October, 1999.
[Grantor]
By:
--------------------------
Title:
------------------------
[Notarization in appropriate form for the state of execution is required.]
<PAGE>
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Agreement") dated as
of October 5, 1999, is made by TREESOURCE INDUSTRIES, INC., an Oregon
corporation ("TreeSource"), TREESOURCE, INC., an Oregon corporation ("TI"),
BURKE LUMBER CO., an Oregon corporation ("Burke"), CENTRAL POINT LUMBER CO., an
Oregon corporation ("Central"), GLIDE LUMBER PRODUCTS CO., an Oregon corporation
("Glide"), MORTON FOREST PRODUCTS CO., a Washington corporation ("Morton"),
NORTH POWDER LUMBER CO., an Oregon corporation ("North Powder"), PACIFIC
HARDWOODS-SOUTH BEND CO., a Washington corporation ("Pacific Hard"), SPANAWAY
LUMBER CO., a Washington corporation ("Spanaway"), TRASK RIVER LUMBER CO., an
Oregon corporation ("Trask"), TUMWATER LUMBER CO., a Washington corporation
("Tumwater"), and WESTERN TIMBER CO., an Oregon corporation ("Western")
(TreeSource, TI, Burke, Central, Glide, Morton, North Powder, Pacific Hard,
Spanaway, Trask, Tumwater, and Western each as a Debtor and Debtor in
Possession, are collectively referred to herein as "Pledgors" and each
individually as a "Pledgor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation, as lender ("Lender").
RECITALS
--------
A. Pursuant to that certain Debtor in Possession Credit
Agreement of even date herewith by and among Pledgors and Lender (including all
annexes, exhibits and schedules thereto, as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
Lender has agreed to extend certain financial accommodations to or for the
direct or indirect benefit of Pledgors.
B. Each Pledgor is the record and beneficial owner of the
shares of Stock listed as owned by it in Part A of Schedule I hereto and the
owner of the promissory notes and other Instruments and the beneficiary of the
letters of credit listed as held by it in Part B of Schedule I hereto.
C. Each Pledgor is either a direct or indirect beneficiary of
the credit facilities made available to Borrowers under the Credit Agreement.
D. In order to induce Lender to extend the financial
accommodations as provided for in the Credit Agreement, each Pledgor has agreed
to pledge the Pledged Collateral as hereinafter defined to Lender in accordance
herewith. These recitals shall be construed as part of this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, each Pledgor and
Lender agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized
terms or matters of construction defined or established in Annex A to the Credit
Agreement shall be applied herein as defined or established therein, and the
following terms shall have (unless otherwise provided
<PAGE>
elsewhere in this Agreement) the following respective meanings (such meanings
being equally applicable to both the singular and plural form of the terms
defined):
"Pledged Collateral" shall have the meaning assigned
to it in Section 2; provided, that in no event shall the Pledged collateral
include the Stock of Burke, Midway, Pacific Soft, Philomath or Sedro.
"Pledged Entity" shall mean an issuer of Pledged
Shares or Pledged Indebtedness.
"Pledged Indebtedness" shall mean the Indebtedness
evidenced by the promissory notes, other Instruments and letters of credit
listed on Part B of Schedule I.
"Pledged Shares" shall mean those shares of Stock
listed in Part A of Schedule I.
"Secured Obligations" shall have the meaning assigned
to it in Section 3.
2. Pledge. As security for the payment and performance of the
Obligations as provided in Section 3 below, each Pledgor hereby pledges and
grants to Lender in accordance with Section 364(c) and (d) of the Bankruptcy
Code a Lien on all of the following prepetition and postpetition assets of such
Pledgor or such Pledgor's estate (collectively, the "Pledged Collateral"):
(a) except for the Stock of Burke, Midway, Pacific
Soft, Philomath and Sedro, the Pledged Shares owned by it and the certificates
representing such Pledged Shares, and all dividends, distributions, cash,
Instruments and other property or Proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such Pledged Shares;
(b) such portion, as determined by Lender as provided
in Section 6(d), of any additional shares of Stock of a Pledged Entity from time
to time acquired by such Pledgor in any manner (which shares shall be deemed to
be part of the Pledged Shares owned by such Pledgor), and the certificates
representing such additional shares, and all dividends, distributions, cash,
Instruments and other property or Proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such Stock;
(c) the Pledged Indebtedness held by it and the
promissory notes, other Instruments and letters of credit evidencing such
Pledged Indebtedness, and all interest, cash, Instruments and other property and
assets from time to time received, receivable or otherwise distributed in
respect of such Pledged Indebtedness; and
(d) all additional Indebtedness arising after the
date hereof and owing to such Pledgor and evidenced by promissory notes, other
Instruments or letters of credit, together with such promissory notes,
Instruments and letters of credit, and all interest, cash, Instruments and other
property and assets from time to time received, receivable or otherwise
distributed in respect of such Pledged Indebtedness.
2
<PAGE>
3. Security for Obligations.
(a) This Agreement secures, and the Pledged
Collateral is security for, the prompt payment in full when due, whether at
stated maturity, by acceleration or otherwise, and performance of the
Obligations, including all obligations of any Pledgor now or hereafter existing
under this Agreement, together with all fees, costs and expenses whether in
connection with collection actions hereunder or otherwise (collectively, the
"Secured Obligations").
(b) The Liens granted by Pledgors hereunder or
pursuant to any other Loan Document shall be automatically perfected upon entry
of the Interim Order, or, if the Interim Order is not entered, upon the entry of
the Final Order, without the requirement of any further filings, notices,
recordings or actions of any kind by Lender, any Pledgor, or any other Person.
(c) The priority of Lender's Liens on the Pledged
Collateral of Pledgors shall be set forth in the Interim Order, if any, and the
Final Order.
4. Delivery of Pledged Collateral. Notwithstanding anything to
the contrary set forth herein, the parties hereto acknowledge and agree that (a)
Prepetition Lenders (or their designee) are holding all the Pledged Collateral
to secure the obligations owing to such Prepetition Lenders, and (b) pursuant to
the terms of the Interim Order and the Final Order, Prepetition Lenders (or
their designee) shall be deemed to act as "bailee in possession" or
"pledgeholder" for Lender with respect to the Pledged Collateral for the
purposes of perfection, and the priority of Lender's and Prepetition Lenders'
Lien upon such Pledged Collateral shall be governed by the terms of the Interim
Order and the Final Order.
5. Representations and Warranties. Each Pledgor represents and
warrants to Lender that:
(a) (i) Such Pledgor is, and at the time of delivery
of the Pledged Shares owned by it to Lender will be, the sole holder of record
and the sole beneficial owner of such Pledged Collateral pledged by it free and
clear of any Lien thereon or affecting the title thereto, except for any Lien
(A) created by this Agreement or the other Loan Documents, or (B) in favor of
Prepetition Lenders, and (ii) such Pledgor is, and at the time of delivery of
the Pledged Indebtedness held by it to Lender will be, the sole owner and holder
of such Pledged Collateral free and clear of any Lien thereon or affecting title
thereto, except for any Lien (A) created by this Agreement or the other Loan
Documents, or (B) in favor of Prepetition Lenders.
(b) (i) All of the Pledged Shares owned by such
Pledgor have been duly authorized, validly issued and are fully paid and
nonassessable, and (ii) the Pledged Indebtedness held by such Pledgor has been
duly authorized, authenticated or issued and delivered by, and constitutes the
legal, valid and binding obligation of, each Pledged Entity issuing same, and no
such Pledged Entity is in default thereunder.
(c) Such Pledgor has the right and requisite
authority to pledge, assign,
3
<PAGE>
transfer, deliver, deposit and set over the Pledged Collateral pledged by such
Pledgor to Lender as provided herein.
(d) None of the Pledged Shares or Pledged
Indebtedness owned or held by such Pledgor has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.
(e) Such Pledgor is the sole owner of the Pledged
Shares pledged by it hereunder and such Pledged Shares are presently represented
by the certificates listed in Part A of Schedule I. As of the date hereof, there
are no existing options, warrants, calls or commitments of any character
whatsoever relating to the Pledged Shares pledged by such Pledgor hereunder.
(f) Except as otherwise set forth in Section 4, no
consent, approval, authorization or other order or other action by, and no
notice to or filing with, any Governmental Authority or any other Person is
required (other than, with respect to clause (i), the Bankruptcy Court) (i) for
the pledge by such Pledgor of the Pledged Collateral owned or held by it
pursuant to this Agreement or for the execution, delivery or performance of this
Agreement by such Pledgor, or (ii) for the exercise by Lender of the voting or
other rights provided for in this Agreement or the remedies in respect of such
Pledged Collateral pursuant to this Agreement, except as may be required in
connection with such disposition by laws affecting the offering and sale of
securities generally.
(g) The pledge, assignment and delivery of the
Pledged Collateral owned or held by it pursuant to this Agreement will create a
valid Lien in favor of Lender upon such Pledged Collateral and the Proceeds
thereof, securing the payment of the Secured Obligations. The priority of such
Lien with respect to the Pledged Collateral of such Pledgor is set forth in the
Interim Order, if any, and the Final Order. Such Lien will at all times be
senior to the rights of any Pledgor and any successor trustee or estate
representative in the Chapter 11 Case or any subsequent case or proceedings
under the Bankruptcy Code. Further, any Lien upon the Pledged Collateral that is
avoided or otherwise preserved for the benefit of any Pledgor?s estate under
Section 551 of the Bankruptcy Code will be subordinate to the Lien of Lender
upon the Pledged Collateral.
(h) This Agreement has been duly authorized, executed
and delivered by such Pledgor and constitutes a legal, valid and binding
obligation of such Pledgor enforceable against such Pledgor in accordance with
its terms.
(i) The Pledged Shares constitute 100% of the issued
and outstanding shares of Stock of each Pledged Entity.
(j) Except as disclosed in Part B of Schedule I, none
of the Pledged Indebtedness held by such Pledgor is subordinated in right of
payment to other Indebtedness (except for the Secured Obligations) or subject to
the terms of an indenture.
The representations and warranties set forth in this Section 5
shall survive the execution and delivery of this Agreement.
4
<PAGE>
6. Covenants. Each Pledgor covenants and agrees that until the
Termination Date:
(a) Without the prior written consent of Lender, such
Pledgor will not sell, assign, transfer, pledge, or otherwise encumber any of
its rights in or to any Pledged Collateral owned or held by it, or any unpaid
dividends, interest or other distributions or payments with respect to such
Pledged Collateral, or grant a Lien on such Pledged Collateral, except as
otherwise expressly permitted by the Credit Agreement;
(b) Such Pledgor will, at its expense, promptly
execute, acknowledge and deliver all such Instruments and deliver letters of
credit and take all such actions as Lender from time to time may request in
order to ensure to Lender the benefits of the Liens upon the Pledged Collateral
owned or held by it intended to be created by this Agreement, including the
filing of any necessary Code financing statements, which may be filed by Lender
with or (to the extent permitted by law) without the signature of such Pledgor,
and will cooperate with Lender, at such Pledgor's expense, in obtaining all
necessary approvals and making all necessary filings under federal, state, local
or foreign law in connection with such Liens or any sale or transfer of such
Pledged Collateral;
(c) Such Pledgor has and will defend the title to the
Pledged Collateral owned or held by it and the Liens of Lender in such Pledged
Collateral against the claim of any Person and will maintain and preserve such
Liens; and
(d) Such Pledgor will, upon obtaining ownership of
any additional Stock, promissory notes or other Instruments or letters of credit
of a Pledged Entity or Stock, promissory notes or other Instruments or letters
of credit otherwise required to be pledged to Lender pursuant to any of the Loan
Documents that does not already constitute Pledged Collateral hereunder,
promptly (and in any event within three Business Days after it acquires any such
additional Stock, notes or other Instruments or letters of credit) deliver to
Lender a Pledge Amendment, duly executed by such Pledgor, in substantially the
form of Schedule II (each, a "Pledge Amendment"), in respect of any such
additional Stock, notes or other Instruments or letters of credit, pursuant to
which such Pledgor shall pledge to Lender all of such additional Stock, notes
and other Instruments and letters of credit. Such Pledgor hereby authorizes
Lender to attach each such Pledge Amendment to this Agreement and agrees that
all Pledged Shares and Pledged Indebtedness listed in any such Pledge Amendment
delivered to Lender shall for all purposes hereunder be considered Pledged
Collateral.
7. Pledgor's Rights. So long as no Default or Event of Default
shall have occurred and be continuing and until written notice shall be given to
any Pledgor in accordance with Section 8(a):
(a) Each Pledgor shall have the right, from time to
time, to vote and give consents with respect to the Pledged Collateral pledged
by it hereunder or any part thereof for all purposes not inconsistent with the
provisions of this Agreement, the Credit Agreement or any other Loan Document;
provided, that no vote shall be cast, and no consent shall be given or action
taken, that would have the effect of impairing the position or interest of
Lender in respect of the Pledged Collateral or that would authorize, effect or
consent to (unless and to the extent
5
<PAGE>
expressly permitted by the Credit Agreement):
(i) the dissolution or liquidation, in whole or
in part, of a Pledged Entity;
(ii) the consolidation or merger of a Pledged
Entity with any other Person;
(iii) the sale, disposition or encumbrance of all
or substantially all of the assets of a Pledged Entity, except for
Liens in favor of Lender;
(iv) any change in the authorized number of
shares, the stated capital or the authorized share capital of a Pledged
Entity or the issuance of any additional shares of its Stock; or
(v) the alteration of the voting rights with
respect to the Stock of a Pledged Entity.
(b) Each Pledgor shall be entitled, from time to
time, to collect and receive for its own use all cash dividends and interest
paid in respect of the Pledged Shares and Pledged Indebtedness pledged by it
hereunder to the extent not in violation of the Credit Agreement, except for any
and all: (i) dividends and interest paid or payable other than in cash in
respect of any such Pledged Collateral, Instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any such
Pledged Collateral; (ii) dividends and other distributions paid or payable in
cash in respect of any such Pledged Shares in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in capital of a Pledged Entity; and (iii) cash paid, payable or
otherwise distributed in respect of principal of, or in redemption of, or in
exchange for, any such Pledged Collateral; provided, that until actually paid
all rights to such distributions shall remain subject to the Lien in favor of
Lender created by this Agreement and the other Loan Documents.
(c) All dividends and interest (other than such cash
dividends and interest as are permitted to be paid to each Pledgor in accordance
with clause (b) above) and all other distributions in respect of any of the
Pledged Shares or Pledged Indebtedness, whenever paid or made, shall be
delivered to Lender to hold as Pledged Collateral and shall, if received by such
Pledgor, be received in trust for the benefit of Lender, be segregated from the
other property or funds of such Pledgor, and be forthwith delivered to Lender as
Pledged Collateral in the same form as so received (with any necessary
indorsements).
8. Defaults and Remedies; Proxy.
(a) Upon the occurrence and during the continuation
of any Event of Default, and upon approval by the Bankruptcy Court, Lender
(personally or through an agent) is hereby authorized and empowered to transfer
and register in its name or in the name of its nominee the whole or any part of
the Pledged Collateral pledged by such Pledgor hereunder, to exchange
certificates or Instruments representing or evidencing such Pledged Collateral
for certificates or Instruments of smaller or larger denominations, to exercise
the voting and all other
6
<PAGE>
rights as a holder with respect thereto, to collect and receive all cash
dividends, interest, principal and other distributions made thereon, to sell in
one or more sales after ten days' notice of the time and place of any public
sale or of the time at which a private sale is to take place (which notice such
Pledgor agrees is commercially reasonable) the whole or any part of such Pledged
Collateral and to otherwise act with respect to such Pledged Collateral as
though Lender were the outright owner thereof. Any sale shall be made at a
public or private sale at Lender's place of business, or at any place to be
named in the notice of sale, either for cash or upon credit or for future
delivery at such price as Lender may deem fair, and Lender may be the purchaser
of the whole or any part of such Pledged Collateral so sold and hold the same
thereafter in its own right free from any claim of any Pledgor or any right of
redemption. Each sale shall be made to the highest bidder, but Lender reserves
the right to reject any and all bids at such sale that, in its discretion, it
shall deem inadequate. Demands of performance, except as otherwise herein
specifically provided for, notices of sale, advertisements and the presence of
property at sale are hereby waived and any sale hereunder may be conducted by an
auctioneer or any officer or agent of Lender. EACH PLEDGOR HEREBY IRREVOCABLY
CONSTITUTES AND APPOINTS LENDER AS THE PROXY AND ATTORNEY-IN-FACT OF SUCH
PLEDGOR WITH RESPECT TO THE PLEDGED COLLATERAL PLEDGED BY SUCH PLEDGOR
HEREUNDER, INCLUDING THE RIGHT TO VOTE THE PLEDGED SHARES OF SUCH PLEDGOR, WITH
FULL POWER OF SUBSTITUTION TO DO SO. THE APPOINTMENT OF LENDER AS PROXY AND
ATTORNEY-IN-FACT IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE
TERMINATION DATE. IN ADDITION TO THE RIGHT TO VOTE THE PLEDGED SHARES OF SUCH
PLEDGOR, THE APPOINTMENT OF LENDER AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE
THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH
A HOLDER OF SUCH PLEDGED SHARES WOULD BE ENTITLED (INCLUDING GIVING OR
WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF
SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE,
AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF
SUCH PLEDGED SHARES ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON
(INCLUDING THE ISSUER OF SUCH PLEDGED SHARES OR ANY OFFICER OR AGENT THEREOF),
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT AND UPON APPROVAL OF THE BANKRUPTCY
COURT. NOTWITHSTANDING THE FOREGOING, LENDER SHALL NOT HAVE ANY DUTY TO EXERCISE
ANY SUCH RIGHT OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE
TO DO SO OR FOR ANY DELAY IN DOING SO.
(b) If, at the original time or times appointed for
the sale of the whole or any part of the Pledged Collateral pledged by any
Pledgor hereunder, (i) the highest bid, if there is but one sale, shall be
inadequate to discharge in full all the Secured Obligations, or (ii) such
Pledged Collateral is offered for sale in lots, the highest bid for the lot
offered for sale at any of such sales would indicate to Lender, in its
discretion, that the proceeds of the sales of the whole of such Pledged
Collateral would be unlikely to be sufficient to discharge all the Secured
Obligations, then Lender may, on one or more occasions and in its discretion,
postpone any of said sales by public announcement at the time of sale or the
time of previous postponement of sale, and no other notice of such postponement
or postponements of sale need be given, any other notice being hereby waived;
provided, that any sale or sales made after such postponement shall
7
<PAGE>
be after ten days' notice to such Pledgor.
(c) If, following the occurrence and during the
continuance of an Event of Default, Lender in its sole discretion determines
that, in connection with any actual or contemplated exercise of its rights (when
permitted under this Section 8) to sell the whole or any part of the Pledged
Collateral hereunder, it is necessary or advisable to effect a public
registration of all or part of the Pledged Collateral pursuant to the Securities
Act (or any similar statute), then each Pledgor shall, in an expeditious manner,
cause the Pledged Entity that issued Pledged Collateral owned or held by it to:
(i) Prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement with
respect to the Pledged Shares owned by it and in good faith use
commercially reasonable efforts to cause such registration statement to
become and remain effective;
(ii) Prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of
the Pledged Shares covered by such registration statement whenever
Lender shall desire to sell or otherwise dispose of such Pledged
Shares;
(iii) Furnish to Lender such numbers of copies of
a prospectus and a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as Lender
may request in order to facilitate the public sale or other disposition
by Lender of the Pledged Shares owned by it;
(iv) Use commercially reasonable efforts to
register or qualify the Pledged Shares covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions within the United States and Puerto Rico as Lender shall
request, and do such other reasonable acts and things as may be
required of it to enable Lender to consummate the public sale or other
disposition by Lender in such jurisdictions of such Pledged Shares by
Lender;
(v) Furnish, at the request of Lender, on the
date that Pledged Shares owned or held by it are delivered to the
underwriters for sale pursuant to such registration or, if the security
is not being sold through underwriters, on the date that the
registration statement with respect to such Pledged Shares becomes
effective, (A) an opinion, dated such date, of the independent counsel
representing such registrant for the purposes of such registration,
addressed to the underwriters, if any, and in the event such Pledged
Shares are not being sold through underwriters, then to Lender, in
customary form and covering matters of the type customarily covered in
such legal opinions; and (B) a comfort letter, dated such date, from
the independent certified public accountants of such registrant,
addressed to the underwriters, if any, and in the event such Pledged
Shares are not being sold through underwriters, then to Lender, in a
customary form and covering matters of the type customarily covered by
such comfort letters and as the underwriters or Lender shall reasonably
request. The opinion of counsel referred to above shall
8
<PAGE>
additionally cover such other legal matters with respect to the
registration in respect of which such opinion is being given as Lender
may reasonably request. The comfort letter referred to above from the
independent certified public accountants shall additionally cover such
other financial matters (including information as to the period ending
not more than five Business Days prior to the date of such letter) with
respect to the registration in respect of which such letter is being
given as Lender may reasonably request; and
(vi) Otherwise use commercially reasonable
efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable but not later than 18 months after the effective
date of such registration statement, an earnings statement covering the
period of at least 12 months beginning with the first full month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(d) All expenses incurred in complying with Section
8(c), including all registration and filing fees (including all expenses
incident to filing with the National Association of Securities Dealers, Inc.),
printing expenses, fees and disbursements of counsel for the registrant, the
fees and expenses of counsel for Lender, expenses of the independent certified
public accountants (including any special audits incident to or required by any
such registration) and expenses of complying with the securities or blue sky
laws of any jurisdictions, shall be paid by Pledgors.
(e) If, at any time when Lender shall determine to
exercise its right to sell the whole or any part of the Pledged Collateral
hereunder, such Pledged Collateral or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act (or
any similar statute), then Lender may, in its discretion (subject only to
applicable requirements of law), sell such Pledged Collateral or part thereof by
private sale in such manner and under such circumstances as Lender may deem
necessary or advisable, but subject to the other requirements of this Section 8,
and shall not be required to effect such registration or to cause the same to be
effected. Without limiting the generality of the foregoing, in any such event,
Lender in its discretion may (i) in accordance with applicable securities laws
proceed to make such private sale notwithstanding that a registration statement
for the purpose of registering such Pledged Collateral or part thereof could be
or shall have been filed under the Securities Act (or similar statute), (ii)
approach and negotiate with a single possible purchaser to effect such sale, and
(iii) restrict such sale to a purchaser who is an accredited investor under the
Securities Act and who will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such Pledged Collateral or any part thereof. In addition
to a private sale as provided above in this Section 8, if any of the Pledged
Collateral shall not be freely distributable to the public without registration
under the Securities Act (or similar statute) at the time of any proposed sale
pursuant to this Section 8, then Lender shall not be required to effect such
registration or cause the same to be effected but, in its discretion (subject
only to applicable requirements of law), may require that any sale hereunder
(including a sale at auction) be conducted subject to restrictions:
(i) as to the financial sophistication and
ability of any Person permitted to bid or purchase at any such sale;
9
<PAGE>
(ii) as to the content of legends to be placed
upon any certificates representing the Pledged Collateral sold in such
sale, including restrictions on future transfer thereof;
(iii) as to the representations required to be
made by each Person bidding or purchasing at such sale relating to such
Person's access to financial information about such Pledgor and such
Person's intentions as to the holding of the Pledged Collateral so sold
for investment for its own account and not with a view to the
distribution thereof; and
(iv) as to such other matters as Lender may, in
its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in
compliance with the Bankruptcy Code and other laws affecting the
enforcement of creditors' rights and the Securities Act and all
applicable state securities laws.
(f) Each Pledgor recognizes that Lender may be unable
to effect a public sale of any or all the Pledged Collateral and may be
compelled to resort to one or more private sales thereof in accordance with
clause (e) above. Each Pledgor also acknowledges that any such private sale may
result in prices and other terms less favorable to the seller than if such sale
were a public sale and, notwithstanding such circumstances, agrees that any such
private sale shall not be deemed to have been made in a commercially
unreasonable manner solely by virtue of such sale being private. Lender shall be
under no obligation to delay a sale of any of the Pledged Collateral for the
period of time necessary to permit the applicable Pledged Entity to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if the Pledgor owning or holding such Pledged
Collateral and the Pledged Entity would agree to do so.
(g) Each Pledgor agrees to the maximum extent
permitted by applicable law that following the occurrence and during the
continuance of an Event of Default it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any part of
the Pledged Collateral or the possession thereof by any purchaser at any sale
hereunder, and each Pledgor waives the benefit of all such laws to the extent it
lawfully may do so. Each Pledgor agrees that it will not interfere with any
right, power or remedy of Lender provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, or the
exercise or beginning of the exercise by Lender of any one or more of such
rights, powers or remedies. No failure or delay on the part of Lender to
exercise any such right, power or remedy and no notice or demand that may be
given to or made upon any Pledgor by Lender with respect to any such remedies
shall operate as a waiver thereof, or limit or impair Lender's right to take any
action or to exercise any power or remedy hereunder, without notice or demand,
or prejudice its rights as against any Pledgor in any respect.
(h) Each Pledgor further agrees that a breach of any
of the covenants contained in this Section 8 will cause irreparable injury to
Lender, that Lender shall have no
10
<PAGE>
adequate remedy at law in respect of such breach and, as a consequence, agrees
that each and every covenant contained in this Section 8 shall be specifically
enforceable against such Pledgor, and each Pledgor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that the Secured Obligations are not then due and
payable in accordance with the agreements and Instruments governing and
evidencing the Secured Obligations.
9. Waiver. No delay on Lender's part in exercising any power
of sale, Lien, option or other right hereunder, and no notice or demand that may
be given to or made upon any Pledgor by Lender with respect to any power of
sale, Lien, option or other right hereunder, shall constitute a waiver thereof,
or limit or impair Lender's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Lender's rights as against any Pledgor in any respect.
10. Assignment. Lender may assign, indorse or transfer any
Instrument evidencing all or any part of the Secured Obligations as provided in,
and in accordance with, the Credit Agreement, and the holder of such Instrument
shall be entitled to the benefits of this Agreement.
11. Termination. Immediately following the Termination Date,
Lender shall deliver to each Pledgor (as the case may be) the Pledged Collateral
pledged by such Pledgor at the time subject to this Agreement and all
instruments of assignment executed in connection therewith, free and clear of
the Liens created in favor of Lender under this Agreement and the other Loan
Documents and, except as otherwise provided herein, all of such Pledgor's
obligations hereunder shall at such time terminate.
12. Lien Absolute. All rights of Lender hereunder, and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the
Credit Agreement, any other Loan Document or any other agreement or Instrument
governing or evidencing any Secured Obligations;
(b) any change in the time, manner or place of
payment of, or in any other term of, all or any part of the Secured Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or Instrument
governing or evidencing any Secured Obligations;
(c) any exchange, release or non-perfection of any
other Collateral or any release or amendment or waiver of, or consent to
departure from any guaranty for, all or any of the Secured Obligations;
(d) the insolvency of any Pledgor; or
(e) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, such Pledgor.
11
<PAGE>
13. Release. Each Pledgor consents and agrees that Lender may
at any time, or from time to time, in its discretion:
(a) renew, extend or change the time of payment of,
or the manner, place or terms of payment of, all or any part of the Secured
Obligations; and
(b) exchange, release or surrender all or any of the
Collateral (including the Pledged Collateral), or any part thereof, by
whomsoever deposited, that is now or may hereafter be held by Lender in
connection with all or any of the Secured Obligations; all in such manner and
upon such terms as Lender may deem proper, and without notice to or further
assent from such Pledgor, it being hereby agreed that such Pledgor shall be and
remain bound by this Agreement irrespective of the value or condition of any of
the Collateral and notwithstanding any such change, exchange, settlement,
compromise, surrender, release, renewal or extension, and notwithstanding also
that the Secured Obligations may, at any time, exceed the aggregate principal
amount thereof set forth in the Credit Agreement or any other agreement
governing any Secured Obligations. Each Pledgor hereby waives notice of
acceptance of this Agreement, presentment, demand, protest and notice of
dishonor of any and all of the Secured Obligations, and any delay by Lender in
commencing suit against any party hereto or Person liable hereon, and in giving
any notice to or of making any claim or demand hereunder upon such Pledgor. No
act or omission of any kind on Lender's part shall in any event affect or impair
this Agreement.
14. Reinstatement. This Agreement shall remain in full force
and effect and continue to be effective should any Chapter 11 Case be dismissed,
converted to a case under chapter 7 of the Bankruptcy Code or substantively
consolidated with any other bankruptcy case, and shall continue to be effective
or be reinstated, as the case may be, if at any time payment and performance of
the Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a "voidable preference,"
"fraudulent transfer," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
15. Miscellaneous.
(a) Lender may execute any of its duties hereunder by
or through agents or employees and shall be entitled to advice of counsel
concerning all matters pertaining to its duties hereunder.
(b) Each Pledgor agrees to promptly reimburse Lender
for actual out-of-pocket expenses, including reasonable counsel fees, incurred
by Lender in connection with the administration and enforcement of this
Agreement.
(c) Neither Lender nor any of its respective
officers, directors, employees, agents or counsel shall be liable for any action
lawfully taken or omitted to be taken by it or them hereunder or in connection
herewith, except for its or their own gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
12
<PAGE>
(d) THIS AGREEMENT SHALL BE BINDING UPON EACH PLEDGOR
AND ITS SUCCESSORS AND ASSIGNS (INCLUDING ANY TRUSTEE OR ESTATE REPRESENTATIVE
APPOINTED IN SUCH PLEDGOR'S CHAPTER 11 CASE OR ANY SUBSEQUENT BANKRUPTCY CASE),
AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, LENDER AND ITS
SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF OREGON APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE CONFLICT OF LAW PROVISION
THEREOF), AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH PLEDGOR
HEREBY CONSENTS AND AGREES THAT THE BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF
WASHINGTON SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE PLEDGORS AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, EXCEPT THE REQUIREMENT
OF SECTION 8(a) THAT LENDER OBTAIN THE APPROVAL OF THE BANKRUPTCY COURT, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE PLEDGED COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. SERVICE OF PROCESS
ON ANY PLEDGOR OR LENDER IN ANY ACTION ARISING OUT OF OR RELATING TO ANY OF THE
LOAN DOCUMENTS SHALL BE EFFECTIVE IF SENT TO SUCH PARTY BY CERTIFIED OR
REGISTERED MAIL AT ITS ADDRESS LISTED IN ANNEX H TO THE CREDIT AGREEMENT. NONE
OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR
AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF LENDER AND EACH
PLEDGOR.
16. Severability. If for any reason any provision or
provisions hereof are determined to be invalid and contrary to any existing or
future law, such invalidity shall not impair the operation of or affect those
portions of this Agreement that are valid.
17. Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other party any communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in the Credit Agreement.
18. Section Titles. The section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
19. Counterparts. This Agreement may be executed in any number
of
13
<PAGE>
counterparts, which shall, collectively and separately, constitute one
agreement.
20. Benefit of Lenders. All Liens granted or contemplated
hereby shall be for the benefit of Lender, and all proceeds or payments realized
from the Pledged Collateral in accordance herewith shall be applied to the
Obligations in accordance with the terms of the Credit Agreement.
21. STATUTE OF FRAUDS. ORAL AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
[Remainder of Page Intentionally Left Blank]
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed as of the date first written above.
"Pledgors"
TREESOURCE INDUSTRIES, INC., Debtor and Debtor in Possession
TREESOURCE, INC., Debtor and Debtor in Possession
BURKE LUMBER CO., Debtor and Debtor in Possession
CENTRAL POINT LUMBER CO., Debtor and Debtor in Possession
GLIDE LUMBER PRODUCTS CO., Debtor and Debtor in Possession
MORTON FOREST PRODUCTS CO., Debtor and Debtor in Possession
NORTH POWDER LUMBER CO., Debtor and Debtor in Possession
PACIFIC HARDWOODS-SOUTH BEND CO., Debtor and Debtor in Possession
SPANAWAY LUMBER CO., Debtor and Debtor in Possession
TRASK RIVER LUMBER CO., Debtor and Debtor in Possession
TUMWATER LUMBER CO., Debtor and Debtor in Possession
WESTERN TIMBER CO., Debtor and Debtor in Possession
By:
--------------------------------
Jess R. Drake
President
"Lender"
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
--------------------------------
John Crawford
Duly Authorized Signatory
<PAGE>
<TABLE>
SCHEDULE I
----------
PART A
------
PLEDGED SHARES
<S> <C> <C> <C> <C>
- ---------------------------- ----------------- ------------------- ----------- ---------------
Pledged Entity Class Stock Certificate Number Percentage of
of Stock Number(s) of Shares Outstanding
Shares
- ---------------------------- ----------------- ------------------- ----------- ---------------
100%
- ---------------------------- ----------------- ------------------- ----------- ---------------
100%
- ---------------------------- ----------------- ------------------- ----------- ---------------
100%
- ---------------------------- ----------------- ------------------- ----------- ---------------
100%
- ---------------------------- ----------------- ------------------- ----------- ---------------
100%
- ---------------------------- ----------------- ------------------- ----------- ---------------
100%
- ---------------------------- ----------------- ------------------- ----------- ---------------
</TABLE>
<TABLE>
PART B
------
PLEDGED INDEBTEDNESS
<S> <C> <C> <C> <C>
- ------------------------------ ----------------------- ---------------- ---------------- ----------------
Pledged Entity Initial Issue Date Maturity Date Interest Rate
Principal Amount
- ------------------------------ ----------------------- ---------------- ---------------- ----------------
- ------------------------------ ----------------------- ---------------- ---------------- ----------------
- ------------------------------ ----------------------- ---------------- ---------------- ----------------
- ------------------------------ ----------------------- ---------------- ---------------- ----------------
- ------------------------------ ----------------------- ---------------- ---------------- ----------------
</TABLE>
<PAGE>
SCHEDULE II
-----------
PLEDGE AMENDMENT
This Pledge Amendment, dated as of , is
delivered pursuant to Section 6(d) of the Pledge Agreement referred to below.
All defined terms herein shall have the meanings assigned thereto or
incorporated by reference in the Pledge Agreement. The undersigned hereby
certifies that the representations and warranties in Section 5 of the Pledge
Agreement are and continue to be true and correct, both as to the promissory
notes, other Instruments and shares pledged prior to this Pledge Amendment and
as to the promissory notes, other Instruments and shares pledged pursuant to
this Pledge Amendment. The undersigned further agrees that this Pledge Amendment
may be attached to that certain Pledge Agreement dated as of October 5, 1999
(the "Pledge Agreement"), by and among TreeSource Industries, Inc., TreeSource,
Inc., Burke Lumber Co., Central Point Lumber Co., Glide Lumber Products Co.,
Morton Forest Products Co., North Powder Lumber Co., Pacific Hardwoods-South
Bend Co., Spanaway Lumber Co., Trask River Lumber Co., Tumwater Lumber Co., and
Western Timber Co., each as a Debtor and Debtor in Possession, as Pledgors, and
General Electric Capital Corporation, as Lender, and that the Pledged Shares and
Pledged Indebtedness listed in this Pledge Amendment shall be and become a part
of the Pledged Collateral referred to in the Pledge Agreement and shall secure
all Secured Obligations referred to in the Pledge Agreement. The undersigned
acknowledges that any promissory notes, other Instruments or shares not included
in the Pledged Collateral at the discretion of Lender may not otherwise be
pledged by Pledgor to any other Person or otherwise be used as security for any
obligations other than the Secured Obligations.
"Pledgor"
-----------------------
By:
-------------------
Name:
------------------
Title:
-----------------
Name and Class of Certificate Number
Address of Pledgor Pledged Entity Stock Number(s) of Shares
- ------------------ -------------- -------- ----------- ---------
Initial Issue Maturity
Pledged Entity Principal Amount Date Date Interest Rate
- -------------- ---------------- ----- -------- -------------
<PAGE>
PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
--------------------------------------------------
THIS PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "Agreement"), dated as of October 5, 1999, is made by TREESOURCE
INDUSTRIES, INC., an Oregon corporation, ("TreeSource"), TREESOURCE, INC., an
Oregon corporation ("TI"), BURKE LUMBER CO., an Oregon corporation ("Burke"),
CENTRAL POINT LUMBER CO., an Oregon corporation ("Central"), GLIDE LUMBER
PRODUCTS CO., an Oregon corporation ("Glide"), MORTON FOREST PRODUCTS CO., a
Washington corporation ("Morton"), NORTH POWDER LUMBER CO., an Oregon
corporation ("North Powder"), PACIFIC HARDWOODS-SOUTH BEND CO., a Washington
corporation ("Pacific Hard"), SPANAWAY LUMBER CO., a Washington corporation
("Spanaway"), TRASK RIVER LUMBER CO., an Oregon corporation ("Trask"), TUMWATER
LUMBER CO., a Washington corporation ("Tumwater"), and Western Timber Co.
("Western") (TreeSource, TI, Burke, Central, Glide, Morton, North Powder,
Pacific Hard, Spanaway, Trask, Tumwater, and Western, each as a Debtor and
Debtor in Possession are collectively referred to herein as "Grantors" and each
individually as a "Grantor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation, as lender ("Lender").
RECITALS
--------
A. Pursuant to that certain Debtor in Possession Credit
Agreement of even date herewith by and among Grantors and Lender (including all
annexes, exhibits and schedules thereto, and as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Credit
Agreement"), Lender has agreed to extend certain financial accommodations to or
for the direct or indirect benefit of Grantors.
B. In order to induce Lender to enter into the Credit
Agreement and the other Loan Documents and to induce Lender to extend the
financial accommodations as provided for in the Credit Agreement, Grantors have
agreed to execute and deliver to Lender that certain Security Agreement of even
date herewith made by Grantors in favor of Lender (as amended, restated,
supplemented or otherwise modified from time to time, the "Security Agreement").
C. Pursuant to the Security Agreement, Grantors are required
to execute and deliver to Lender this Patent, Trademark and Copyright Security
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantors and Lender
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms or
matters of construction defined or established in Annex A to the Credit
Agreement shall be applied herein as defined or established therein. All other
undefined terms contained in this Agreement, unless the context indicates
otherwise, shall have the meanings provided for by the Code to the extent the
same are used or defined therein.
2. Grant of Security Interest in Intellectual Property Collateral. To
secure the prompt and complete payment, performance and observance of all of the
Obligations, each Grantor hereby grants, assigns, conveys, mortgages, pledges,
hypothecates and transfers to Lender in accordance with Section
<PAGE>
364(c) and (d) of the Bankruptcy Code a Lien upon all its right, title and
interest in, to and under the following prepetition and postpetition assets of
such Grantor or such Grantor's estate, whether now owned by or owing to, or
hereafter acquired by or arising in favor of, such Grantor (including under any
trade names, styles or derivations or such Grantor), and whether owned by or
consigned by or to, or leased from or to, such Grantor, and regardless of where
located (collectively, the "Intellectual Property Collateral"):
(a) all of such Grantor's Patents and Patent Licenses to which
it is a party, including those referred to in Part A to Schedule I hereto;
(b) all of such Grantor's Trademarks and Trademark Licenses to
which it is a party, including those referred to in Part B to Schedule I hereto;
(c) all of such Grantor's Copyrights and Copyright Licenses to
which it is a party, including those referred to in Part C to Schedule I hereto;
(d) all Goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and other
General Intangibles with respect to the foregoing; and
(e) all Proceeds of the foregoing, including (i) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to any Person
from time to time with respect to any of the foregoing, (ii) any and all
payments (in any form whatsoever) made or due and payable to any Person from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the foregoing by any Governmental
Authority (or any Person acting under color of Governmental Authority), (iii)
any claim of any Person against third parties for (A) past, present or future
infringement of any Patent or Patent License, (B) past, present or future
infringement of any Copyright or Copyright License, (C) past, present or future
infringement or dilution of any Trademark or Trademark License, or (D) injury to
the Goodwill associated with any Trademark or Trademark Licence, (iv) any
recoveries by any Person against third parties with respect to any litigation or
dispute concerning any of the foregoing, and (v) any and all other amounts from
time to time paid or payable under or in connection with any of the foregoing,
upon disposition or otherwise.
3. Security Agreement. The Lien granted pursuant to this Agreement is
granted in conjunction with the Liens granted to Lender pursuant to the Security
Agreement. Each Grantor hereby acknowledges and affirms that the rights and
remedies of Lender with respect to the Liens granted under this Agreement are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
4. STATUTE OF FRAUDS. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Patent,
Trademark and Copyright Security Agreement as of the date first set forth above.
"Grantors"
TREESOURCE INDUSTRIES, INC., Debtor and Debtor in Possession
TREESOURCE, INC., Debtor and Debtor in Possession
BURKE LUMBER CO., Debtor and Debtor in Possession
CENTRAL POINT LUMBER CO., Debtor and Debtor in Possession
GLIDE LUMBER PRODUCTS CO., Debtor and Debtor in Possession
MORTON FOREST PRODUCTS CO., Debtor and Debtor in Possession
NORTH POWDER LUMBER CO., Debtor and Debtor in Possession
PACIFIC HARDWOODS-SOUTH BEND CO., Debtor and Debtor in Possession
SPANAWAY LUMBER CO., Debtor and Debtor in Possession
TRASK RIVER LUMBER CO., Debtor and Debtor in Possession
TUMWATER LUMBER CO., Debtor and Debtor in Possession
WESTERN TIMBER CO., Debtor and Debtor in Possession
By:
------------------------------
Jess R. Drake
President
"Lender"
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
------------------------------
John Crawford
Duly Authorized Signatory
3
<PAGE>
SCHEDULE I
----------
to
PATENT, TRADEMARK AND
COPYRIGHT SECURITY AGREEMENT
[to be completed by each Grantor]
(PART A)
--------
PATENTS
(PART B)
--------
TRADEMARKS
(PART C)
--------
COPYRIGHTS
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED JULY 31, 1999 AND IS QUALIFIED
IN ITS ENTRY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 2,971
<SECURITIES> 0
<RECEIVABLES> 11,249
<ALLOWANCES> 0
<INVENTORY> 16,734
<CURRENT-ASSETS> 46,962
<PP&E> 57,172
<DEPRECIATION> 42,646
<TOTAL-ASSETS> 62,155
<CURRENT-LIABILITIES> 12,881
<BONDS> 190
0
21,021
<COMMON> 28,761
<OTHER-SE> (51,992)
<TOTAL-LIABILITY-AND-EQUITY> 62,155
<SALES> 126,601
<TOTAL-REVENUES> 126,601
<CGS> 112,991
<TOTAL-COSTS> 112,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,832
<INCOME-PRETAX> 5,721
<INCOME-TAX> 100
<INCOME-CONTINUING> 5,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,621
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.49
</TABLE>
